Bad Economic News
It seems like almost everywhere you turn these days there is bad economic news. Foreclosures are setting records, unemployment remains depressingly high, poverty is exploding, U.S. government debt is wildly out of control and Europe is on the verge of an economic collapse that could send the entire globe into a devastating financial panic. If all that wasn't enough, the oil spill in the Gulf of Mexico has destroyed the seafood and tourism industries along the Gulf coast and threatens to push that entire region into a depression for years to come. The truth is that the more you look at the economic statistics coming in from around the globe the more it becomes obvious that we are headed for a complete and total economic nightmare.
Just consider some of the most recent economic news....
*The number of U.S. home foreclosures set a record for the second consecutive month in May. How can the U.S. housing industry be recovering when the number of Americans being foreclosed on continues to set all-time records?
*As of March, U.S. banks had an inventory of approximately 1.1 million foreclosed homes, up 20 percent from a year ago. Instead of working their way through the huge backlog of unsold homes, U.S. banks continue to pile up a massive inventory of foreclosed homes at a staggering pace.
*According to figures from the U.S. Commerce Department, housing starts in the United States fell 10 percent in May, the biggest decline since March 2009. The data also revealed that single-family home starts suffered the biggest drop since 1991. There is already a massive glut of unsold homes on the market, so builders simply do not think it is profitable to build many new homes right now.
*Officials now tell us that the cost of "fixing" Fannie Mae and Freddie Mac, the government-backed mortgage companies that last year bought or guaranteed the vast majority of all U.S. home loans, will be at least $160 billion and could grow as high as $1 trillion. The twin pillars of the U.S. mortgage industry have become financial black holes that the U.S. government endlessly pours massive amounts of cash into. That is not a good sign.
*Fannie Mae and Freddie Mac are to be delisted from the New York Stock Exchange because their stock prices have been trading under $1 per share for more than 30 trading days. The truth is that Fannie Mae and Freddie Mac would have completely imploded by now if the U.S. government had not decided to step in and bail them out.
*The average duration of unemployment in the United States has risen to an all-time high. Not only are a ton of Americans out of work, they can't find work for a very, very long time once they are unemployed.
*For Americans younger than 25 years of age, the unemployment rate is 18.8%. But even those young Americans that can find employment often find themselves working in very low paying service jobs.
*Federal Reserve Chairman Ben Bernanke says that the U.S. unemployment rate is likely to stay "high for a while". Considering how badly Bernanke has been doing his job, it would be really nice if we could add just one more person to the unemployment rolls.
*According to one new study, approximately 21 percent of children in the United States are living below the poverty line in 2010 - the highest rate in 20 years. There are hundreds of thousands of American children on the streets each night, and yet we continue to insist that we are the greatest country in the world.
*For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011. How many tens of millions of Americans have to be on food stamps before we officially say that we are in a depression?
*According to the Wall Street Journal, the debates have begun inside the Fed about what it should do in the event of a "double dip" recession. If they are already debating what to do during the next economic downturn that means it is probably a foregone conclusion.
*If you were alive when Christ was born and spent one million dollars every single day from then until now, you still would not have spent one trillion dollars by now. But somehow the U.S. government is now over 13 trillion dollars in debt. According to a U.S. Treasury Department report to Congress, the U.S. national debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015.
*It is being projected that the U.S. national debt will grow to surpass our gross domestic product in 2012. Needless to say, that is a really, really bad sign.
*The total of all government, corporate and consumer debt in the United States is now equal to 360 percent of GDP. At no point during the Great Depression did we ever even come close to such a figure.
But things may be even worse in Europe right now. Unfortunately for the U.S., when Europe experiences an economic collapse it will devastate the American economy as well.
The economic news coming out of Europe lately has been extremely alarming....
*George Soros says that a European recession next year is "almost inevitable". Considering how much access George Soros has to inside information, the fact that he is so pessimistic about Europe is a very troubling thing indeed.
*A report by the Bank for International Settlements says that the debt crisis hitting southern Europe resembles the 2007 subprime mortgage crisis. Is history about to repeat itself?
*Moody's has downgraded Greece government bond ratings into junk territory, citing the risks inherent in the rescue package that the rest of the eurozone has put together for them. Soon Spain, Portugal, Italy, Ireland, Romania and a number of other European nations could have their debt downgraded as well.
*The U.K.'s new Office for Budget Responsibility has announced that the U.K. economy was more damaged by the recent financial crisis than previously admitted, and that it may never fully recover. But the same could be said for many other nations across the world as well.
*21.5% of all working-age people in the U.K. do not have a job. It seems like almost every country has a shortage of jobs these days.
*New U.K. Prime Minister David Cameron is warning that Britain's "whole way of life" is about to be significantly disrupted for years by the most drastic public spending cuts in a generation. In fact, severe austerity measures being implemented all across Europe could make this one of the most "interesting" European summers in ages.
*Spanish banks are borrowing record amounts of money from the European Central Bank as Spain's financial institutions are finding it increasingly difficult to acquire funds in international capital markets. But the truth is that it isn't just Spanish banks that are facing a liquidity squeeze - the entire world is heading for a massive credit crunch.
But the biggest piece of bad economic news of all is the nightmare that is unfolding in the Gulf of Mexico. There is no way that the southeast United States is going to be the same after this. Hordes of businesses and entire industries have been literally destroyed over the past two months. The total economic damage from this unprecedented disaster will easily run into the hundreds of billions of dollars. This is an economic blow that the teetering U.S. economy simply could not afford right now. Once the oil finally stops flowing the crisis will not be over. In fact, the aftermath from this oil spill could end up echoing for decades.
So are things bad out there? Yes, things are incredibly bad and they are about to get a whole lot worse. In fact, there are so many cancers eating away at the U.S. economy that it would take an entire book to detail them all.
What we are dealing with is not "just another recession" or "just another economic downturn". What we are witnessing is the fundamental unraveling of the monstrous debt spiral that our economy is based upon. Any economy that is built on a foundation of debt and paper money is inevitably doomed.
So yes, the bad economic news is going to continue. Things may get better for a while here and there, but the truth is that we are caught in a long-term spiral of economic decline from which there is no escape.
So what do you think? Do you believe that there is hope for the U.S. economy? Feel free to leave a comment with your opinion....
Stimulus Waste
Stimulus Waste
Back in February 2009, the U.S. Congress passed an $862 billion "economic stimulus" bill to help the struggling American economy recover from the horrible financial crisis of 2007 and 2008. Right now, federal agencies are spending this stimulus money at the rate of approximately 196 million dollars an hour, and they will continue to spend it in staggering amounts up until the September 30, 2010 deadline. Unfortunately, instead of being spent on useful projects that would revitalize U.S. industry and put American workers back to work, much of this money is being flushed directly down the toilet on some of the most wasteful projects imaginable. The truth is that nobody is better at wasting money than the U.S. government. In fact, some of the things that the U.S. government has been spending money on are absolutely mind blowing.
The following are just some of the examples of "stimulus waste" that we have seen over the last 16 months....
*Florida Atlantic University in Boca Raton, Florida used $15,551 in stimulus money to pay two researchers to study how alcohol affects a mouse's motor functions.
*The U.S. government handed over a staggering $54 million in "stimulus cash" to Connecticut's politically-connected Mohegan Indian tribe, which runs one of the highest grossing casinos in the country.
*Syracuse professor of psychology Michael Carey received $219,000 in federal stimulus money for a study that examines the sex patterns of college women.
*$1.15 million in stimulus funds was allocated for the installation of a new guard rail around the non-existent Optima Lake in Oklahoma.
*Researchers at the State University of New York at Buffalo received $389,000 to pay 100 residents of Buffalo $45 each to record how much malt liquor they drink and how much pot they smoke each day. Instead of spending nearly $400,000, the U.S. government could have achieved the same goal by having a couple of scientists join a fraternity.
*$100,000 in federal stimulus funds were used for a martini bar and a brazilian steakhouse.
*A dinner cruise company in Chicago got nearly $1 million in stimulus funds to combat terrorism.
*$233,000 in stimulus money went to the University of California at San Diego to study why Africans vote.
*The Cactus Bug Project at the University Of Florida was allocated $325,394 in stimulus funds to study the mating decisions of cactus bugs. According to the project proposal, one of the questions that will be answered by the study is this: "Whether males with large weapons are more or less attractive to females."
*One Denver developer received $13 million in tax credits to construct a senior housing complex despite that fact that the same developer is being sued as a slumlord for running rodent-infested apartment buildings in the city of San Francisco.
*Sheltering Arms Senior Services was awarded a contract worth $22.3 million in stimulus money to weatherize homes for poor families in Houston, Texas - but a new report from Texas Watchdog says that the weatherization work was performed so badly that 33 of the 53 homes will need to be completely redone.
*A liberal theater in Minnesota named "In the Heart of the Beast" (in reference to a well known quote by communist radical Che Guevara) received $100,000 for socially conscious puppet shows.
*California's inspector general found that $1 million in stimulus funds for a program to give summer jobs to young people was improperly used for overhead expenses such as rent and utility bills.
*Landon Cox, a Duke University assistant professor of computer science, was awarded $498,000 in stimulus money to study Facebook.
*The town of Union, New York is being urged to spend $578,000 in stimulus money that it did not request for a homelessness problem that it claims it does not have.
*Lastly, who could forget the $3.4 million "ecopassage" to help turtles cross a highway in Tallahassee, Florida?
Yes, the U.S. government sure knows how to waste money.
And the truth is that there is simply no way that the U.S. government would have been able to accumulate a debt of over $13 trillion dollars (and growing exponentially) without being incredibly skilled at wasting money.
In fact, the Pentagon says that there are literally trillions of dollars that it cannot account for.
Now how in the world do you lose track of trillions of dollars?
That takes some major league incompetence.
It is enough to make you want to pull your hair out. We were once the wealthiest, most prosperous nation on the planet, but we have recklessly squandered our great wealth. Over and over we kept voting for corrupt politicians who endlessly wasted our money on the most ridiculous things.
So now we will pay the price.
We are already being taxed brutally, but because of all the debt our "leaders" have gotten us into we are going to be taxed even more. We did not demand accountability from our government, and so now we get to face the consequences.
But no amount of taxes will ever be enough for this government. If we give them more money they just take that as a signal to get into even more debt. As a nation we are on a path that can only be described as financial insanity.
So is there any hope that the U.S. government will stop wasting so much money? Not with the current collection of Republicans and Democrats that currently inhabit Washington D.C.
The truth is that both parties have been wasting our money for decades. Many politicians will often talk about the need to "control spending", but when time comes to do it very few of them are ever willing to take action.
So until the American people decide to start sending a different kind of politician to Washington D.C. we are probably going to continue to see huge mountains of money being wasted.
Wake up America.
No Taxpayer Bailouts or Liability Caps for BP!
No Taxpayer Bailouts or Liability Caps for BP!
by Ron Paul
Sadly the disaster in the Gulf continues this week as BP's efforts at containment keep hitting snags and residents along the coast scramble to clean up and defend their shores and wildlife. Many have criticized the federal government in the past weeks for not doing enough. The reality is, there is only so much government can do to help, yet a lot they can do to prolong the problem and misdirect the pain.
For example, in the interest of doing something, the administration has enacted a unilateral ban on offshore drilling. This is counterproductive. I am proud to co-sponsor legislation to lift that ban. Why punish other oil companies and their hardworking employees who had nothing to do with the disaster and who have better safety records? And, as usually happens after disasters, countless people, even officials in local and state government, have come forward who know what needs to be done and are willing to help but have been stymied by federal bureaucratic red tape as the oil continues to gush.
The real problem is not so much a lack of government assistance but government getting in the way of those who have solutions. We witnessed the same phenomenon during hurricanes Katrina and Ike. It seems government's main role in these situations is to find excuses to stall relief, hold meetings and press conferences, waste money, punish the wrong people, and overregulate. Yet even after many examples of past incompetence people still look to government to solve problems in the wake of disaters. A government that tries to be all things to all people might engender a lot of learned dependence, but ultimately it only harms the very people it is supposed to help, to serve as they wait hopelessly for salvation from Washington.
Government could help by holding the appropriate parties fully liable for damages and cleanup costs. I am hopeful that efforts to do this are genuine and BP is indeed held responsible for all damages, not shielded by liability caps or reimbursed under the table by taxpayers. Unfortunately a large sum of taxpayer money has been slipped into the upcoming supplemental bill for Gulf cleanup costs that should fall on BP. Taxpayers should not have to bail out a major oil company that has caused this horrible damage to our shores.
It should be noted that BP is not exactly a bastion of free-market capitalism. Rather they are very vested in acquiring government subsidies, favorably slanted policies and competition-hobbling regulation. BP has been a major proponent of cap and trade because of certain provisions in the legislation it could profit from. Considering who lobbies for them and what they lobby for, my concern is that attempts to hold them strictly and fully accountable could end up being nothing more than a shell game with taxpayers ultimately holding the bag.
If the government's idea of action in crisis is to punish the innocent, bail out the guilty, and raise prices at the pump on everybody, we should want them to do less, not more. Recent polls show sharply waning support for offshore drilling. We still need oil, and a lot of good jobs dpend on oil production. It is crucial to the functioning of our economy, but if accidents continue to be handled this way it is easy to understand why so many see more cost than benefit to offshore drilling. That is also a tragedy.
How will the new exchange rate regime affect the Chinese economy?
How will the new exchange rate regime affect the Chinese economy?
| Barry Eichengreen Andrew K. Rose |
China’s announcement of greater renminbi flexibility was welcomed by US and European leaders. This column discusses new empirical research on what happens to economies when they exit exchange rate pegs that are resisting appreciation. Data from 27 cases suggest that growth slows but only modestly, and there is no evidence of economic and financial damage as a result – certainly nothing like the fears that China's next decade could look like Japan’s lost decade.
China’s announcement on 19 June that it will abandon its currency peg to the dollar and henceforth manage the renminbi more flexibly against a basket of currencies will have implications for the world economy, but most of all it will have implications for China (Evenett 2010). Assume that Beijing now allows the renminbi to appreciate. How will this affect the Chinese economy?
Some warn that there could be a sharp slowdown in Chinese growth, with adverse effects on the export sector and financial markets. They point to the appreciation of the yen in the 1970s and again in the 1980s, followed first by a sharp slowdown in Japanese growth and then a lost decade.
Others say that these fears are overblown. They note that the renminbi’s appreciation in 2005-8 had little visible impact on Chinese exports and economic growth. The rebuttal here is that the currency’s appreciation was so limited in duration and magnitude – the renminbi rose against the dollar by only 7% a year and even that was halted after 12 quarters – that it is not possible to draw general conclusions from this experience.
Moreover, the backdrop to the 2005 episode was special. The world economy was booming, and the Chinese economy itself was in an exceptionally strong position. This episode, it is objected, was sui generis.
It would be nice if we had a larger sample of analogous episodes from which to infer.
New research: Evidence from 27 upward peg exits
In a new paper, we ask what can be learned from other times and places about the likely effects of China now exiting its de facto pegged exchange rate regime in favour of renewed currency appreciation. It turns out that it is possible to construct a sample of other “exits up,” although the resulting data set is relatively small.
We have identified 27 instances where a fixed peg was abandoned and the currency appreciated over the subsequent year either against the dollar or Special Drawing Rights. Many of these are clustered around the end of the Bretton Woods System in the early 1970s, although there are also a number of other episodes ranging from Equatorial Guinea in 1979 to Mozambique in 2004 and Malaysia in 2005. The average rate of appreciation in the first year is not too different from China’s 2005-8 average of 7% (Eichengreen and Rose 2010).
What do we find?
The average annual rate of GDP growth slows by 1 percentage point between the five years preceding the exit and the five years following. But there is no growth collapse. Exiting up does not doom the economy to a Japanese-style lost decade.
More generally, we find little evidence of economic and financial damage as a result of exits up.
- There is no increase in the incidence of banking and financial crises.
- There is no evidence of significant stock market declines.
- There is no evidence of a significant deterioration in the current account.
- There is no evidence of a significant fall in the investment rate.
A variety of other economic and financial variables are similarly unaffected.
- While the rate of export growth slows from 9.5% to 5.5% per annum, the rate of import growth slows by nearly the same amount.
Because countries that exit up were growing faster than other countries in the five years preceding the policy change – by 1.5 percentage points per annum on average – it is hard to say whether the slowdown is a healthy correction that avoids overheating or something more. One bit of evidence is that countries that exit up were also running higher inflation than other countries in that preceding period, consistent with the overheating view. Their inflation rate is about 5 percentage points higher, too big a difference to be explained away on Balassa-Samuelson grounds.
Why the growth slowdown?
So what accounts for the growth slowdown in a proximate sense? Since the rates of growth of exports and imports slow by the same amount, the answer is not the contribution of net exports. Nor are there significant changes in the rate of growth of investment and government spending. Rather, there is a significant slowdown in the growth of household consumption. With the country now exporting less, there is a decline in consumption of both imports and domestically-produced goods (all relative to their prior rates of growth). Again, this could be a healthy adjustment to more sustainable growth rates that avoids overheating. Or it could be that the slowdown could have been avoided entirely had the government boosted public consumption and taken measures, such as liberalising financial markets and developing the social safety net, to encourage household consumption.
What are the implications for China?
The experience of other countries gives little reason to think that an exit up will have seriously adverse consequences for the economy. But it points to the possibility of economic growth slowing. If the authorities wish to limit the risk of an excessive slowdown, they can maintain the level of public spending and redouble their efforts to foster the growth of private consumption. If more domestic spending means more spending on, among other things, imported goods, this will represent a Chinese contribution to global rebalancing.
China Forex Move Could Thwart US Hopes
China Forex Move Could Thwart US Hopes: Roubini
China's decision to move away from its currency peg might mean the yuan weakens against the dollar instead of strengthens as Washington wants, Nouriel Roubini, one of Wall Street's most closely followed economists, said Saturday.
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ChinaFotoPress | Getty Images Nouriel Roubini |
China said Saturday it would gradually make the yuan more flexible after pegging it to the dollar for nearly two years, a move that the U.S. government and others around the world have long been calling for.
"This is the first significant signal in years of a change in Chinese currency policy," Roubini, best known for having predicted the U.S. housing meltdown, told Reuters.
But it remains to be seen how China would put the new system into practice including the composition of a basket of currencies that Beijing will use as a reference point for the yuan—also known as the renminbi—and the base date for that basket, he said in an e-mail.
"Since they have not changed the previous range for the band—plus or minus 0.5 percent—most likely on Monday China will allow the renminbi vs U.S. dollar to move," said Roubini.
The yuan has risen sharply in recent months against the euro, which sank over Europe's debt problems, so a stronger yuan could not be taken for granted, he said.
If the euro were to continue to depreciate, "the renminbi would have to be allowed to depreciate relative to the dollar, a paradoxical outcome," Roubini said.
His comments echoed those of an adviser to China's central bank Saturday.
Li Daokui, an academic adviser to the monetary policy committee of the People's Bank of China, told Reuters in Beijing that the yuan could depreciate against the dollar if the euro falls sharply against the U.S. currency.
Roubini, like other analysts, said a major strengthening of the yuan looked unlikely.
"Even if the Chinese were to allow a gradual renminbi appreciation relative to the U.S. dollar, the size of such appreciation would be modest over the next year, not more than 3 or 4 percent as the trade surplus has shrunk, growth is likely to slow down on China and labor/employment unrest remains of concern to the Chinese."
Time Is Running Out .........
By Peter Morici
Either President Obama fixes what's broken in the economy, or he will be remembered for spending his entire first term blaming George Bush.
Last week's jobs report was terrible for the 11th month in a recovery. With nearly $800 billion in stimulus spending at its point of maximum impact, federal employment -- net of temporary census jobs -- was up a mere 1,000 in May.
Private-sector employment was up an insignificant 41,000, only one-fourth the pace of the previous two months. Retailers are again cutting employment, as consumers, turned pessimistic, flee the malls. Making worse a stock market panicked by European debt woes, the President claims his policies are working.
After all, health care reform and the prospects of much higher taxes and more regulations are causing U.S. businesses to rush out and hire everyone they can before all the able-bodied are gone.
The economy is skating precariously on the edge of a second dip -- this time into a depression -- and the president should radically alter policies to ensure that doesn't happen.
The private sector provides good examples. The Motor City is motoring again. U.S. automakers are gaining market share over import rivals, because Ford(F) has convinced car buyers that Americans can still make quality vehicles -- without a government bailout or blaming prior management for a heavy debt burden.
Now Americans are finally willing to test drive not just Fords, but GM and Chrysler cars too. It's amazing what a focus on the customer can do!
Now is the time to apply that thinking to Washington. The recovery is faltering because U.S. businesses lack customers to justify new employees and the capital to expand, and they want help on both scores.
Demand for U.S. products is growing just 2% a year because of a gapping trade deficit -- purchases of oil and from China are sending too many dollars abroad that don't return to buy U.S. exports.
Businesses don't have the capital they need, because the TARP did not fix the balance sheets of the 8,000 regional banks, which finance most small and medium-sized businesses. Instead, it was used by the Bush and Obama administrations to finance more trading and big bonuses at Wall Street banks.
Rather than denying the lousy jobs report, President Obama should use it to justify tackling the trade deficit and shortage of capital with the same energy he condemns his Republican predecessor, whose policies he continues: fruitless talks with China and soft financial reforms.
Now, China, thanks to its artificially undervalued yuan, is suffering inflation, and is raising interest rates. And, Europe has run through the bond market's patience and must cut spending.
Those policies are hauntingly Hoover-esque and could cast the global economy into a long and painful depression, unless U.S. policy counters.
The U.S. already has the most stimulative fiscal policy imaginable and rock-bottom interest rates, but President Obama has other options if he can well up the courage to ignore his Ivy League advisers.
Detroit has the technology to produce much more fuel-efficient vehicles now, and a national policy to rapidly build those would push out imported oil and create many new jobs.
China buys dollars and sells yuan to keep its products artificially cheap on U.S. store shelves, and Beijing will not quit this mercantilism until the U.S. acts.
The U.S. should tax dollar-yuan conversions to raise the price of Chinese imports to their true cost to the U.S. economy. This would increase demand for U.S. manufactured goods and impel China to refashion policies toward internally driven growth, lower inflation and more reciprocally beneficial bilateral commercial relations.
The creation of an entity like the Resolution Trust Corp., which dealt with the Savings and Loan Crisis, could relieve regional banks of troubled loans and mortgage-backed securities, make a profit for taxpayers, and get banks lending to businesses and homebuyers again.
At some point a successful president must abandon textbook economics, embrace pragmatism and stop blaming his predecessor for the hand he was dealt.
For Barack Obama, that time is now.
Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.
China's Yuan Policy Makes Fed Irrelevant
By Peter Morici
When the Federal Reserve Open Market Committee meets Wednesday, no one expects it to raise the federal funds rate -- the overnight bank rate that now hovers below 0.25%. However, businesses, politicians and prognosticators are eager, perhaps inappropriately so, to hear clues about when it will begin raising short-term interest rates to a more normal level.
Simply put, Fed policy is much less relevant to U.S. growth and price stability than in the days of Paul Volcker. That's because China's yuan policy has substantially limited the importance of Fed interest rate decisions by severing the historic link between short interest rates -- like the federal funds rate it targets -- and long rates on mortgages, corporate bonds, and the securities banks use to finance lending on cars and credit cards.
Through the boom years of the last decade, Beijing printed yuan to purchase hundreds of billions of dollars in foreign exchange markets. That made the yuan and Chinese products on U.S. store shelves artificially cheap, and imports from China, coupled with higher prices for imported oil, pushed the U.S. trade deficit to more than 5% of gross domestic product from 2004 to 2008.
When Americans spend that much more abroad than foreigners purchase in the United States, American goods pile up in warehouses and a steep recession will result, unless Americans spend much more than they earn or produce.
During the boom, China facilitated such folly by using its dollars to purchase U.S. Treasury securities, and that kept U.S. long interest rates artificially low even in the face of Federal Reserve efforts to rein in spending.
From 2003 to 2006, easy terms prevailed on mortgages, homeowner lines of credit, car loans, and credit cards even as the Fed raised the federal funds rate. Americans borrowed against their homes, pushed real estate prices to unreasonable levels and spent on Chinese goods at Wal-Mart (WMT) until the credit bubble burst in late 2007 and 2008.
China continues to recklessly print yuan to buy dollars and U.S. Treasuries, and all those yuan are creating inflation and real estate speculation in China that Beijing can't contain.
With the dollar still overvalued by some 40% or 50% against the yuan, the U.S. trade deficit with China, and other Asian countries practicing similar currency mercantilism, is growing again. This deficit saps demand for U.S. goods and services, slows U.S. recovery, suppresses U.S. land values and fuels fears of deflation in the United States, even though the U.S. banking system is flush with cheap credit from the Fed.
The fact is nothing the Fed does can appreciably accelerate U.S. economic recovery or stem deflation as long as China continues to print yuan, buy dollars and U.S. securities, and make its products woefully cheaper than its comparative advantage warrants in the United States and Europe.
Coupled with its high tariffs and administrative barriers to imports on anything the Chinese can make themselves, no matter how awkwardly or inefficiently, Beijing is hogging growth and jobs and spreading unemployment and budget misery among workers and governments from Sacramento to Athens.
This past weekend, Beijing announced it will permit some more exchange rate flexibility, but we have heard those words before. China will likely permit the yuan to rise slightly against the dollar -- much less than 6% a year -- while the true value of the yuan rises much more, thanks to Chinese modernization and productivity improvements.
China's announcement is a cynical ploy to assuage critics less than a week before G20 meetings, and without a substantial one-off revaluation of the yuan, Beijing's words are hypocritical and selfish.
China's yuan policy makes the Fed nearly irrelevant but for crisis management such as bailing out big banks and European governments that make fatal mistakes.
Worse, President Obama's failure to take strong action against Chinese currency manipulation -- for example, a tax on dollar-yuan conversion to make the price of Chinese products reflect their true underlying cost -- crippled the jobs creation effectiveness of his $787 billion stimulus package and delivers ineffective his broader efforts to resurrect the U.S. economy.
Obama's exclusive reliance on diplomacy forfeits U.S. monetary policy to Beijing, renders impotent U.S. fiscal policy, and visits enormous pain on American workers.
A Feminist Flare Up
By Cathy Young
Perhaps all the talk of the "Year of the Conservative Woman," sparked by the crop of fairly conservative Republican women running for office, has slightly unhinged some feminists on the left. Or maybe it's a flare-up of the Palin Derangement Syndrome caused by Sarah Palin's galling insistence on calling herself a feminist. For whatever reason, the Feminist Dogma Police is out in force, handing down edicts on where the party lines must be drawn -- and, for whatever reason, they have been getting a platform for these edicts not in specialty publications but in the mainstream media. The loser, ultimately, is feminism itself.
First, The Washington Post ran blogger Jessica Valenti's diatribe against Palin and other women who, in her view, were trying to usurp the feminist mantle. Sure, Valenti allowed, diversity of opinions is good -- but goddess forbid there should be feminists who dissent from the sisterhood's orthodoxy on abortion or pay equity, or who believe that women in America today are not oppressed by "the patriarchy." Then, Slate.com published a piece by another big gun of the left-wing feminist blogosphere, Amanda Marcotte, titled "A short history of 'feminist' anti-feminists" and painting Palin as the latest in a line of "women who call themselves feminist" while opposing the feminist movement.
Marcotte's account, which identifies three generations of "feminist anti-feminists," is pretty shoddy history. For one, her first generation -- the Eagle Forum's Phyllis Schlafly or Concerned Women for America founder Beverly LaHaye -- consists of women who never called themselves feminists and explicitly opposed gender equality as counter to the God-given roles of the sexes. (Bizarrely, Marcotte even calls this first wave "plain ol' anti-feminism.") And her third generation, which includes Palin and is clumsily labeled "co-opting feminism anti-feminism," is a random list of women and organizations whose only common feature seems to be that they either oppose abortion or believe that women are ill-served by a sexually permissive culture.
Then there's Marcotte's attack on what she classes as the second wave of feminism's critics: "'Independent Feminism' Anti-Feminism," of which I myself have been a part. Arising in the early 1990s, "independent feminism" embraced the feminist challenge to women's traditional place but also asserted that the major battles for women's rights had been won -- and not only celebrated feminist achievements but questioned exaggerated claims of female oppression and male evil. Among other things, this dissident feminism criticized the tendency to redefine rape (particularly "date rape") so broadly as to include miscommunication due to mixed signals or sex under the influence of alcohol.
Marcotte sarcastically asserts that one of the major "victories" of "independent feminism" was "maintaining a cultural and legal framework that made it difficult to prosecute rape." What does this mean? Her previous writings on the subject provide some context. In 2006-2007, Marcotte emerged as a leader of the cyber-lynch mob in the Duke University rape hoax. On her blog, anyone questioning the guilt of the three lacrosse players charged with sexually assaulting an exotic dancer at a team party was branded a "rape apologist." In a particularly vicious broadside, she sneered at syndicated columnist Kathleen Parker for arguing that "unless the victim is 9 years old and a virgin and white and blonde ... rape isn't so much a crime as a feminist plot to put all men in jail." This wasn't so much hyperbole as outright distortion: while Parker had deplored the "rush to judgment" in the Duke case, she had explicitly condemned the notion that the alleged victim was less deserving of sympathy because she was a stripper. (Parker is one of the "independent feminists" on Marcotte's Slate blacklist.)
The true extent of Marcotte's hate-filled zealotry is evident in a profanity-laced rant she posted about a CNN special report on the Duke case aired after the rape charges were dismissed. (She later deleted the post when it became an issue in the controversy over her short-lived appointment as blog coordinator for the John Edwards presidential campaign.) Slamming CNN as "pure evil," Marcotte vented her outrage at having to "listen to how the poor dear lacrosse players at Duke are being persecuted just because they held someone down and f***ed her against her will," and concluded sarcastically, "Can't a few white boys sexually assault a black woman anymore without people getting all wound up about it? So unfair."
It seems that, in Marcotte's eyes, the real crime of the "independent feminists'" is helping preserve the idea that the presumption of innocence applies even in cases of rape and sexual assault. If so, that is indeed a victory. Depriving men of their civil rights is no victory for women -- both as a matter of principle and because most women have men in their lives whom they would not want to see face a false charge of rape under Marcotte-style standards of justice.
The real mystery is why a publication of Slate.com's stature, and its "women's section," Double XX, would run an article whose main purpose is to exclude dissent from feminist discourse and smear the dissenters. (Whether any respectable media outlet would extend such courtesy to a blogger who wrote about women, gays, or black men with the kind of vitriol Marcotte shows toward white males is another question.) What happened to letting a hundred flowers bloom?
For the record, I strongly disagree with some of the women on Marcotte's enemies list, right-to-life feminists in particular. Aside from the issue of government control over people's bodies, I am troubled by their tendency to portray women who have abortions as victims of predatory males -- rhetoric that echoes the "victim feminists" of the left. But that doesn't mean there should be no place at the feminist table for women who genuinely believe that abortion is the taking of a human life, no dialogue or search for compromise. Yes, even the biggest tent must have some boundaries: to expand "feminism" to include advocacy of male superiority or female submission would strip the concept of all meaning. But, last time I checked, women who held such views were in no rush to appropriate the term. And if the question is how best to achieve gender equity and how much of it has been achieved already, why not try debate rather than excommunication?
Cathy Young writes a weekly column for RealClearPolitics and is also a contributing editor at Reason magazine. She blogs at http://cathyyoung.wordpress.com/. She can be reached at cyoung@realclearpolitics.com
Energy Pipedreams
By Robert Samuelson
"For decades, we've talked and talked about the need to end America's century-long addiction to fossil fuels. ... Time and time again, the path forward has been blocked -- not only by oil industry lobbyists, but also by a lack of political courage and candor."
WASHINGTON -- Just once, it would be nice if a president would level with Americans on energy. Barack Obama isn't that president. His speech the other night was about political damage control -- his own. It was full of misinformation and mythology. Obama held out a gleaming vision of an America that would convert to the "clean" energy of, presumably, wind, solar and biomass. It isn't going to happen for many, many decades, if ever.
For starters, we won't soon end our "addiction to fossil fuels." Oil, coal and natural gas now supply about 85 percent of America's energy needs. The U.S. Energy Information Administration expects energy consumption to grow only an average of 0.5 percent annually from 2008 to 2035, but that's still a 14 percent cumulative increase. Fossil fuel usage would increase slightly in 2035 and its share would still account for 78 percent of the total.
Unless we shut down the economy, we need fossil fuels. More efficient light bulbs, energy-saving appliances, cars with higher gas mileage may all dampen energy use. But offsetting these savings are more people (391 million vs. 305 million), more households (147 million vs. 113 million), more vehicles (297 million vs. 231 million) and a bigger economy (almost double in size). Although wind, solar and biomass are assumed to grow up to 10 times faster than overall energy use, they provide only 11 percent of supply in 2035, up from 5 percent in 2008.
There are physical limits on new energy sources, as Robert Bryce shows in his book "Power Hungry: The Myths of 'Green' Energy and the Real Fuels of the Future." Suppose an inventor "found a way to convert soybeans into jet fuel," Bryce writes. "Even with that invention, the conversion of all of America's yearly soybean production into jet fuel would only provide about 20 percent of U.S. jet fuel demand." Jet fuel, in turn, is about 8 percent of U.S. oil use. Similarly, wind turbines have limited potential; they must be supported by backup generating capacity when there's no breeze.
The consequences of the BP oil spill come in two parts. The first is familiar: the fire; the deaths; coated birds; polluted wetlands; closed beaches; anxious fishermen. The second is less appreciated: a more muddled energy debate.
Obama has made vilification of oil and the oil industry a rhetorical mainstay. This is intellectually shallow, if politically understandable. "Clean energy" won't displace oil or achieve huge reductions in greenhouse gas emissions -- for example, the 83 percent cut by 2050 from 2005 levels included in last year's House climate change legislation. Barring major technological advances (say, low-cost "carbon capture" to pump CO 2 into the ground) or an implausibly massive shift to nuclear power, this simply won't happen. It's a pipedream. In the EIA's "reference case" projection, CO 2 emissions in 2035 are 8.7 percent higher than in 2008.
Rather than admit the obvious, Obama implies that other countries are disproving it. "Countries like China are investing in clean energy jobs and industries that should be right here in America," he said in his address. If China can do it, so can we! Well, whatever China's accomplishing on wind and solar, it's a sideshow. In 2008, fossil fuels met 87 percent of its energy needs, reports the International Energy Agency. Coal alone accounted for 66 percent. China represents about half the world's hard coal consumption. Usage grew 10.7 percent annually from 2000 to 2008.
The outlines of a pragmatic energy policy are clear. A gradually increasing tax on oil or carbon would nudge people toward more energy-efficient products, including cars. Any tax should be part of a budget program that includes major spending cuts. This is a better approach than the confusing cap-and-trade proposals -- embraced by the House and the administration -- that would inevitably be riddled with exceptions and preferences. Finally, research and development should search for cheaper, cleaner energy sources.
Meanwhile, it's imperative to tap domestic oil and natural gas. This creates jobs and limits our dependence on insecure imports. Drilling advances have opened vast reserves of natural gas trapped in shale ("shale gas"). Human error and corner-cutting by BP seem the main causes of the spill. Given the industry's previously strong safety record, Obama's six-month moratorium on deepwater drilling isn't justified and should be shortened. It's not industry lobbyists that sustain fossil fuels but the reality that they're economically and socially necessary. A candid president would have said so.
U.S. Stocks Fall, Slowing Global Advance
U.S. Stocks Fall, Slowing Global Advance; Commodities Trim Gain
By Michael P. Regan and Kelly Bit
June 21 (Bloomberg) -- U.S. stocks fell, slowing a global rally, as the Standard & Poor’s 500 Index failed to remain above levels watched by traders and early optimism about China’s plan to revalue its currency faded in the last hour. Commodities pared gains and Treasuries trimmed losses.
The S&P 500 slipped 0.4 percent to 1,113.21 at 4 p.m. in New York after jumping as much as 1.2 percent in the first hour. The Reuters/Jefferies Index of commodities trimmed a 1.6 percent rally to less than 0.3 percent. Ten-year Treasury yields rose 2 basis points to 3.25 percent after surging as much as 8 basis points. The losses in U.S. stocks weren’t enough to erase a gain in the MSCI World Index, with the gauge of 24 developed markets rising for a 10th day, the longest streak in 11 months.
Retailers had the steepest decline among 24 groups in the S&P 500, losing 1.7 percent collectively, amid concern a stronger Chinese currency will boost the cost of importing goods from the country. U.S. equities extended losses as the S&P 500 failed to remain above a level marking a recovery of 50 percent of its bear-market plunge from a 2007 record and remained below its average levels over the past 50 and 100 days.
“The announcement out of China elicited an emotional response from the market,” said Alan Gayle, senior investment strategist at RidgeWorth Investments in Richmond, Virginia, which oversees $63 billion. “A closer look at the announcement suggests China’s approach is very gradual and it is continuing at its own pace. It’s a less dramatic move when looked at more closely.”
Yuan soars to post-revaluation high
Yuan soars to post-revaluation high
Related Interactive
SHANGHAI (Reuters) - China's yuan soared on Monday to its highest against the dollar since the landmark 2005 revaluation, with the central bank stepping aside and tolerating broad gains on the first trading day since scrapping the currency's two-year peg to the dollar.
The central bank declined to intervene, one of the few times in the yuan's modern history that is has stepped aside, and appeared to want the market to drive intraday trade, backing up its weekend pledge to allow greater flexibility.
Traders said it was unlikely the yuan would repeat gains on the same scale in coming days, with Tuesday's mid-point setting serving as an important barometer of how much more appreciation the People's Bank of China is willing to stomach.
"You cannot expect the yuan to shoot up 5 percent in two or three weeks, as the pace of Monday's rise implies," said a dealer at a North American bank in Shanghai.
Several dealers said they expected the PBOC to keep the mid-point unchanged on Tuesday, or even push it up as much as 50 pips, to effectively cap how much the yuan could rise.
The yuan is allowed to rise or fall 0.5 percent versus the dollar from the daily mid-point but rarely moves toward the extremes of that tight trading band.
The yuan closed at 6.7976 against the dollar, up 0.42 percent from Friday's close and marking its biggest daily gain against the U.S. currency since the revaluation set the currency free to move in a managed floating exchange rate system.
The yuan climbed as far as 6.7958 in intraday trade, another post-revaluation record and gained as much as 0.47 percent from the central bank's mid-point, nearly reaching the 0.5 percent daily trading band limit.
Under intense pressure to act before the Group of 20 meeting in Canada later this week, China ditched the dollar peg -- an emergency measure used to shield the economy from the global financial crisis and resulting recession.
NO REVALUATION
The central bank on Sunday ruled out a one-off revaluation similar to that of July 2005 and said there was no basis for any big appreciation, adding that it would keep the exchange rate at a basically stable level.
Before trade started on Monday, the PBOC set the yuan's daily mid-point at the same level as Friday -- 6.8275 -- disappointing some offshore players who were hoping for a clear sign of appreciation.
But as the PBOC pulled back from its often heavy daily interventions, foreign and Chinese banks drove the yuan sharply higher, suggesting that the PBOC is allowing the currency to become more market-driven during the day.
"If it wants, it can make its intentions clearly felt with tomorrow's mid-point, which will tell the market how much it will allow the yuan to rise in one day," said a dealer at a European bank in Shanghai.
A mid-point near the average of Monday's spot trades -- estimated by traders at about 6.8100 against the dollar -- would suggest the PBOC will tolerate more yuan strength heading into a Group of 20 meeting later in the week.
The rise in yuan implied volatility was limited, suggesting the market was not yet preparing for sharp gains or big daily swings like those seen on Monday.
NDFs JUMP, THEN STEADY
Foreign hedge funds and other players drove down dollar/yuan non-deliverable forwards, but not as sharply as might have been expected given the big move in spot, traders said.
In part that was because funds had already built up short positions before the surprise weekend announcement, and also because the PBOC's decision to keep the mid-point unchanged sparked a round of short covering.
Some traders said the steady mid-point on Monday was a deliberate effort by Chinese authorities to fend off speculators betting on yuan appreciation.
Even with the depegging of the yuan from the dollar, most traders are maintaining forecasts for the yuan to rise a maximum 3 percent in 6 months and 5 to 6 percent in a year.
Near-term three-month dollar-yuan non-deliverable forwards were quoted at 6.7350 in late trade, implying yuan appreciation of 1.4 percent over that period, but off a two-year low of 6.7200 hit in early trade against Friday's close of 6.7810.
One-year NDFs were at 6.6350 bid in late afternoon, implying 2.9 percent appreciation in a year compared with 1.8 percent implied on Friday, as measured from the mid-point. They had initially fallen as low as 6.6210.
Oil firms challenge Obama ......
Oil firms challenge Obama deepwater drilling ban
NEW ORLEANS/LAFITTE Louisiana (Reuters) - A judge promised to rule by Wednesday on an oil industry challenge to the Obama administration's six-month moratorium on deepwater drilling in the Gulf of Mexico after the worst oil spill in U.S. history.
U.S. District Court Judge Martin Feldman heard opening statements in New Orleans on Monday in a case in which more than a dozen companies involved in offshore drilling operations called the ban "arbitrary and capricious."
The lawsuit is the first case seeking to reverse Obama's May 28 moratorium, which the companies say will force job cuts in the labor force needed to service offshore oil platforms. The ban has caused the shutdown of 33 deepwater drilling rigs.
Obama imposed the six-month ban after an explosion aboard an oil rig in the Gulf of Mexico on April 20 killed 11 workers and ruptured a well owned by energy giant BP, unleashing millions of gallons of crude into the ocean.
The Obama administration argues that the moratorium is necessary to prevent further accidents while a presidential commission investigates the cause of the BP spill.
Louisiana Governor Bobby Jindal, a Republican critic of the Obama administration's handling of the spill, has sided with the companies in the case. Jindal argued that the ban could cripple the offshore industry.
The lawsuit is another example of Obama's strained relationship with big business. These tensions also were in the spotlight last week when BP bowed to pressure from Obama and agreed to set up a $20 billion fund to pay damage claims arising from the spill.
The spill, now in its 63rd day, has soiled the coastline of four U.S. states, threatening tourism and fishing industries; seeped into ecologically sensitive wetlands and marshes; battered BP's image; and tested President Barack Obama, who has come under fire over his handling of the crisis.
BP STOCK
BP said on Monday it has spent $2 billion so far on cleaning up the spill.
Fueling investor concern about BP's final bill for the spill, a Democratic U.S. lawmaker on Sunday released an internal company document that said, in a worst-case scenario, up to 100,000 barrels (4.2 million gallons/15.9 million liters) of oil could gush from its ruptured deep-sea well.
The British energy company dismissed it, saying the figure was being taken out of context. But investors, apparently worried it could mean higher fines and clean-up costs for the company, drove down BP shares more 3 percent in New York trading.
BP plans to raise cash from banks to ensure it has enough money on hand to pay for the clean-up but does not plan a bond offering, sources familiar with the company's thinking told Reuters on Monday. Banking sources said last week that BP was seeking some $7 billion from banks.
BP has considered a number of different scenarios to raise more money, should the need arise, such as selling assets. But for now, the company is confident its cash resources can cover the bulk of the clean-up costs, one source said.
Seeking to keep the focus on the unfolding ecological disaster, New Orleans Mayor Mitch Landrieu on Monday was taking mayors from 17 U.S. cities to visit the slick-damaged Mississippi Delta, where oil has coated fragile marshlands, tarred wildlife and decimated fisheries.
"Educating the rest of the country is what's going to help us win this fight," said Tim Kerner, mayor of Lafitte, Louisiana, where the mayors gathered for a presentation from BP and the U.S. Coast Guard.
"Every day it's a new oil spill," said Coast Guard Captain Roger Laferriere. "In previous spills, we always had a known quantity of oil."
'EASE THE BURDEN'
Kenneth Feinberg, the administrator of a $20 billion fund set up by BP to compensate victims of the spill, said on Monday he would "err on the side of the claimant" in paying emergency relief. "We've got to ease the burden on these folks in the Gulf," he told CNN. [ID:nN21230104]
BP continued to siphon more oil from the blown-out deep-sea well. It said it collected or burned off 23,290 barrels (978,180 gallons/3.7 million liters) of crude on Sunday, still well below the 35,000-60,000 barrels a day that government scientists estimate are gushing from the well.
Both BP and the U.S. government are placing their hopes on two relief wells that are being drilled to permanently cap the leak. Those wells are expected to be finished in August.
BP also rejected claims by its partner in the oil well, Anadarko Petroleum, that it had been negligent in the way it operated the installation.
The Anadarko criticism, along with the release of the internal document, hit BP's share price. It was down about 3.2 percent in afternoon trading in New York after closing down 2.22 percent in London.
BP Managing Director Bob Dudley is in day-to-day charge of the company's response to the spill after Chief Executive Tony Hayward returned to Britain last week, the company said.
A company spokesman was unable to say when Hayward would return or whether it remains BP's plan for Dudley to take full-time control of the effort only after the well is capped.
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