Economics Stories for Thursday

Watching Bernanke give his speech at Haaarrrrrrvvaaarrrdddd was sickening.

The "students" there could be better called parrots, as theircomments about Bernanke were for all intents and purposes deliveredon their knees.

"Learned from the 70s"? What a liar. Bernanke has learned exactlynothing.

The fact of the matter is that The Fed has intentionally ignored price inflation for the last several years , being complicit in intentionally shoving off as much of it aspossible to other nations such as China and blowing bubble afterbubble here to try to "entice" our import market to generate fundsthat those government's need to sterilize.

Now, the check is on the table for all this foolishness, includingthe mother of all bubbles , housing.

The simple fact of the matter is that among Americans there is noconfidence in anything that Bernanke or the government say about Price Inflation and itstrends. If you disagree, then show me how you can square thegovernment's 4% CPI number and the public's expectation of more than 8% price inflation over thenext 12 months.

Clearly, someone is wrong, and historically what we know is thatthe public usually understates inflation expectations!

Speaking of price inflation, you only think oil is expensive. IfSaudi Arabia starts treating their oil as, well, their oil , it might get a lot more expensive. $10/gallon gas anyone?

There are more and more people coming around my view on the "CreditCrunch" - that is, it will be prolonged and have a nasty effect onthe economy for much longer than is expected at present. Some recent converts said : "NEW YORK (Reuters) - A "credit recession" sparked by the U.S.housing market downturn and excesses in structured finance may lastmore than two years, and the financial sector will undergo "massiveconsolidation," leading Wall Street strategists said on Wednesday." Uh huh..... gee, what have I been saying for a while?

Only one problem - we're still calling it "excesses". There were noexcesses. What there was is massive, pervasive, outrageous fraud upand down the line. That's all it ever has been and all it is now.

We are nowhere near the end of this mess. How do I know?Essentially none of the fraud has been brought out in public, nobody has beenprosecuted of substance as of yet, and we have not seen any perp walks in the major investment banks.

Until we do, we're nowhere near the end of this mess.

Who's next? Remember the monolines ? "Ambac Financial Group's new bond insurance business outlook islimited due to the potential rating downgrade by Moody's InvestorsService, an Ambac executive said on Wednesday." I'm grabbing the popcorn for this one.

Why? Because this is the 900lb Gorilla that everyone was worriedabout back in January, and with good reason. See, a downgrade inthese insurers to "A" credit, for example, is going to force anyonewith risk-adjusted reserve requirements to roughly double thosecash reserves, and will also force others (like pension funds thatare only able to hold "AAA" credit in that part of their portfolio)to sell.

We will soon find out if the money is there to back these increasedreserve requirements. If not......

The ECB and BOE left their interest rates alone - no surprisesthere.

Continental is parking planes and firing 3,000 people, making themthe second major airline to take this step over the last few days.Gee, oil north of $100 has an impact on an airline?

Clinton has finally decided to "suspend" her campaign and backObama.

Suspend?

This is the same sort of nonsense that goes on in the rest of DC.What is this "suspend" garbage? You lost, your campaign is over.Period. There is no "suspend"; the correct word is "end" or"capitulate".

But see, we don't expect people to tell the truth in DC any more.The responses to my last Ticker and Ron Paul's idiocy with regardsto him not wanting faxes is a prime example, but BOHICA withClinton, because truly, here it comes again.

We get the political environment we deserve . And we deserve it because when we decide we like some candidate we throw our ability to think critically out the window.

Ron Paul, for example, is so horribly against Congressionalspending that he votes against many spending bills. But then he sticks earmarks on them, and justifies this as "well,I'm working for my constituents. "

This sort of crap is the height of hypocrisy. He places a "no" vote that he knows will not have any effect on the outcome , but then he uses a non-voting, non-transparent mechanism to grab as much federal moneyas he can for his district.

Ron Paul's office claimed that his desire "not to get faxes" wasabout cost control. That's a flat-out bald-faced lie. A $50 PC -literally, even an old 1995 80486 - can run FreeBSD (free, as thename implies) with a $20 fax modem connected to it. When I ran MCSNet a 90Mhz Pentium had eight old Telebit T3000 faxmodems attached to it and handled all our fax communications for anentire office, with eight lines! Such a system can receive faxes and email them internally (orexternally) to whoever you'd wish. The cost of the software to dothis? Zero. The cost of the hardware? An old PC - of any vintage,including something you were about to throw out at home with anysort of ethernet card, and any old external modem that can fax(which is basically all of them.) These days you can literally fishcomputers like this out of the trash - I probably have a couple ofPentium Pro 200 motherboard laying around somewhere that are grossoverkill for this sort of thing. The recurring cost of supplies forsuch a machine? Zero; it emails the results and generates no paper.The administrative time and cost? Zero - these are productionsystems and require no attention; they store nothing and just sitin the corner quietly doing their job. The same machine can accept(using a Windows plug-in) faxes from your Windows desktop (it lookslike a Postscript printer) and send them out too. If Mr. Paul'soffice (or anyone reading this) would like to verify any of this,check out http://www.freebsd.org and http://www.hylafax.org . There you are - all free. If Ron Paul's staff is too incompetentto handle this, they need to be fired and replaced. If his staffdoes know this and are lying, they are dishonest and need to befired and replaced.

I despise hypocrites and the reason Mr. Paul has garnered my ire isthat he's one of the worst on The Hill in that regard.

Make up your mind.

If the current tax system is improper then its blood money. Youeither stand for it or against it. If you exploit the system you are the system , despite your claims to the contrary.

At least the Democrats, such as Dodd, Obama and Clinton tell you upfront that we're the system and we think its good.

Ron Paul is the worst sort of mendacious jackass; he claims the system is corrupt and improper but he then exploits that same system to steal as much money fromall of us as he can in order to "return it to his constituents."

We get the government we deserve, and we deserve this sort ofidiocy because we continually send these fools back to DC.

In truth we the people deserve the financial storm that is comingbecause we have engaged in our leach behavior for the last 20years, continually sending people who claim to be against the"waste" in DC, but we want them to siphon off as much of the"waste" as are able for ourselves. We have demanded (and gotten)"free" medicare, "free" drugs, and all other manner of "free"entitlements.

In point of fact none of these things are free. We oppose "privateaccounts" for Social Security because if we get them and screw up, it really is our loss and wereally do end up in the street.

These proposals are opposed not because they empower people but because they make you responsible for your actions. They remove the ability to steal from everyone else when things don't turn out well for you,whether due to the whims of fortune or due to decisions in your life that you have made.

We think it is "unfair" that a poor single, never-married motherdoesn't get more food stamps, but we never ask the obvious question - if she willfully engaged insex, why is not the predicament she and her children find herselfin her responsibility ? We go all "rah-rah" when the government steps in and takeschildren away from alleged abusers, but we don't demand that children be removed from women who poopthem out like rabbits without regard to whether they arefinancially able to care for and raise them at the time they engaged in sex .

A just and consistent society that is going to raise a stink about "the poorchiiiillllldddrrreeeennnn" would seize every kid born to a mother that could not care for that child at birth and forcibly put that child out for adoption. And before youscream that such is a violation of Mom (and the kid's) humanrights, consider your position - if that is a violation of Mom and Dad's right to screw likerabbits, then society has no obligation to support and promote that behavior by stealing from everyone else in society.

Yes, there are lots of "hard luck" stories due to no fault of theperson involved. People with healthy living habits do get Type II diabetes, for example, and some unfortunate kids do come down with Type I. But for most people who get Type II diabetes, the fact remains that they arefat and the disease is, at least in part, due to the decision they made to overeat. But we demand the right to stuff our pie holes and then bill someone else for the consequences .

We are supposed to be of a higher order of thought than apes or rabbits. We are supposed to discern the consequences of our actions before we take them,and care about the personal outcomes of those decisions. We are supposed to be free individuals.

But are you truly free if your entire life is founded on theprinciple that whenever you make a bad decision you are then empowered with the right to steal from others in order to cover your loss?

Why do I bring this up?

Because the "Subprime" crisis and the "Credit Storm" are in fact the precise same thing as someone gorging themselves on food until they weigh 400lbs,contracting diabetes, and demanding free medical care. Nor is itany different than engaging in anal sex, contracting HIV, anddemanding free HIV drugs. Nor is it any different than being an outof work single woman and screwing every man you meet until you poopout a kid, then demanding food stamps and Section 8 housing.

We have $100 trillion in Federal liabilities, and are on theprecipice of an economic collapse, precisely because we, as anation, "feel sorry for" and allow individuals to suck ourcollective wallets dry, justifying it "for the children" or "oh,its only a few dollars."

It is not possible to spend more than you make over long periods of time. You will go bankrupt if you do. This is a mathematical certainty - unlessyou can try to get "Uncle Sugar" to bail you out.

But that is a false God. The government does not and cannot "createwealth." Government inherently is tasked with redistributing wealth. It does not earn money, it confiscates money via taxation.

Taxes are the "user fee" we all pay for the services thatgovernment provides. Some, like national defense, are simplyunreasonable to provide through any other mechanism than centralgovernment control. Due to their scale and reach, there is no otherrational means of allocating their expense and benefit.

But far too many of these services in fact have no rational basisin government. Social Security and Medicare are two huge examples,and I pick on them primarily because of their size in the swindlethat we call The United States Budget .

The Fair Tax solves some of this in that it ties the US Government budgetinexorably to GDP and makes it impossible to game the system through false reportingof statistics . It prevents them from lying and exposes all of the idiocy immediately; either GDP grows or government shrinks !

It is unacceptable to "the politicos in DC" for precisely this reason.

But until we the people decide we've had enough of being a leach and allowing others to be leaches , this sort of path will continue to be followed.

Unfortunately we are now at the natural limit of this behavior. It will be curtailed, either by choice or by the simple fact that thelying can no longer be maintained.

Your move America.

You can either get off your ass and start raising hell withCongress, specifically targeting those who have done the mostdamage and are the biggest hypocrites or you can instead demand"bread and circuses", trusting that the government can just printup as many T-bills as it needs to provide them.

Beware that all indications are that we are very close to thenatural limit of the latter behavior, and once we go off that cliffthere is no regaining our footing without a terrible tumble.