Red State

I think we're all getting a quite vivid sense that President-elect Obama's way of handling tough situations is to set his jaw, furrow his brow, stare purposefully forward, say reassuring things, but on no account to make any clear statements of intent, or to actually do anything.

At least one of the consequences of this extremely risk-averse approach to leadership, is that financial markets are completely in the dark about what they can expect from the new government.

And when financial markets don't know what to expect, they always err on the side of excessive caution. Hence the great difficulty they've been having in finding a bottom to bounce off from.

The stock and bond markets appear to be discounting an economic future that is little short of catastrophic. Since total catastrophe is one of the least likely outcomes, it stands to reason that markets are currently underpriced.

But that's not to say they can't very easily become a lot more underpriced!

Obama could sweep away a lot of this uncertainty and unreasoning fear with no more than a ten-minute news conference.

He could stand up, with the towering Paul Volcker, the sour-pussed Larry Summers and the sardonic-looking Tim Geithner standing behind him, and say the following:

"Ladies and gentlemen, I've consulted at length with my economic team. We're acutely aware that our economy is facing great uncertainty. We understand that our system is a capitalistic one. We intend to do whatever it takes to get business and capital working again, for the sake of every consumer and working person in America.

We also recognize our critical responsibility to the rest of the world. As the pre-eminent economic power, it's up to us to lead global markets back to health and prosperity.

I'm announcing the following key decisions, which we will stand by until our markets are back to normal, employment is growing, and our economy is healthy again:

All tax increases on capital, dividends, and business income are OFF THE TABLE.

All protectionist legislation, including increased tariffs and import duties, are OFF THE TABLE.

All new regulations, mandated costs and taxes on businesses, including export businesses, are OFF THE TABLE.

That is all. Thank you."

If Obama were to give this speech, you'd see explosive market rallies, and everyone would heave a big sigh of relief.

So how about it, Mr. President-elect?

-Francis Cianfrocca

Rep. Louie Gohmert (R-TX), a member of the Republican Study Committee, has had enough of Congressional bailouts.

Right now there is $350 billion left of he $700 billion Congressional bailout funds. He has an alternative to more bailouts: a two month tax holiday.

Gohmert’s tax holiday plan is elegant in its simplicity: every American taxpayer would pay no federal income or FICA taxes for the first two months of 2009. For the typical American family -- earning about $50,000 a year -- that would mean they would keep about $2000 that would otherwise be paid to the government.

Gohmert’s plan doesn’t pay for Wall Street bonuses or let banks use bailout money to buy other banks or pay dividends. It doesn’t rely on bureaucrats to pay money out to the right people at the right time or try to stimulate the economy with token payments to people who don’t pay taxes.

Gohmert would like to hold the holiday in January or February of next year. It would cost approximately $332 billion, still cheaper than using the rest of the bailout money for a bailout.

Freeing individuals from two months of federal taxation would be a substantial benefit to families and the economy. “Those who can’t catch up on their mortgage get one-third of their money back each month and then they’ll be able to catch up on their mortgages. They’ll be able to refinance their mortgages, they’ll be able to buy stock that they can’t currently buy,” Gohmert said.

He added, “Somebody earning $72,000 would get a couple of thousand dollars back a month if we allow them to get back both income tax and FICA.”

You can sign our petition to support Congressman Gohmert. As events unfold and the legislation is drafted, we will email petition signers with the names and phone numbers of Congressmen to call to support the Gohmert plan.

You can post this petition too by embedding this code in your site:

<script src="https://widgets.kimbia.com/widgets/form.js?channel=redstate.kimbia.com/taxholiday"> </script>

The direct link to the petition is here.

The 30-year T bond is priced to yield 3.34% this morning. The 10-year note is at 2.83%. These are extraordinary numbers, and they're still falling fast. Three-and-six month bills are already at or near zero. This is powerful and continuing evidence that markets are uncertain and fleeing from risk.

The midcurve and long-end are multi-trillion dollar asset classes that have increased in value by something like a third, in just the last few weeks. If you thought supertankers couldn’t turn on a dime, you haven’t been watching the bond market.

One is also tempted to say this is evidence that markets are expecting extreme economic weakness ahead.

But there are so many dislocations in the bond market and trading is so illiquid, that it would be a stretch to say this is signaling anything but total uncertainty. By “dislocation,” I mean that there is an abundance of relationships among assets that make no economic sense. (The continuing negative 30-year swap spread is just one example.)

A textbook world would arbitrage the dislocations away almost immediately. Yet they persist and in some cases are growing.

But what is the real price of money in a time of deflation? A zero-yield six-month Treasury bill, combined with October’s 1% decline in CPI, implies a real interest rate of something like 5 or 6%: that's exceptionally high, and a very good reason not to engage in economic activity.

Then there is the pricing of TIPS. These are Treasury securities that adjust their principal amount every year according to the Consumer Price Index. So in theory, they represent the real cost of risk-free money at any given point on the yield curve. And the difference between TIPS yields and Treasury yields predicts future inflation.

As far as I can tell, the current TIPS spread appears to be predicting that we’ll have deflation of more than one percent each year for at least the next five years. Make of that what you will.

As I said, extreme uncertainty. And uncertainty breeds risk-aversion, which breeds economic weakness.

Update: At 10am ET, the 30-year bond is up almost two and 26/32, to yield 3.30%. The 10-year note is yielding 2.81%. As I said, extraordinary.

-Francis Cianfrocca

There was question in the media about exactly how president-elect Obama planned to deal with the economic crisis. Some have speculated that he would move right with moderate economic policies that would foster growth the old-fashioned way – by creating wealth through the methodical process of wise capital formation and deployment. And several of his appointments including Reagan-era Fed chairman Paul Volcker, Christina Romer, a tax cutter from UC Berkeley, and Tim Geithner at Treasury indicate that he may be prudent in this area.

But for those who are skeptical about a candidate who said he wanted to “spread the wealth around,” Obama’s  Saturday November 22 radio address offered some troubling language. Here are excerpts from the address followed by observations:

Excerpt: The news this week has only reinforced the fact that we are facing an economic crisis of historic proportions. Financial markets faced more turmoil. New home purchases in October were the lowest in half a century. Five-hundred-forty-thousand more jobless claims were filed last week, the highest in 18 years. And we now risk falling into a deflationary spiral that could increase our massive debt even further.

Observation: This is Obama talking down the economy. We would never get this from an optimist or a conservative. Ronald Reagan would have said something like: “We have challenges that we will meet with American optimism”. When Obama aides said that the current economic crisis offers an historic opportunity to reshape the economy, they were really talking about reinstating Roosevelt-type New Deal policies which utterly failed to improve the economy of the 1930s. Let’s hope Obama resists temptation. Volcker is a good sign he might. But you never know.

Excerpt: While I'm pleased that Congress passed a long-overdue extension of unemployment benefits this week, we must do more to put people back to work and get our economy moving again. We have now lost 1.2 million jobs this year, and if we don't act swiftly and boldly, most experts now believe that we could lose millions of jobs next year.

There are no quick or easy fixes to this crisis, which has been many years in the making, and it's likely to get worse before it gets better. But January 20th is our chance to begin anew - with a new direction, new ideas, and new reforms that will create jobs and fuel long-term economic growth.

Observation: Obama here is setting the table for big government intervention in the economy in addition to the $1+ trillion in bailouts already in effect. “A new direction, new ideas, and new reforms” is nothing more than the same old stuff: Use the government to try and fix the economy. It will not work. He has talked about $500 billion more in economic stimulus. This is just throwing money at a problem that requires patience. Perhaps his appointees will talk him out of it.

And indeed the crisis has been years in the making, but it has evolved out of Obama’s ideology – decades of massive government waste, corruption at Fannie Mae, and laws like the Community Reinvestment Act that forced private banks into the role of social engineers.

Excerpt: I have already directed my economic team to come up with an Economic Recovery Plan that will mean 2.5 million more jobs by January of 2011 - a plan big enough to meet the challenges we face that I intend to sign soon after taking office. …We'll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels…

Observation: Obama plans to create these 2.5 million jobs using the government as an employer, creating huge new deficits. He can easily create 5 million or 10 million jobs in this way if he is willing to take on enough debt. But it will not improve the economy in the long term. Only private growth will do that.

The whole idea of “rebuilding our crumbling roads and bridges” is classic socialism and is exactly the route that FDR took between 1933 and 1938 with make-work government jobs building roads and bridges and other public projects. It did not work. The unemployment rate was higher in 1938 than it was in January 1933 when Roosevelt took office.

“Modernizing our schools” is just another term for throwing more billions into the pot for the public school bureaucracy and the teacher unions, which then will contribute it back to the Democrat party. The public schools have been failing for decades now. Why give them more money?

Meanwhile Obama’s plan to finance “wind farms and solar panels” with government cash is nonsense. Think ethanol. The whole pie-in-the-sky ethanol program, touted for years by environmentalists, has turned out to be hugely inefficient, has pushed up food prices by diverting large amounts of the corn crop to fuel, requires tens of billions in government subsidies, and never even has been shown to produce more energy that it consumes. In other words, ethanol production is voraciously consuming three critical things – food, energy and capital, while its government subsidies hide its real effects. Wind farms and solar panels will be no different.

Excerpt: These aren't just steps to pull ourselves out of this immediate crisis; these are the long-term investments in our economic future that have been ignored for far too long. And they represent an early down payment on the type of reform my administration will bring to Washington - a government that spends wisely, focuses on what works, and puts the public interest ahead of the same special interests that have come to dominate our politics.

Observation: Obama talks about “investments”, but most government spending is not “investment” because it relies on taxation, which is the nationalization of private investment capital. Private capital in private hands is true “investment”.

To learn more about “investment”, just go to the states where the economies were collapsing long before the financial crisis hit and you will find Democrats in control with their big government spending programs and high tax levels. New York State, Vermont, Rhode Island, Massachusetts and Michigan all voted overwhelmingly for Obama and have had the worst economies in America for years now. Obama’s own Democrat-dominated state of Illinois is 45th in job creation of the 50 United States.

In Obama’s big economic rollout on Monday, November 24, he called for more government spending including a tax cut for the “vast majority” of Americans in the middle class paid for by the nation’s “wealthiest”. Let’s hope Volcker and Romer talk some sense into Obama.

Here is an excerpt from the article 'Irrationalizing Employment Growth' in the National Review of September 14, 2004, by contributing editor Tom Nugent restating a well-established fact that increasing taxes on upper-income citizens harms the economy:

In particular, Democrats continue to press the idea that the first four Bush years have turned in the worst rate of job growth since the Hoover administration. The president’s detractors, however, should be made aware that Hoover raised taxes on the wealthy (just as Kerry proposes) and encouraged the Smoot Hawley tariff to protect farmers from foreign competition (just as Kerry wants to protect U.S. workers from outsourcing). These policies are given the blame for the Great Depression, which hit during Hoover’s one term as president back in the 1930s.

So not only has Obama talked about “taxing the rich” but he is protectionist as well, which will hurt our economy just as Smoot Hawley did. He campaigned on renegotiating free-trade agreements with South Korea, Mexico, Canada, Colombia and the Central American region. Pray that Volcker and Romer can get to him to leave these pacts alone and to encourage free trade.

Regarding Obama’s plan to genuinely cut taxes for the middle class: The Democrat party has relentlessly taxed the middle class over the last 50 years. Real tax reform would permanently encode significantly lower tax rates for the entire middle class. Obama won’t do this. He already has plans to increase the Social Security tax and increase taxes in many other ways.

Obama has sent so many mixed signals that even normally level-headed Fox News headlined its story about Obama’s November 25 press conference like this: 'Obama Promotes Fiscal Restraint, Big Spending'

Huh?

What we do know is that the Fox headline is half right. Obama probably is going to do one thing to restrain spending and that will be to cut the military substantially as Bill Clinton did. Clinton went farther however, gutting out intel agencies too, which led to 9/11. In the wake of the Mumbai, India terrorist attacks of November 26, we must realize that vigilance it crucial. Whether Obama plans to remain vigilant economically or militarily is another story. Time will tell.

Please visit my website at www.nikitas3.com for more.

Cross-posted on Right Michigan at www.RightMichigan.com.

There are a couple of approaches for handling a day like today.  The four day weekend is over and it's back to the grind but the snow continues to fall and it's tempting to turn on the Christmas carols and move gently into the next holiday season.  Yeah, you'll go to work, or school, or both and you'll do what you need to do but you'll coast a little and with visions of Christmas trees and sleigh rides.  Aww.  Warms the heart.  And good on you if you can pull that off.  

Then again, is that practical?  Can you carol your way through the next twenty-four days until you can manage another four day weekend?  Can you really fake oblivious?  Block out the real world and live in Christmastime daydreams for the next month?  I can't.  So I took option number two for the Monday after Thanksgiving and I jumped right back into the news this morning.

All things being equal, I'd rather have the sugar plum fairies.  

We've got business leaders crying out to the state government for drastically needed relief from a financial crisis very much said state government's making, we've got state officials openly discussing ways they can put job makers out of business and I don't know what says "happy Monday" quite like the name Monica Conyers.

According to the Detroit News, the Democratic Congressman's wife and head on the all-Dem Detroit City Council is caught up in another mess, this time suggesting openly that the Detroit Public Library is attempting to extort the council to gain control of river-front property.  See, they currently own a rundown, abandoned building and even though they've received cash offers of more than seven times what they paid for it two years ago (in Detroit!!!!) they refuse to sell and would rather raze the thing to the ground than see Conyers friends get their hands on it.

The Detroit Public Library is moving ahead with the demolition of a former storage building in the New Center neighborhood despite a dustup with City Council President Monica Conyers, who asked the library to consider selling it to a campaign donor.

The building, which the library bought in 2001 for $400,000 from the city, had become too run-down to affordably use, and now the organization will either sell the land or target the property for a future expansion project...

They got three bids to purchase the building that included $200,000 from the Farbman Group, $2 million from Metro Development Group Investors of Detroit and $3 million from Eugenio Company LLC of Grosse Pointe Woods.

Upon further investigation, library officials believed they could better market the property once the building was razed, (Library Building Committee head Ed) Thomas said, much like the strategy the city took in knocking down most of Tiger Stadium in hopes of attracting a developer.

Considering the fact that we're talking about property in Detroit, Michigan, the city more famous than perhaps any other in the United States of America for blighted, burned and abandoned properties, I'm thinking $3 million is an awful good return on a $400,000 investment but, clearly, I'm not a real estate magnate.  If Ed Thomas thinks he can get more than $3 million by burning the thing to the ground and marketing the charred land, well, ok.  

Conyers thinks it smells fishy though and has accused the Public Library of refusing to sell the land until the Council gives them even better property down by the river.  (Get it?  Fishy?  River?  Nevermind.)

Read on...

Consider the options that leaves us with as we examine this situation.  One of two things are true here and they are both so astoundingly stupid they almost defy belief.  What's even better, they aren't necessarily mutually exclusive... they BOTH might be true.

In Detroit, we either have a City Council President, an elected Democrat and the wife of a long-tenured Democratic Congressman who has finally and completely lost her mind, going so far off the rails that she now sees conspiracy and personal persecution everywhere she looks, including the public library - OR - librarians are legitimately engaging in conspiracy and extortion.  

Its almost like a fever dream.  That can't really be happening, can it?  That can't be real.  I must have let the leftovers sit too long on the countertop before refrigerating them, or eaten a bad pepperoni on that pizza last night.  And, friends, it only gets crazier this morning, but let's set it up with a touch of sanity.  

The Ivory Tower publishes an op-ed piece from David Brandon and Doug Rothwell, the Chairman and President of Detroit Renaissance, a group of major business players who come together to try to bring about renewal in the motor city.  It's a group of good men who seem to genuinely care about the City and about the state and they're offering a bit of tough love for the Granholm - Cherry administration and the state legislature.  

Earlier this year, a statewide poll of Michigan voters commissioned by Detroit Renaissance revealed that 77% want to see meaningful reforms and/or spending reduced versus only 6% who are willing to raise taxes. More recently, Detroit Renaissance commissioned a benchmarking study that assessed Michigan's competitiveness against its peers and found that our cost of doing business is not competitive, due largely to higher-than-average business, personal and local taxes.

Yet we have no ability to correct this problem unless we enact serious reforms.

There are immediate steps the state can take before year's end to put us back on track. This is not all that needs to be done, but would serve as a good down payment for more serious state reforms that need to occur in 2009.

A few of the reforms they're suggesting, immediately, include serious Michigan Business Tax relief for job makers, reforms in the Department of Corrections to the tune of $100 million a year and a brand new budgeting and review process based on two year cycles, not one, to help keep elected officials a little more focused on the long-term.  

We are calling on the governor and Legislature to enact reforms now. These measures are a modest step toward restructuring Michigan so that we can improve our competitiveness and restore business confidence in our state as a place to invest. A failure to act will send a message, and it's a message that won't encourage economic growth.

So what's the state going to do?  If the Lansing State Journal is any indication, they're going to tell Detroit Renaissance to roll up their advice and smoke it, but only if they've paid the stamp tax.  

We've been inundated with stories lately about how local governments have instructed their police officers to spend less time fighting crime and more time taxing lead feet and now we learn there's an emphasis coming from Lansing on doing a whole different kind of tax collection.

Every pack of cigarettes sold in Michigan is supposed to be stamped - proof that licensed wholesalers paid the state's $2-a-pack tax, which is passed along to customers who buy smokes at convenience stores, groceries and other locations.

But because Michigan's cigarette tax is sixth-highest in the country, smugglers are capitalizing at the expense of the state budget.

Small-time activity involves residents simply driving to Indiana or Ohio, where taxes are up to $1 less per pack. It's illegal to possess cigarettes in Michigan without a Michigan tax sticker...

Police say putting retailers out of business, if temporarily, could be a powerful tool because tobacco prosecutions result in light sentences and aren't taken as seriously in a justice system battling violent crime.

Emphasis mine.  "At the expense of the state budget."  David Eggert is a really cool guy and all, and bless the Associated Press but is that editorializing in a straight news story that I detect?  Why no sentences about how the $2 a pack stamp tax feeds the state budget "at the expense of consumers' budgets?"  I know, balance is so passé.  

Sadly, that's not even the most shocking sentence fragment in that section.  The police are actively talking about putting retailers out of business?!

Hey, I get it... render unto Caesar and all of that.  There's an onerous tax and there's an onerous tax.  You can't just go around breaking the law.  You have to pay your taxes.  But telling the Associated Press that you're aiming to put job makers out of business is sort of like posting a big "do not enter" sign at the state's border.  Its openly hostile and the next thing the state knows, those mom and pop business owners who've been driving fifteen minutes to the other side of the Indiana border to ensure they can make a living here in Michigan aren't going to make the return trip on those northbound lanes.  

Course, that'll only compound the problem.  How would the Associated Press put this... the lighter Michigan traffic will deprive State Troopers of additional ticketing opportunities "at the expense of the state budget."

If they get bored, though, I hear there's some funny business they could investigate at the library in Detroit.

It seems to me that focus has shifted away from China’s economic and financial doings during the acute financial crisis that began last September.

The story in China for most of this year and last year has been extremely high inflation (particularly in prices for staple foods), and vigorous measures by the country’s banking and monetary authorities to reduce the formation of credit.

Up till late 2007, they also had a wicked bubble in their domestic stock markets (Shanghai and Shenzen, where non-Chinese may not trade), which they popped quite successfully. Be glad you weren’t invested in those markets.

In recent months, they’ve been walking back most of those policies, as economic growth has slowed sharply. Last year’s growth was 12.6%, led largely by exports and capital investment. (Three years ago, China had a true economic boom, led by domestic demand-growth, which had mostly petered out by last year.)

But next year, growth will probably run anywhere from 7.5% to 9%, according to estimates from the World Bank and other sources that are not the Chinese government. The raging inflation of the past year is also mostly gone.

As a result, the government is taking aggressive steps to pump growth back up, notably by pulling back policies intended to reduce bank lending. But it’s not clear to me that they can do this in the most healthy and sustainable way (by stimulating domestic demand).

Instead, they’re reaching for the tried-and-true: export growth.

Foreign trade accounts for about 40% of the Chinese economy, with net value-added to exports probably something like 17 or 18 percent. (Trade is only about 10% of the US economy.)

And even as the global economy has slammed on the brakes, China’s current-account surplus continues to grow, reaching record levels in October. Their share of world export markets continues to grow, as they competitively crowd out other exporters.

On top of this, imports into China are slowing as consumer demand falls with the deepening economic slowdown. This means that China’s economy is becoming even more export-led.

And they just took another big step in that direction: they reversed a year-long trend of currency appreciation.

The People’s Bank of China manipulates the value of renminbi (the country’s money, denominated in yuan) by setting daily limits in which it can trade against other currencies, like the dollar and the euro.

They just set the limits so as to permit a devaluation of about 70 basis points, from 6.83 to the dollar to 6.88.

A year ago, RMB was trading about 7.7 to the dollar. Treasury Secretary Paulson’s most important goal (until the current crisis hit) has been to get the Chinese to let their money appreciate. Stubbornly and very gradually, they’ve been doing it. Until now.

The Chinese have deliberately undervalued their money for years now. And this creates a raft of imbalances, both inside China and in the global economy. If they run a current-account surplus with nearly everyone else, then the rest of us have to run deficits of one kind or another.

Protectionist US Senators and American labor leaders are sure that the objective of Chinese policy-makers is to throw American manufacturers out of business and move their jobs to China.

But America doesn’t manufacture all that much (it’s only about 15% of our economy). The Chinese may instead be trying to make sure that their lower-cost regional competitors (such as Vietnam, Malaysia and Thailand) don’t get any traction.

And the other obvious effect of an undervalued yuan is the astounding accumulation of foreign-exchange reserves in China, which continues unabated and in fact may now be accelerating.

China’s foreign-exchange position isn’t entirely clear because they don’t tell anyone what it is, straight-up. So the people who watch international trade and capital flows have to infer it from such indirect measures as the size of custodial accounts held at the New York Fed.

There are a couple of noteworthy things. First, China appears to have shifted an enormous position in US agency (Fannie Mae/Freddie Mac) securities into straight US Treasury debt. This happened largely over the summer of 2008.

And second, they appear now to be holding about $2 trillion in dollar reserves. At their current, accelerating pace of accumulation, they may be on their way to $3 trillion.

China officially reports the size of their economy at a bit over $3 trillion. Let’s say they’re lying and it’s closer to $6 trillion (which would make it the second largest on earth). If the US were to hold currency reserves in the same proportion, we’d have anywhere from 7 to 14 trillion dollars lying around, and no one would be raising a fuss about Hank Paulson wanting to spend $700 billion to stabilize the financial system.

It’s time to pull these facts out and have a look at them. The most critical economic policy challenge in the US in 2009 will be to prevent a disastrous deflation. When half-measures stop working, the only way to counteract deflation is with inflation.

And the way to create inflation is to print money, which our Federal Reserve has been doing with alacrity. (The remarkable changes they made to policy last week need a separate post to fully explain.)

The problem with this is that China will soon enough be holding $3 trillion in reserve, and they do not want to see us diminish the value of those dollars by printing more.

The ability of the US to pursue a strongly inflationary economic policy next year will be bounded by the willingness of the Chinese to let us do it.

And their calculus will swing between their desire to maintain the value of their reserves, and their need to keep our economy from collapsing (which in turn would collapse their export markets).

They’re not in the driver’s seat of US economic policy. But they’re in a position to do a lot of backseat driving.

And as the only large country in the world with an extremely strong reserve position, they have far more flexibility to act in the global economy than any other player.

-Francis Cianfrocca

The US government has set the price of a human life for the purposes of new regulations at 7 million dollars.

The US government does a cost benefit analysis on proposed regulations to see if they make economic sense. This seems like a good idea. Certainly we don't need regulations that have greater costs than benefits. Now, when it comes to health and safety regulations, in order to perform this analysis the government has to put a value on a human life. The number the government has come up with is somewhere between 7 and 8 million dollars per human life.

As an aside, it's nice to know they value my life at 7 or 8 million dollars. That's more than I have it insured for. Maybe I should get a bigger life insurance policy.

The way the government uses this number is, if proposed regulations cost no more than 7 million dollars for each life that is saved then the bean-counters consider the regulations prudent. This makes sense as far as it goes. It accounts for the effects that are seen. But what about the unseen effects?

[READ THE REST AFTER THE JUMP]

It is a truism that in every economic transaction there is the seen and the unseen. When 7 million dollars is taken out of productive uses and put into complying with regulations the complying companies lose 7 million dollars of something else. That "something else" is the unseen in this transaction. In the case of money spent by companies on regulations, that money would have otherwise been spent directly or indirectly on employment. Reinvestment, tool and material purchases, and other expenditures cause the money to be circulated in the economy. This means jobs, no matter how it works. Either the business would have employed someone with that money, or it would have invested or spent the money. The economy wide effect of a regulation that imposes 7 million dollars of additional cost will be 7 million dollars worth of unemployment.

How many unemployed? The median annual income is roughly 40 thousand dollars. If you divide that out, you get 175 jobs lost from a 7 million dollar regulation.

What is the effect of unemployment on human lives? According to a National Institute of Health study, unemployment reduces life expectancy by about 10 years for 25 year olds, 8 years for 45 year olds, and 3 years for 65 year olds. Assuming an even distribution among ages, I get about 1,225 human life years of total reduction in life expectancy when I work the numbers. That is 35 lost adult lives, if you go by standard life expectancy tables.

Now, to be fair to the regulating bureaucrats, In the long run most of those 175 people their regulation drove out of work will get new jobs, but at lower income levels. Not only will their income levels be lower, so will lots of other people. If income levels are 5% lower, then 20 times as many will have lower incomes because of our 7 million dollar regulation. If we accept 5 percent as the reduction in salaries, that makes for a total of 3,500 people with 5 percent reduced salaries. According to the same National Institute of Health website, lower incomes also reduce life expectancy. For those with median salaries, 5 percent drops them from 40 thousand to 38 thousand. The table shows that life expectancy drops about 2 years from the above 50 thousand range to just below 25 thousand. That's about .08 years of life expectancy per thousand dollars, or .16 years for our average worker. Multiplying 3,500 by .16 years gives 560 life years lost, or 16 lost adult lives of 35 years each.

What is the cost of a human life, again? It appears that for the US government it is 7 million dollars and between 16 and 35 other human lives lost.

Summing up, doing the math based on permanent unemployment says that each 7 million dollar regulation costs 35 lives. Based on reduced income levels a 7 million dollar regulation costs 16 lives. It is likely that the actual answer is somewhere in-between the two figures, as some people never do get lost jobs back. In either case the lives lost by the costs of the regulation are more than the 1 life justification for the rule.

This should be a reminder to government regulators that the unseen effects of their regulations can do a lot more damage than the danger they are trying to regulate out of existence. It should also be a call to arms for Americans. Government regulations are literally killing us and our fellow citizens, and new regulations appear every single day.

Consider the following commentary concerning the incoming Chair of the Council of Economic Advisers, Christina Romer:

She burst into the economic scene with her doctoral dissertation that fundamentally changed how economists viewed the Great Depression.

Economics data indicated that the business cycle before the Great Depression was much more volatile than the economy after World War II. Economists widely assumed the data demonstrated the success of the post-Depression stabilization policies. Romer proved them wrong by showing that what seemed like a decrease in market volatility was really due to improved data collection.

"Post-Depression stabilization policies" were New Deal, policies, of course. Romer helped trash a key portion of the supposedly golden New Deal legacy. An arch-conservative economist could hardly have done better, I imagine.

Next:

Since then, she's done extensive work researching the causes of the Great Depression and the roles that fiscal and monetary policy played in the country's economic recovery. More recently, she has focused on the impact of tax policy on economic growth in papers co-authored with her husband.

Her findings have been cheered on both sides of the aisle. In a November 2008 paper, the Romers concluded that tax cuts can increase economic output, a finding cheered by in low-tax, Republican circles.

Romer supports trickle-down economics! Barack Obama's campaign slogan against John McCain notwithstanding, perhaps with this pick, Obama has shown that he was the one running for George W. Bush's third term.

Need I mention at this point that Barack Obama is not the Messiah and that to the contrary, he is just another politician?

Democratic political hacks, Barney Frank and Chris Dodd conspiring....

During the Thanksgiving dinner, I am sure most of you sat at your dinner table with a lot of friends and family that you have not seen since before the election... And I am sure that you were appalled that when the economy came up, you heard the usual mis-informed, idiotic dim-witted comments like "Bush was asleep at the wheel", the "Republicans screwed up this economy", etc....

I am so sick and tired of hearing that the President and the Republicans are responsible for this economic mess... I am not saying that they don't share some accountability, but lets get one thing straight - It was Bad Loans supported by the Dems that started this whole mess!!!

It is Real estate that makes our entire economy turn.... When there are no real estate transactions, nobody makes any money.... From Mortgage companies, investors, banks, title companies, attorneys, realtors, moving companies, contractors, handymen, landscapers, retailers and on and on.... If no transactions are occurring, the economy screeches to a halt...

I worked in the real estate field during the times when the dems pushed Fannie and Freddie to lower standards so anyone that could fog a mirror can get a no-down payment mortgage and Ta- da!!! Presto magic!!!! You have a mortgage!!! And this alone is the primary cause of this entire credit/economic mess this country, and the world, is mired in...

It was the dems who pushed for the low standards on behalf of their constituents and it was Republicans, and more specifically, John McCain who opposed it and actually co-sponsored legislation in 1995 to stop it!!! What happened to that bill??? It was defeated in Senate committee by the dems on a straight party-line vote!!!!

Interesting side-note to that bill - The 3 co-sponsors of that bill were John McCain - lost the Presidential election to Barry, and Elizabeth Dole of NC and John Sununu of NH (both lost their senate seats 2 weeks ago)... All 3 Senators where doing the right thing by warning us of this impeding disaster and were re-buffed by the libs in congress... What was their reward for being right on this issue.... They get blamed for the collapse and all lost their elections on election day!!!! Way to pay attention American voter !!!

But the in-the-tank for Nobama media did a bang-up job grossly mis-informing the dim-witted public (masses are the asses!!!) to create the perception that it was the Republicans and Pres. Bush who are solely responsible for the whole economic disaster we face now.... But the ones who are the most to blame - Barney "mumbles" Frank, Nancy "Stretch" Pelosi, Chris, "Block-head" Dodd and all the libs in congress that pushed these risky loans, forced the banks to give them out and now play holier-than-now that they "had nothing to do with it".... Uttlerly Shameless!!!

I have never in my life seen such brazen huzpa in all my life!!! And the media and the public (52%) believed it hook, line and sinker.... I am tellin' you that when the media puts its mind to creating a perception, they can sell ice to Eskimos!!!

So now they can't play that game anymore, they have all the power and their Messiah with all his super-powers to heal the world.... I, as an American, hope he can...

But if he doesn't, he has nobody to blame but himself!!!!

Just my thoughts...

GOP Mike's Blog

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As told by Tyler Cowen. The point made about ensuring the expansion of monetary policy is highly important, but so is the point that Roosevelt's agricultural subsidies and imposition of industry cartels were utterly and completely disastrous economically. One certainly hopes that taxes will not be raised and that the Bush tax cuts will still have a lot of life left in them during the Obama Administration--quite frankly, if the President-elect wants to encourage some serious economic stimulus, he would do well to take a page from Milton Friedman, recognize that individuals need to sense a long-term increase in their take-home pay, and pledge to make the tax cuts permanent. I am certainly glad to see that Professor Cowen ends his article by noting that our economic recovery will likely come about "for reasons that have little to do with most policy initiatives." A good point for Team Obama to remember; it might inculcate some humility on their part concerning the limit of government's power to do good, even as government will now seek to increase even further its power to meddle.

Since the dawn of the modern era we were told and taught as children to save the few pieces of loose change given to us by our parents when we go to the store with them. We were told and taught to value the dollar and to never get ahead of ourselves or lose sight in what we need as oppose to what we want. The differences between "wants" and "needs" have been blurred by the financial bubbles that come along every so often and cause us to get sucked in to a "sure" thing. However the only sure thing is the lose of money and financial meltdowns; as seen here in American today.

But I have the remedy to your economic common cold. And trust me, despite the media diagnosis of a terminal economic cancer, this is indeed common. It is not realistic, nor promised that any economy in any country remain fail proof. It is also not realistic that the American economy, the largest, most dynamic economy sink to the bottom of the ocean for good. Our economic structure impacts even the most developed and rapidly developing nations. China, for instance experience 8% growth last month, and now they are talking about an economic stimulus to jump start their growing economy. But what we possess, at least originally over other nations is an abundance of common sense. Common sense is the best tool in which an economy be managed and grow further. It's common sense that prevents the bottom from falling out of economic foundation; it will be common sense for now on, that remain the steady hand on the tiller and the only hand I might add.

We don't need Czars or "absolute" Treasury Secretaries who doll out the payola and determine who fails and who doesn't. You see the free markets and capitalism are based on the impression that free men are fully capable of using common sense to dictate the markets and the economy. As a free and just nation we must continue to promote more common sense and less greed, less speculation, and less government bailouts and government surgical procedures that prevent markets from opening and growing.

If I were president elect Obama I would let the big three fail and file for chapter 11. Of course he won't do that because the unions donated big bank to his presidential campaign. But a smart man cuts his losses when he sees them starting to pull him under. If Barack Obama is a smart man, and politically he very well is, he'd let some things go under and cut his losses. There's nothing in the economic rule book that says we cannot start from scratch and rebuild. It certainly never stopped our founding fathers from developing the idea of free markets and capitalism when the rest of the world really never caught on. What's stopping us from going our own way on this? From managing our own economy and looking out for America's interests? Do you honestly think China or Russia cares what happens to someone elses economy over their own?

Common sense, self control, contentment, hard work, pace, consequence, these are the basic tools needed to run an economy. And with these fundamentals we will rise above this notion of "I want it now, no matter what" The reality is look, despite the warm feeling it gives you when someone buys their first home, if you can't afford it right now, you just can't buy it right now. The government needs to step away from the Publishers Clearing House business and start acting like a competent, well structured government again.

This is just a brief note to make you all aware that it's being a very remarkable week in the Land of Fixed-Income and Monetary Policy.

I'll post much more on this topic as soon as I can, but the Federal Reserve has qualitatively changed the nature of their response to the financial crisis. As of this week, they've embarked on what is called "quantitative easing" of monetary policy.

To oversimplify somewhat, they've transitioned from trying to effect policy by manipulating the price of credit, to directly creating credit themselves. This is by way of the flurry of new facilities they announced yesterday.

You can see for yourself one of the immediate consequences: yesterday morning, retail mortgage rates dropped almost 90 basis points. In most parts of the country, you can get a 30-year fixed rate mortgage for about 5.30%. It remains to be seen whether this will lure buyers back into the housing market, but it's a hopeful sign.

Elsewhere, the Treasury has gone into overdrive, creating vast new supplies of the most desired asset class in the world, namely full-faith-and-credit US Treasury paper.

We're going to see the yield curve flatten considerably in the near term. The Fed funds rate (which is currently targeted at 1%) is actually near zero. This limits the ability of short-dated paper (like T-bills) to increase in value.

Meantime, there is a lot of new supply hitting the 3-year sector of the curve. Treasury is now issuing new 3-year notes every month, and the new banks on Wall St. (which used to be investment banks) are issuing 3-year notes with an FDIC guarantee. That's going to push up yields at this maturity.

And then there's the Fed, which is out there buying up long-dated securities like Fannie/Freddie debt and mortgage-backed securities, and securitizations of consumer debt (student loans, credit cards, car loans). This will take sone supply out of the long end of the market and keep yields low.

More later.

-Francis Cianfrocca

As discussions go on and on over whom to Bailout next, and with how much Taxpayer money to add directly to the National Debt, the Pay-Go crowd (what Democrats mean by that is, Pay for Votes and Go unaccountable) prepares a new Stimulus plan. AP: The latest federal moves raised U.S. commitments to contain the financial crisis to nearly $7 trillion.

With $700 Billion (TARP) already half used and a limitless list of those with their hand out to gobble (yep, had to have a Thanksgiving reference lol) up the funds, a new/fresh $700 Billion is being looked at. Some Democrats say that well over $1 Trillion in "stimulus" may be needed to "help" the US economy. Let's just call it an even $1 Trillion and be down with it...

$1 Trillion would provide a Bailout to each and every American citizen (as reported on Fox) $3,271. If we're going to have a "Bailout" and a "Stimulus" then perhaps they should be one and the same.

A Bailout we can Believe in, or at least participate in...

WARNING: SARCASM (in part)

A Check of $3,271 to each and every US Citizen would provide that new "Trickle Up" BS Obamanomic (latest incarnation) screwballs are pushing. Of course, Democrats don't want you to have control of any money, YOU are the ATM machine for their $pending $pree! If they really meant it, YOU could (with your $3,271 Check in hand) help all the following...

Every Parent could put into the BANK their child's $3,271 to actually save for that Child's own future College Education (helping the Child for College and the Bank, call this section the Leave No Professor Behind act). Yes... No???? Hasn't Obama PROMISED to help kids afford College... That would help!!!

People behind on their Mortgages would have the cash to help catch up on their Mortgage payments! That would help the Homeowners (DIRECTLY) and the Banks. Hasn't recent discussion been about how to help the Homeowners directly?!?! And then the Banks can use this cash they get from back payments to Buy up other Banks as they are so anxious to do.

People who have broken down cars (count me in this one) could use the Check as a down-payment on a new Hybrid (yeah, right) vehicle. Wouldn't that help keep the Big-3 going? You know, actually being able to EARN money by having to meet a demand for cars!?!?! That would help the Big-3, dealerships, Junk yards (for all those old cars), etc... as well as Financing Firms.

Those not paying any Federal Income Tax might actually then have an Adjusted Gross Income to FINALLY raise them to the level of owing Federal Income Tax. Won't that help them FEEL A PART of the "Rich" crowd that actually has to Pay taxes!?!?

Perhaps local municipalities will have more revenue as some may be able to Pay their back Property taxes with the $3,271?

The local Malls will swell with teenagers shopping for the latest Video game attachments and/or games. Won't that help Retailers?!?!

Farmers would actually be able to keep their Farms, as citizens would be able to make the trip to the local Grocery stores again. Restaurants will be able to retain Employees (good to keep unemployment down) with some of that $3,271 of those shopping again stop by for Meals once again.

I could afford to go to Vegas in the middle of this Winter and go warm up, Michigan gets too cold.

What would YOU do with your $3,271? Call Obama and the Democrat leadership and DEMAND YOUR BAILOUT CHECK!

Feel free to let us know what you would use your BAILOUT for or use this thread as serious Bailout/Stimulus discussion. A mix of the two can be informative and fun (and therefore therapeutic).

My take.

http://drudgereport.com/flashrur.htm

Tue Nov 25 2008 09:04:22 ET

A leading Russian political analyst has said the economic turmoil in the United States has confirmed his long-held view that the country is heading for collapse, and will divide into separate parts.

Professor Igor Panarin said in an interview with the respected daily IZVESTIA published on Monday: "The dollar is not secured by anything. The country's foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. Now it is more than 11 trillion. This is a pyramid that can only collapse."

The paper said Panarin's dire predictions for the U.S. economy, initially made at an international conference in Australia 10 years ago at a time when the economy appeared strong, have been given more credence by this year's events.

When asked when the U.S. economy would collapse, Panarin said: "It is already collapsing. Due to the financial crisis, three of the largest and oldest five banks on Wall Street have already ceased to exist, and two are barely surviving. Their losses are the biggest in history. Now what we will see is a change in the regulatory system on a global financial scale: America will no longer be the world's financial regulator."

When asked who would replace the U.S. in regulating world markets, he said: "Two countries could assume this role: China, with its vast reserves, and Russia, which could play the role of a regulator in Eurasia."

Asked why he expected the U.S. to break up into separate parts, he said: "A whole range of reasons. Firstly, the financial problems in the U.S. will get worse. Millions of citizens there have lost their savings. Prices and unemployment are on the rise. General Motors and Ford are on the verge of collapse, and this means that whole cities will be left without work. Governors are already insistently demanding money from the federal center. Dissatisfaction is growing, and at the moment it is only being held back by the elections and the hope that Obama can work miracles. But by spring, it will be clear that there are no miracles."

He also cited the "vulnerable political setup", "lack of unified national laws", and "divisions among the elite, which have become clear in these crisis conditions."

He predicted that the U.S. will break up into six parts - the Pacific coast, with its growing Chinese population; the South, with its Hispanics; Texas, where independence movements are on the rise; the Atlantic coast, with its distinct and separate mentality; five of the poorer central states with their large Native American populations; and the northern states, where the influence from Canada is strong.

He even suggested that "we could claim Alaska - it was only granted on lease, after all." Panarin, 60, is a professor at the Diplomatic Academy of the Russian Ministry of Foreign Affairs, and has authored several books on information warfare.

Developing...

Now even the Russian's are seeing things that the loony left here can't see.

Just for the sake of analyzing, I would have to say that you will find me in Texas if this happens. The Pacific Coast region will be us just an extension of Beverley Hills and San Francisco without the rest of the country weighing them down. PETA, FCLU, Sierra Club Eco-loonies... I think you can picture what this place will be like. The Central (Oklahoma, Kansas, Missouri, Nebraska, Wyoming, the Dakotas, Montana, and Idaho) and South (I'm assuming Arizona and New Mexico and Colorado) will both be sparsely populated and rural. The north (Minnesota to Pittsburg) will be just like Canada while the Atlantic Coast will be indistinguishable from Europe. That will leave all of us here at Redstate with one place - Texas. And this will be the most prosporous region of them all.

All hypotheticals aside, this really isn't a funny situation.

There have been superfluous opines and dissertations, many on this blog, about the wisdom of Paulson’s bailout plan. This would be the contrivance where we throw lots of our money to everyone with a hand out and live happily ever after. Not only is Mr. Paulson’s plan a case of “too little, too late”, but it is the wrong plan and was stated as such by several Republicans with foresight. I have purposely used the word “foresight”, since at the time of protest they were called all types of bad names by Democrats.

For those of trying to conjure the ghost of Ronald Reagan and gratuitously parroting his words in a nonsensical way, the action of those few is called leadership. When a crisis grips, one grabs hold of principle as they would the mast of a ship in a hurricane. Notice I did not say one jumps overboard and become a fish. Remember, fish are slimy. Conservatism and leadership are not. They are about ideals and perseverance, not individual men or yielding in the interest of amity.

This all brings us to something that actually does not smell fishy and is very simple to grasp. It is the point at which I agree with Columbia Professor Charles Calomoris. Mr. Calomoris is the Henry Kaufman Professor of Financial Institutions at Columbia University’s business school; which means he knows a little bit about this crisis. Admittedly, we don’t always agree, but he happens to nail this head on. Witness the following from a Wall Street Journal interview with Dennis Berman;

DJ: So what’s the matter with some of Paulson’s latest ideas?

CC: Warrants are a bad idea. They dilute common stock holders, and make it harder to design common equity. It’s been a design flaw all along. It’s all a part of thinking of these things in terms of deals. They’ve got Warren Buffett envy.

But in terms of ways that truly recapitalize a bank, they’re truly idiotic.

If you attach warrants that are dilutive, it’s harder to issue common stock. If you want to make money, go buy stock. If you want to increase the net worth of a bank, make that coupon as low as possible and require matching common stock issues. If you learn you can’t do it [the common stock match] then have to decide whether to do a common stock injection, an assisted merger, or shut the bank down.

Ouch. Does this mean there are other culprits aboard the good ship Stupid? You bet. Professor Calomoris explains to the adoring Obama fans, bailout acolytes and other big government, yes we can worshipers;

Democrats didn’t want anyone [economists] testifying because it was before an election and no one was willing to stand before that bulldozer known as Paulson. No one wanted to make tough political decision before the election. They didn’t empower any experts to come in and testify. Why is that? They were playing politics too. That’s what we’re dealing with — a complete leadership failure in Congress and the administration.

In closing, let me provide my own perspective gleaned from over 20 years in financial services. Lower taxes and across the board measures such as loss sharing would do more to help this situation than any of the fakery, panic provoking, grandstanding moves made to date. Remember, as my first mentor told me a long time ago; “the market hates uncertainty”. Ask yourself; is there anything in this economic situation toady that is certain? The rhetorical answer is a resounding no

Originally published by Mike “gamecock” DeVine as Legal Editor for The Minority Report

One of the factors restraining investors since 2006 and even before the Fannie Mae housing/credit crunch bubble burst, has been their knowledge that income from any investments would be subject to higher tax rates after 2010.

Hear the breathless, panting Drive-By media:

Obama is said to be reconsidering one key campaign pledge – his proposal to repeal the Bush tax cuts for the wealthiest Americans. Several people familiar with the discussions told The New York Times that he instead might let those tax cuts expire as scheduled in 2011, effectively delaying any tax increase while he gives his stimulus plan a chance to work.

So we are supposed to jump up and down that the same Democrat policy that helped gring the economy to a halt since they took power in 2007 will continue?

Filibuster threats from the Senate Democratic Party minority prior to their return to the majority in 2006 blocked GOP attempts to making the 2001 and 2003 Bush tax rate cuts permanent. Those are the tax cuts that prevented a recession after 911 and which fueled economic growth from 2002-2006 that exceed GDP averages of the 70s, 80s and 90s.

What is it about economic growth that Democrats don't like?

One of the other main factors that has caused investors to go on strike over the course of the permanent Obama campaign has been the prospect that he or another tax raising Democrat would win, coupled with the prospect that Obama would accelerate the tax hike.

Yet, we are supposed to swoon at his feet if he merely doesn't accelerate? McClatchy's James Rosen catches his breath enough to report:

Some Republicans might be won over [to the Keynesian stimulus package] should Obama decide not to repeal the Bush tax cuts for those making more than $250,000. By letting the cuts expire after 2010, as the law provides, Obama would in effect delay the tax increase that high-income taxpayers would have faced in the next year or two under his original plan.

That could have both economic and political benefits. Obama would not be open to the charge from Republicans and other critics that he is raising taxes in a recession, which many believe is counterproductive.

The press is treating the prospect that Obama would not raise taxes sooner as action, while unwittingly conceding the obvious fact that tax hikes hurt the economy.

Let's take this one step further. What America needs are tax rate cuts, especially on capital and corporations. The whole Paulson bailout plan was made necessary due to a lack of capital available for loans. And America's corporate tax rate is one of the highest in the world.

Moreover, while I have no objection to a stimulus bill in theory, the fact is that government spending of that kind doesn't change investor behavior like supply side tax cuts, unless it is on a war-like scale, and even then it usually is accompanied by inflation and can't be sustained for long wars.

The evidence is in. Witness GDP from 1929-1940 vs. the early 60s and 1983-2006.

Too bad most Democrats and the press know so much that isn't so, like:

By letting the tax cuts expire, Obama would get the benefit of higher revenues in 2011 and beyond to help finance his promised health care plans without having to propose raising taxes on the affluent, and without the Democratic majorities in Congress having to take a vote on a tax increase.

Such ignorance. Lower tax rates increased tax revenues following JFK (pictured rocking above just before delivering tax cut speech) , Reagan and Bush 43's tax rate cuts. The whole news article reeks of political maneuvering, as opposed to sober economic analysis.

The GOP needs to hammer these facts home. They must not accept scraps from the President-Elect's tax table. Demand the main course. Obama professes to admire JFK and Reagan.

Let's remind him why he should and demand tax cuts now, rather than being content to settle for delays in tax hikes. Let's put him in a rocker like JFK's if we have to.

Mike DeVine’s Charlotte Observer, Examiner.com and Minority Report columns

"One man with courage makes a majority." - Andrew Jackson

My take on how Team Obama is dealing with matters economic is up at the Arena.

This is your "shock doctrine." As is this. Now, if you want to write a book explaining how crises get used by ideologues to impose policy on the rest of us, you have a perfect excuse to do so. What's more, your hypothetical book will bear a much greater relationship with reality than the one in which you misquoted and libeled Milton Friedman.

See? This works out for everyone!

Now, get cracking and write that book. Think of it as a way to salvage what's left of your reputation.