mostly palaver

Oh my

Is this worse than Obama's bitter comment?

In an interview with the Washington Times, Phil Gramm, a former Texas senator who is now vice chairman of UBS, the giant Swiss bank, said he expects Mr. McCain to inherit a sluggish economy if he wins the presidency, weighed down above all by the conviction of many Americans that economic conditions are the worst in two or three decades and that America is in decline.

"You've heard of mental depression; this is a mental recession," he said, noting that growth has held up at about 1 percent despite all the publicity over losing jobs to India, China, illegal immigration, housing and credit problems and record oil prices. "We may have a recession; we haven't had one yet."

"We have sort of become a nation of whiners," he said. "You just hear this constant whining, complaining about a loss of competitiveness, America in decline" despite a major export boom that is the primary reason that growth continues in the economy, he said.

"We've never been more dominant; we've never had more natural advantages than we have today," he said. "We have benefited greatly" from the globalization of the economy in the last 30 years.

Phil Gramm is saying that it is all in our heads.  Wonder how that will play in Michigan, Pennsylvania and Ohio. 

So, in 3 days the McCain campaign has called Social Security a disgrace and the American people a bunch of whiners.  That's a good week's work.

Economic Weakness

Going to have a bunch of posts over the next couple of days on the state of the economy, particularly around things that may not make it to the front page of the news.  Here's one:

State and city governments have yet to shrink the economy; indeed, they have even managed to prop it up. They have quietly maintained their spending at pre-crisis levels even as they warn of numerous cutbacks forced on them by declining tax revenues. The cutbacks, however, are written into budgets for a fiscal year that begins on July 1, a month away. In the meantime the states and cities, often drawing on rainy-day savings, have carried their share of the load for the national economy.

That share is gigantic. At $1.8 trillion annually in a $14 trillion economy, the states and municipalities spend almost twice as much as the federal government, including the cost of the Iraq war. When librarians, lifeguards, teachers, transit workers, road repair crews and health care workers disappear, or airport and school construction is halted, the economy trembles. None of that, or very little, has happened so far, not even in California, despite a significant decline in tax revenue.

It's hard to convey how pervasive these cuts will be: schools, roads, libraries, social services, you name it, they are going to get cut as local tax revenues come under pressure.  With confidence already at or near all-time lows, this will make the mood of the country very, very ugly.

Blind money

Getting through some backlog, this sounds like a good idea to me:

On Tuesday (Jim: May 21, 2008), a federal appeals court panel in Washington upheld a lower court ruling that said the government discriminated against the blind or partly blind by making its paper money all the same size and texture. Under the ruling, which may be appealed, the Treasury Department may need to redesign its bills, and vending machines may need to be refitted to accommodate new currency.

About 1.3 million Americans are legally blind, another 16.5 million say they have vision impairment even with glasses or contacts, and millions more are expected to have significant vision loss because of an aging population and the prevalence of diabetes, said Tara A. Cortes, president of Lighthouse International, a nonprofit organization based in New York that addresses the problems caused by loss of vision.

I understand that the costs will be significant, but perhaps this is also an opportuntity to rethink our currency entirely (rid ourselves of the penny and the dollar bill perhaps?)

Economy

Not going to get better any time soon.  Haven't blogged on it (or anything, sorry) for a while, but here is my stat for today:

Home heating oil futures are currently trading at $3.90/gallon.  Add some amount for retail distribution ($1.00?) and you've got $5.00/gallon oil this winter. 

There is no Christmas with $5.00/gallon oil, at least not in the Northeast.

Interesting fact for the day

or, "Fun with Statistics".  For April, the consumer price index rise was lower then expected.  One key component to the CPI is (of course) energy.  And in April, energy did this:

During the first four months of 2008, the CPI-U rose at a 3.0 percent  seasonally adjusted annual rate (SAAR).  This compares with an increase of 4.1 percent for all of 2007.  The deceleration thus far this year reflects smaller increases in the indexes for energy and for all items less food  and energy.  The index for energy advanced at a 6.3 percent SAAR in the first four months of 2008 compared with 17.4 percent in 2007.  Petroleum- based energy costs decreased at a 0.7 percent annual rate while charges  for energy services rose at a 17.7 percent annual rate. 

So, according to the CPI, energy actually FELL compared to last year.  "PAH!" you say, "I've been to a gas station and those prices keep going up and up."  And to a large extent you would be right.  The thing to keep in mind is that energy costs in the CPI are seasonalized, that is a weighting factor is applied to each month's expenses to offset observed, repeated swings in price from year to year.  Here's the thing though, at the end of the year, all of the seasonal factors have to net to zero - if you discount for seasonal prices rises today, you have to inflate for seasonal price decreases tomorrow. 

Here's the catch - the CPI energy seasonality is largely front-loaded, that is all the discounting happens at the beginning of the year and then the BLS assumes that fuel prices will actually fall during the remainder of the year.  What does that mean to you and me?  Well, it means that if fuel prices don't fall, then fuel prices will likely put upward pressure on the CPI.  And they have to fall a lot (one estimate I saw said that prices in December 2008 will have to 17% lower than today just to net to zero).  Think that's going to happen?  Me neither. 

The good news is, for those of you on fixed incomes tied to inflation, I'd be willing to be that you are going to get a pretty good increase in the size of your checks next year.  The bad news?  Inflation is going to rise considerably in the 2nd half of this year, and with the state of the economy the Fed can't do much about it.

When we abandon experts

We are left with this:

At a Shell gas station in Washington, Rocky Twyman and an unusual group of activists were mad as hell about soaring fuel prices...

"Someone's making a lot of money and it's really, really wrong," added Twyman, who founded the Prayer at the Pump movement last week to seek help from a higher power to bring down fuel prices, because the powers in Washington haven't.

...

"Lord, come down in a mighty way and strengthen us so that we can bring down these high gas prices," Twyman said to a chorus of "amens".

"Prayer is the answer to every problem in life... We call on God to intervene in the lives of the selfish, greedy people who are keeping these prices high," Twyman said on the gas station forecourt in a neighborhood of Washington that, like many of its residents, has seen better days.

"Lord, the prices at this pump have gone up since last week. We know that you are able, that you have all the power in the world," he prayed, before former beauty queen Rashida Jolley led the group in a modified version of the spiritual, "We Shall Overcome".

It's got as good a shot at lowering gas prices as the Clinton-McCain gas tax holiday, I guess.  The thing is, when you throw out the experts, this is what's left. 

There was a time when I thought Clinton was better than this.

More on the gas tax holiday

Some follow-up thoughts on the gas tax holiday.  First off, this is a great point:

Under the McCain-Clinton proposal, the gas tax would be temporarily suspend starting on Memorial Day — which is just a few weeks from now. Moreover, under Clinton’s policy, the lost revenue would be replaced with a windfall-profits tax on oil companies, implemented at the same time.

Except, neither McCain nor Clinton are actually making efforts to make this policy happen. Congress usually moves at a glacial pace. If the gas tax is going to disappear at the end of May, presumably legislation would be working its way through the Hill right now. It’s not. Similarly, if Clinton’s idea for a windfall-profits tax is going to be implemented in a few weeks, it, too, would be going to committee, be the subject of hearings, etc.

But no one is actually doing any of the legislative legwork on this, and there’s no practical way the McCain-Clinton proposal will be implemented before the end of the month. With that in mind, the debate is entirely academic.

We’re left with a bad idea that all three candidates know is a bad idea, and which all three candidates know will not actually pass in time to matter.

Of course, in order for McCain to begin working on this proposal he'd actually have to step foot inside Congress which he hasn't done very often lately, and when he has, he hasn't really done much of anything. 

My biggest issue with this whole proposal is that Clinton and McCain are taking advantage of us, using our (lack) of basic economic knowledge and our (lack of) interest in thinking things through to score political points.  Those of us who point out that this won't do anything to help the situation are put down as not caring about the American people because, hey, they are cutting taxes of COURSE that's going to lower the price at the pump.  McCain and Clinton KNOW that this will do nothing and they don't care because it polls well.  That's profoundly dishonest and opportunistic.

And what happens when they cut the tax and prices don't fall?  Then then can say that they are "disappointed", that they "tried" and that the big, bad oil companies are to blame.  And people will feel powerless and feel that government can't do a damn thing to help them in their everyday lives. 

I expect this nonsense from McCain (who I am really starting to dislike on a visceral level), but am very disappointed in Clinton.  She should be better than this. 

The Idiocy of the Gas Tax Holiday

Now both McCain and Clinton are in favor of a gas tax holiday and each are attacking Obama on his reluctance to pander on it. I hope he doesn't cave, because the holiday is a stupid idea.

The gas tax actually does something. It goes to build and maintain our roads. Eliminating that revenue now (or anytime for that matter) is a pretty shortsighted, stupid idea. After all, it's not like our infrastructure is in great shape to begin with.

Clinton's pander is marginally better than McCain's because she at least is proposing to tax the oil companies to recover the lost revenue. It's something. Although I didn't see a mechanism in the Clinton plan that prevents the oil companies from passing that tax on to the consumer in the guise of higher prices. Anyway...

But the idea is stupid because it isn't solving anything. Provided the demand for gas is somewhat elastic (and it is as we are currently watching the consumption of gas fall), any cut in the price of gas will do nothing but drive up demand, which will drive up price and consumers will be right back to where they were in the beginning except that the oil companies will be making an additional 5% (the amount of the foregone tax).

I understand that McCain doesn't know shit about economics (and he seems determined to prove it to us), but I expected more from Clinton. Oh well.

Digging out

Hopelessly behind on posting now.  Have to start somewhere.  Starting here:

Average balances on credit cards and home-equity lines of credit are growing rapidly, rising 9.5% and 8.1%, respectively, in the first quarter from a year earlier, according to new data from Equifax Inc. and Moody's Economy.com.

Borrowing is climbing quickest in the regions where house prices plunged most sharply, making it tougher for people to extract money in cash-out refinancings. (In a cash-out refinancing, a homeowner pays off a mortgage by taking out a loan that is larger than the original mortgage and then pocketing the difference.) Credit-card balances rose nearly 15% during the first quarter from a year earlier in California and Florida and more than 20% in Nevada -- all states caught up in the housing bust, according to Equifax and Economy.com.

This story feels like a comfortable shoe to me, having been talking about it for so long.  But lately its a shoe that's falling apart inside, and making me uncomfortable.  Why?  Because it's getting crazy out there.  How crazy?

Now, mortgage brokers say some clients are calling them in a panic, worried that their bank will freeze their home-equity lines. Deborah McNaughton, president of Legacy Financial Services Inc., a mortgage lender in Placentia, Calif., says several of her clients have recently borrowed more from their home-equity lines of credit and stashed the money in bank savings accounts. Theresa Leick of San Juan Capistrano, Calif., a loan processor who works with Ms. McNaughton, pulled $21,000 from her available home-equity line of credit in February to park in a certificate of deposit.

"I'm fattening my reserves in case I have to go look for more work," says the 40-year-old Ms. Leick, who says she is concerned about losing her income because she works in the mortgage business. She says she would have preferred not to have tapped her home-equity line, "but if the bank takes away my comfort zone, that will make me lose sleep at night."

Yes, that's right, she maxed out her home equity line so that she can stash the money in the bank where she will undoubtedly earn less in interest than she'll pay to the bank.  And the amazing thing is that she calls this her "comfort zone". 

And there there are geniuses like this guy:

Earlier this year, J. Hwang of Fort Lee, N.J., tried to refinance the 7% rate he was paying on his mortgage but couldn't qualify because his bank was now requiring him to hold more equity in his home. Instead, he decided to take advantage of some credit cards' 0% balance-transfer offers and borrowed roughly $45,000 to pay down the balance on his home-equity line of credit.

Mr. Hwang's strategy: Since he won't have to pay any interest on the credit cards for about a year, he figures he will be able to save roughly $2,000 that he would have otherwise had to pay on his home-equity line of credit. Instead, he plans to use the savings to pay down the principal on his mortgage. "I didn't want to give my bank another penny for interest," says the 30-year-old health-care worker.

Good strategy. Can we please check back with Mr. Hwang of Fort Lee in a year when those teaser rates are up?  Good luck rolling that $45k note over.  But on the bright side, at least if he owes it to the credit card companies he'll go into bankruptcy rather than foreclosure. 

These stories, on top of stories detailing how consumers are raiding 401(k)'s to pay off credit card bills (and go on vacations) means that we are nowhere near the bottom of this mess.  Things are going to be very ugly for a very long time. 

New regulations

I'm still getting familiar with the new proposed regulations outlined by Paulson over the weekend.  Two thoughts though:

1. I don't trust this structure at all since it began as a de-regulation scheme last year (remember the swirling rationales for the tax cuts?).  It can't be both a de-regulation and a re-regulation plan. 
2. I don't trust this administration to hamper big business in any way.  They are more politicized than any administration in recent memory and I don't see why they'd stop being political at this point in time.  To that point, I'll look to see where they are lying to American people about what the plan will, and won't, do.