Monday, October 30, 2006


Some interesting numbers to ponder over the next time you hear a story about the Federal Reserve or its chairman, Ben Bernanke. (Due to some unknown HTML artifact, you may have to scroll down some white space to see the rest of this post)

United States GDP$12.49 trillionsource
Market capitalization of companies listed on the NYSE$21 trillionsource
Money supply (M2) in the US as of August 2004$9.26 trillionsource
Total assets held by the Federal Reserve Banks, which supposedly control the US economy (FY2005)$0.065 trillion source

For insight into the miniscule size of the Federal Reserve Bank, I am thankful to Dr John Hussman of Hussman Econometrics and manager of the Hussman Funds.

Sunday, October 29, 2006

Democracy, Thy Name is Chaos!

Oh what a runup to the mid-terms it has been. You have liberals potraying Bush as the devil, and conservatives potraying Nancy Pelosi as ... the devil! You have liberals embracing a Reagan Republican in Jim Webb and a self-proclaimed "Jesus-loving gun-carrying" congressman in Harold Ford, Jr and the conservatives embracing a stem-cell bill they voted against! It's an anything goes environment, where Republicans point out correctly that for all his Jesus antics, Ford is on the guest list at the Playboy mansion, while also fudge the truth by running an ad claiming that a Democrat used taxpayer money to dial a phone-sex line, while it has been proven that it was an accidental misdial. And then in my own state, Jim Webb, whose writings range from the completely acceptable Sidney Sheldon-esque sexual content, to the much more disturbing writings involving dads and sons, and moms and sons in sexual encounters. But due Republicans have a limb to stand on, given that Dick Cheney's former chief of staff, "Scooter" Libby is himself the purveyor of sexual literature, including pedophilia?

In all this chaos, the one thing that rarely gets talked about are the issues. A discussion of the issues would correctly criticize the current administration for botching the war in Iraq, but would also question the specifics of what the Democrats would do. It would involve a discussion of what each party intends to do about entitlements, which is the single largest financial threat that threatens the US (see footnote). It would challenge each party for a pragmatic energy policy, or a plan to control skyrocketing healthcare costs ... economic policy, including taxes, minimum wages, ... oh, I could go on, but none of these issues are ever discussed. Democracy is supposed to be the people electing their representatives to implement their agendas. Funny, looking at our elections, I could be fooled.

Footnote: How serious a crisis entitlement spending is depends on how much of a commitment you think it is. Those who chose to play it down point to the fact that it isn't a contractual requirement, and if it ever causes serious economic harm, the US government could always chose to redefine its commitments. True, but that argument ignores the social unrest such an action might produce.

Tuesday, October 24, 2006

Debts and GDP

While I was driving home last night, I had the Diane Rehm show on NPR, who had two supposed "experts" on the deficit and debt. And yet, they were stunningly ignorant when it came to some issues, or maybe they had a political agenda? There was one caller who complained about the public debt approaching $9.6 trillion dollars, close to our GDP and the crisis it entailed, and the experts "concurred".

Stop right there! I dislike the deficits too, but cannot allow the propogation of falsehoolds! So I thought I'd try my lay-man's explanation of debt and deficits. (I'm not an economist, so if you think I'm wrong, please correct me!)

To simplify the issue, I am going to shrink all the numbers by 300 million, the population of the US. So we consider John Doe, making about $44,000 (source of 2005 GDP), having a debt of about $28,500 ( source), some investment-oriented e.g. mortgage on a home, loan for a small business) and some unproductive (credit card). A problem? Not exactly. The debt is not what is owed annually but the sum total of liabilities. The former number is the interest expense - about $1,350 a year( source). Turns out Mr. Doe's credit rating is so great that he will probably never ever have to pay back his debt - he could always borrow from another bank to return his debt from the present, the Banks of Japan and China. The interest expense is small compared to the annual pay hikes of about 3% post-inflation (so currently 6%), whereas his debt is currently accruing interest at about 4.5%, so compounding works in Mr. Doe's favor.

Another way to compare numbers is to match up the debt of $28,500 with Mr Doe's total assets, over $300,000 if I remember (I couldn't find my original source for this) - a debt to equity of under 10%. Nothing to lose any sleep over.

I will soon post why then I brood over the deficits, but for now, rest easy in the realization that we are not going to have the Chinese confiscate our properties!!

Sunday, October 22, 2006

Stupid in Omaha

Sometimes you can take a good idea too far, even to the point of stupidity. It seems that what Omaha police have done, asking people to report violations of an anti-smoking law by calling 9-1-1. The good idea is to place some restrictions on smoking in public places. I feel uncomfortable with how far that idea has been taking. I am a health freak, eating only whole-wheat products and working out several times a week, but I do enjoy the occasional cigarette. Silly, some people say, but I'd suggest people would do better to cut out all the fats in their diet than overreact to the occasional cigarette.

But this isn't even a rant of public smoking policy and the infringement on our freedoms under a fake pretext of public safety. It's a rant of the stupidity of crowding out 9-1-1 queues with these non-emergencies. Thankfully, so far the call volume related to this "crime" has been small, but I'd hate to think of the day (oh, and there will be one if this policy persists!) when a serious crime (you know, murder, theft ... what we used to call crimes before we started including petty nonsense) is not stopped because of someone reporting a public smoking offense!

Quote of the Day

Vahan Janjigian in his blog, MoneyMasters, on Google's stock price:
One valuable lesson I have learned over the years is that overvalued stocks can get a whole lot more overvalued before coming back to earth.... Google makes good money. But is it really worth 15 times sales and 45 times projected earnings? might provide a basis for comparison. At its peak, the stock was selling for 30 times sales. Today it sells for only 1.5 times sales.

Wednesday, October 18, 2006

Say No to a Minimum Wage

I have a new journo who I like - Tim Worstall of the Technology, Commerce and Society or TCS Daily. His latest offering, Spinimum Wage is a fascinating critique of the much-hyped letter from economists demanding an increase in the federal minimum-wage. He points to studies suggesting that the minimum wage is a relatively inefficient instrument to alleviate poverty, when compared with other federal programs. The reason: very few of those in poverty actually work full-time. Those few who do would move out of poverty with a minimum wage hike, but they would lose federal benefits such as Medicare. The net result: zilch! But no, actually negative, because the elevated costs would cause a reduction in the number of jobs available.

Liberals love to crone about how great Europe is, and how the US needs to be more like them, never mind the economic prosperity and low unemployment rates enjoyed by those of us on the right side of the ocean. In another piece here, Worstall points to data from the liberal Economic Policy Institute to show that for all the cries of how bad the poor in America are, the poor in America perform comparably to those in Europe. True, the disparity is greater, because the rich in America do so much better, but switching to a repressive regulatory regime like Germany would not improve the lot of the poor in the US, only serve to make the rest of the country see their standard of living to come down. Oh, and take this:
Wouldn't it be interesting if we were urged to adopt some other Swedish policies? Abolish inheritance tax (Sweden doesn't have one), have a pure voucher scheme to pay for the education system (as Sweden does), do not have a national minimum wage (as Sweden does not) and most certainly do not run the health system as a national monolith (as Sweden again does not). But then those policies don't accord with the liberal and progressive ideas in the USA so perhaps their being glossed over is understandable, eh?

Quote of the Day

Keith Whyte of the National Council on Problem Gambling, on the Unlawful Internet Gambling Enforcement Act:

I think the best way to sum up this bill is that it makes illegal what is illegal and it legalizes what is legal ... So, really, the prohibition of this bill -- it's illegal to gamble on the Internet in states where it illegal to gamble on the Internet. And in states where it is legal or that might want to legalize it, it's perfectly allowable.

I found the discussion on the Newshour on this Act very interesting - you can read the transcript or watch it online here.

Monday, October 16, 2006

Sanctions Don't Work ... Are You Ready for What May?

Much has been made about sanctions since North Korea's nuclear test. The sad reality is that it doesn't work. The present sanctions on Kim Jong Il's regime include a ban on luxury items, including jewellry and nuclear materials. Hmm, call me a skeptic, but how exactly will banning items the powerful will have access to anyway, and other items that were already banned prevent North Korea from going forward with their nuclear program?

There is one way that might work, but it is simply too hideous for anyone but thugs like Kim Jong Il. That is to stop the subsidy we are providing the Korean nuclear regime. You shaking your head wondering what I'm talking? Well, we provide the food needs of the Korean people, allowing the North Koreans to divert those resources to a military program. A cessation of food aid would cause massive starvation, but might lead to a revolt. But not even the most radical neocons would be able to digest that scenario. Alas, that's how the thugs win every time - because we in the civilized world are unable to call their bluff!

How the Other Half Lives

I was recently stunned to read Roger Lowenstein's column in Smart Money magazine, even if my conclusions were somewhat different from the author's.

precisely 21 percent of Americans have direct investments in listed stocks. And among those who do, the median portfolio value is $15,000... [Mutual funds] are owned by an even slimmer population - 15 percent. And among those who do own them, the median holding is $40,000.

That stunned me, but I reassured myself that the average Joe and Jane probably has money socked away in retirement accounts, and a house - one of the elements of an American Dream. Well, maybe not ... more from Lowenstein:

[Half of all families] have an indirect ownership in stocks and mutual funds via retirement accounts such as 401(k)s and IRAs. But the median value of such accounts is only $35, fact, half of all families have total financial assets of less than $23,000.

That is incredible, when you think that the median family probably earns more than $35,000. How do they imagine they can retire on less than one year's earnings?

SHAME ON THE REPUBLICANS for not pushing financial education. An ownership society only works when you have informed participants - it is clear we do not, and the coming acopolypse will have to be funded by (horror!) taxpayers and tax increases!

SHAME ON THE DEMOCRATS for not seeking to push this issue either. If they really cared about the average Joe rather than electoral politics, they will stop ranting about outsourcing and start focusing on what really matters!

Among those who drop out of high school, median income is $19,000; for those who graduate $36,000. Among college graduates, the median is a respectable but hardly lavish $73,000. However, seven of 10 Americans are not college graduates. Why so few people go to college, given the rewards, is a mystery economists are yet to solve.

SHAME ON THE DEMOCRATS for not recognizing that the way to a better future for workers is not to try and hold blue collar jobs in the US; it is to improve educational opportunities to transition American workers to college and beyond.

SHAME ON THE REPUBLICANS for not investing adequately in our future. Since our economy is tied to the wages of our workers, there is a simple market to boost wages - encourage market participants to move up the skill ladder. However, as we have seen, participants aren't rational, which is why we need the government to educate and inform, and help people move along the path ... there are things a market doesn't efficiently do by itself!

Wednesday, October 11, 2006

Heads Must Roll!

I have waited to see what happens in the scandal where Rep. Mark Foley is alleged to have sexually solicited pages working for Congress. I'm amazed that this has become a partisan issue in some quarters. There are few values we hold higher than child protection and anyone involved must go, including the following:

  • Mark Foley from any position of any value (he has already resigned from Congress)
  • Speaker Denny Hastert and other committee chairs who may have known about the issue. It isn't enough to simply claim that they didnt know about the sexually explicit e-mails. In this day and age, simply the appearance of inappropriate conduct with children should have had alarm bells ringing, and triggered a thorough investigation.
  • Members of the FBI, who after having received e-mails that Foley sent the page 2 years ago, chose to do nothing. Even if the FBI is correct that the source's motives were questionable (see next bullet), it could have chosen to do some independent digging by at the very least dispatching some agents to talk to pages in the program. Oh, and it isn't ok to claim you weren't going to move if you didn't know how the source obtained the information!
  • Members of CREW and other liberal associates, if it turns out that they had access to e-mails Foley to the page as early as April, and (as the FBI claims) redacted several sections of the e-mails, and only sent the information to the FBI last month. Hmm, I smell a rat!

    Overall though, there's plenty of blame to go around. But we need to go past partisanship and protect our children. Otherwise, slogans of freedom and liberty are meaningless!