When I was a kid, I played this game in the alleys and on the streets of the Southside of Chicago. The Greeks have taken up this game in search of a solution to ameliorate their fiscal woes. They have forced most of their lenders (bond holders) to swap their bonds for new securities worth half the value of the originals. It was imperative that they were able to pull off this confiscatory debt swap so that the ECB (European Central Bank), the EU (European Union), and the IMF (we taxpayers are major participants), would loan them even more money.
To quote Thomas Donlan in Saturday's Barron's: "Greece is defaulting so that it won't have to default. It is reducing debt by borrowing. The Greeks are avoiding solvency by acknowledging that their country is insolvent, and daring the world to call them on it. They can only cover their debts by convincing their lenders not to demand payment". Obviously, this deal fixes nothing!
After Greece, who is next? When it is our turn, will there be cans to kick or will we just swap our greenbacks for say bluebacks? And if we are lucky, we might save half the value. What are we doing? Who are we kidding?
Ray Zimmerman
Sunday, March 11, 2012
Saturday, March 3, 2012
$4 Gas!! Who Do We Blame?
President Obama and his progressive minions claim that the high price of gasoline is not their fault, and is not in their control. They claim there is no silver bullet solution. The greedy oil companies and and oil speculators are to blame. They have this crazy idea that oil speculation should be severely restricted or even made illegal. Would they stop people from stockpiling food, medicine, and energy because they fear an impending natural disaster? Those acts would drive up prices. Many countries in the world are preparing for their own storm, a conflict that might cut off their energy supplies, so they are buying in speculation that this conflict may occur and therefore cause prices to rise. Thanks to free markets, we currently are able to buy and sell acting in our own self interest.
The President and his team claim and take credit that America is producing more domestic oil than ever before even though he has cut lease approvals both in the Gulf and the Interior by more than 50%. His predecessor is responsible for this output, but there is no praise only blame. Does he have no shame?
President Obama and even Bill O'Reilly claim that the greedy oil companies are exporting our oil rather than sell it here. This is true. We export about 20,000 barrels per day, all of it to Canada. We could keep it and refine it but that would add to the cost because the US refinery is 1500 miles farther than the Canadian refinery. The President's and O'Reilly's problem is not that they do not understand the law of supply and demand, its that these facts are so inconvenient for their argument. O'Reilly ends his nightly show assigning his audience a vocabulary word. I think he should look up the word fungible. Oil is fungible. Understanding it's meaning destroys his argument. He does, however, part company with Obama on his refusal to approve more leases, drilling in The Arctic National Wildlife Refuge, and the "no-brainier" Keystone XL.
Oil is traded throughout the world in US dollars, therefore if our dollar becomes stronger (higher demand for it), the price of gasoline will fall. One of the reasons gasoline is $4 going to 5 is that under President Obama, our dollar has weakened in purchasing power by over 20% against most major currencies. Even though Japan imports all their oil, their Yen has appreciated by over 15% against the dollar. Even the Euro with it's PIGS (Portugal, Italy, Greece, and Spain) has outperformed the dollar in the last 3 years. The Canadian and Australian currencies have outperformed by over 25%. Why? Because this administration has added $5 trillion to our debt and The Federal Reserve has printed $4 trillion. These policies have depreciated our dollar causing our price of gasoline to increase by over 20%. The price of gas has more than doubled under our President and the falling dollar represents 1/5 of that increase.
This President is stuck in his ideological green mud. He refuses to realize that America's energy resources are not limited anymore. To quote Kimberly Strassel, "New technologies in 3D mapping, fracking, and horizontal drilling has turned this country into a resource monster."
Harold Hamm, the richest oilman in North Dakota told our President that the Bakken and other oil fields both on private and federal lands could produce so much wealth in new royalties, profits, and employment, that our debt could be made insignificant. Obama's response was that he was not interested in increasing our supply of fossil fuels, that we would have revolutionary battery technology in the next five years.
GREEN MUD!
There has been minor salutary effects from the $9 trillion increase in debt owed and money printing. Most of this money has found its way to the stock market, not the economy. Higher prices on energy and food could backfire on both, the unintended consequences of this phony stimulus.
What if our President digs himself out of this green mud, (don't hold your breath) or better yet, we elect someone else who puts this resource monster to work. We could emulate Brazil. Their currency has appreciated 25% during Obama's term. How did they accomplish this? Our President helped by loaning Brazil billions to drill off their shores. (Where did you think all those gulf rigs went?) Not only does he want to be their banker, he also wants to be their best customer. We pay for their oil in our dollars which strengthens their currency and weakens ours. But if we drill and sell, our currency would have the same trajectory as Brazil's. The result would be more jobs, more investment, and more revenue to the treasury. And just maybe down the road, not only a budget, but a balanced budget and hope for the future of our grand kids.
Ray Zimmerman
The President and his team claim and take credit that America is producing more domestic oil than ever before even though he has cut lease approvals both in the Gulf and the Interior by more than 50%. His predecessor is responsible for this output, but there is no praise only blame. Does he have no shame?
President Obama and even Bill O'Reilly claim that the greedy oil companies are exporting our oil rather than sell it here. This is true. We export about 20,000 barrels per day, all of it to Canada. We could keep it and refine it but that would add to the cost because the US refinery is 1500 miles farther than the Canadian refinery. The President's and O'Reilly's problem is not that they do not understand the law of supply and demand, its that these facts are so inconvenient for their argument. O'Reilly ends his nightly show assigning his audience a vocabulary word. I think he should look up the word fungible. Oil is fungible. Understanding it's meaning destroys his argument. He does, however, part company with Obama on his refusal to approve more leases, drilling in The Arctic National Wildlife Refuge, and the "no-brainier" Keystone XL.
Oil is traded throughout the world in US dollars, therefore if our dollar becomes stronger (higher demand for it), the price of gasoline will fall. One of the reasons gasoline is $4 going to 5 is that under President Obama, our dollar has weakened in purchasing power by over 20% against most major currencies. Even though Japan imports all their oil, their Yen has appreciated by over 15% against the dollar. Even the Euro with it's PIGS (Portugal, Italy, Greece, and Spain) has outperformed the dollar in the last 3 years. The Canadian and Australian currencies have outperformed by over 25%. Why? Because this administration has added $5 trillion to our debt and The Federal Reserve has printed $4 trillion. These policies have depreciated our dollar causing our price of gasoline to increase by over 20%. The price of gas has more than doubled under our President and the falling dollar represents 1/5 of that increase.
This President is stuck in his ideological green mud. He refuses to realize that America's energy resources are not limited anymore. To quote Kimberly Strassel, "New technologies in 3D mapping, fracking, and horizontal drilling has turned this country into a resource monster."
Harold Hamm, the richest oilman in North Dakota told our President that the Bakken and other oil fields both on private and federal lands could produce so much wealth in new royalties, profits, and employment, that our debt could be made insignificant. Obama's response was that he was not interested in increasing our supply of fossil fuels, that we would have revolutionary battery technology in the next five years.
GREEN MUD!
There has been minor salutary effects from the $9 trillion increase in debt owed and money printing. Most of this money has found its way to the stock market, not the economy. Higher prices on energy and food could backfire on both, the unintended consequences of this phony stimulus.
What if our President digs himself out of this green mud, (don't hold your breath) or better yet, we elect someone else who puts this resource monster to work. We could emulate Brazil. Their currency has appreciated 25% during Obama's term. How did they accomplish this? Our President helped by loaning Brazil billions to drill off their shores. (Where did you think all those gulf rigs went?) Not only does he want to be their banker, he also wants to be their best customer. We pay for their oil in our dollars which strengthens their currency and weakens ours. But if we drill and sell, our currency would have the same trajectory as Brazil's. The result would be more jobs, more investment, and more revenue to the treasury. And just maybe down the road, not only a budget, but a balanced budget and hope for the future of our grand kids.
Ray Zimmerman
Thursday, December 15, 2011
The Nanny State
The Nanny State is defined as a government that makes personal and private decisions for people that might otherwise make for themselves. This sounds like the elaborate welfare model of Western Europe, and our President's model for our future.
We know this model is not working out so well for Western Europe, especially Greece, Italy, Spain and Portugal. Their day of reckoning is now. For too long their productivity has not matched their spending so they just charged the deficit to their kid's credit cards. Sound familiar? Now they are sub-prime borrowers, so the "vig" (loan shark term for interest) has become unaffordable. How do they climb out of this hole that they have been digging for so many years?
Unlike our Central Bank (The Federal Reserve), which has printed trillions of dollars, and artificially and temporarily kept our interest rates low, their Central Bank does not have the authority to print money. The Maastricht Treaty, which created the Euro Currency forbids The ECB (European Central Bank) from buying their debt. The German people have long memories of their post WW1 inflation. Therefore, Western Europe does not have a solution using monetary policy.
President Obama has added over $4 trillion to our debt in his almost 3 year presidency. Approximately one half of this amount came from borrowing from investors (banks,individuals,China etc.) other than the Fed. Because the market is still confident in our ability to repay our $15 trillion debt, our interest costs have temporarily stayed low. I emphasize the word temporarily! Unfortunately for Western Europe, the market does not have the same confidence, therefore, they do not have a stimulative fiscal solution. Their only fiscal alternative is to restrictively cut spending, which in the short run would lead to a greater economic slowdown and even more chaos.
They are " between a rock and a hard place", a spot we will find ourselves in sooner than we think.
We know this model is not working out so well for Western Europe, especially Greece, Italy, Spain and Portugal. Their day of reckoning is now. For too long their productivity has not matched their spending so they just charged the deficit to their kid's credit cards. Sound familiar? Now they are sub-prime borrowers, so the "vig" (loan shark term for interest) has become unaffordable. How do they climb out of this hole that they have been digging for so many years?
Unlike our Central Bank (The Federal Reserve), which has printed trillions of dollars, and artificially and temporarily kept our interest rates low, their Central Bank does not have the authority to print money. The Maastricht Treaty, which created the Euro Currency forbids The ECB (European Central Bank) from buying their debt. The German people have long memories of their post WW1 inflation. Therefore, Western Europe does not have a solution using monetary policy.
President Obama has added over $4 trillion to our debt in his almost 3 year presidency. Approximately one half of this amount came from borrowing from investors (banks,individuals,China etc.) other than the Fed. Because the market is still confident in our ability to repay our $15 trillion debt, our interest costs have temporarily stayed low. I emphasize the word temporarily! Unfortunately for Western Europe, the market does not have the same confidence, therefore, they do not have a stimulative fiscal solution. Their only fiscal alternative is to restrictively cut spending, which in the short run would lead to a greater economic slowdown and even more chaos.
They are " between a rock and a hard place", a spot we will find ourselves in sooner than we think.
Nanny State
The Nanny State is defined as a government that makes personal and private decisions for people that might otherwise make for themselves. This sounds like the elaborate welfare model of Western Europe, and our President's model for our future.
We know this model is not working out so well for Western Europe, especially Greece, Italy, Spain, and Portugal. Their day of reckoning is now. For too long their productivity has not matched their spending so they just charged the deficit to their kid's credit cards. Now they are sub-prime borrowers so the vig (a loan shark term for interest) has become unaffordable. How do they climb out of this hole that they have been digging for so many years?
Unlike our Central Bank ( The Federal Reserve) which has printed trillions of dollars, and artificially and temporarily kept our interest rates low, their Central Bank does not have the authority to print money. The Maastricht Treaty, which created the Euro Currency forbids the ECB (European Central Bank) from buying their debt. The Germans have long memories of their post WW1 inflation. Therefore, Western Europe does not have a
We know this model is not working out so well for Western Europe, especially Greece, Italy, Spain, and Portugal. Their day of reckoning is now. For too long their productivity has not matched their spending so they just charged the deficit to their kid's credit cards. Now they are sub-prime borrowers so the vig (a loan shark term for interest) has become unaffordable. How do they climb out of this hole that they have been digging for so many years?
Unlike our Central Bank ( The Federal Reserve) which has printed trillions of dollars, and artificially and temporarily kept our interest rates low, their Central Bank does not have the authority to print money. The Maastricht Treaty, which created the Euro Currency forbids the ECB (European Central Bank) from buying their debt. The Germans have long memories of their post WW1 inflation. Therefore, Western Europe does not have a
Friday, December 9, 2011
Demand vs. supply
Today Jay Carney, Obama's press spokesman, asked "whatever happened to Republicans being for tax cuts"? He was referring to the Republicans attaching the Keystone Pipeline to the bill to extend the payroll tax cuts. Obama demanded there be no attachments. Most Republicans and some Democrats in Congress are supply-siders. They want to increase taxes or tax revenue not by cutting taxes, but by cutting marginal tax rates. Mr. Carney knows the difference. Payroll tax cuts (Keynesian) may give the economy a temporary boost, but it will be just that, temporary.
Friday, December 2, 2011
Ask but don't tell
I agree with President Obama on how to pay for extending the payroll tax cut. I think he should ask a few hundred thousand millionaires and billionaires to pay their fair share by paying a 3.5% surcharge on their total income. I just don't think he should tell or force them to do it. I'm sure Buffett would agree.
Sunday, November 20, 2011
Who is lazy?
President Obama recently said that we Americans have gotten lazy, and that we have lost our creativity. Sadly, he uttered these words on foreign soil. What he should understand but doesn't, is we are not lazy, and we are not stupid. We are just plain frustrated. We have a leadership vacuum. We question our future even though all obstacles to our growth are obvious and controllable.
What will our tax rates be in 2013? What will be the cost of Obamacare if proven constitutional, or not repealed? Will Green energy, which is laughingly uncompetitive with fossil fuels (especially natural gas) still be subsidized by the American taxpayer? Will Dodd-Frank, Sarbanes Oxley, and our cumbersome, inefficient tax code be with us? Will we ever have a financial road map, called a budget, passed by this democratic senate? After all, it has almost been 3 years. How many draconian regulations are imbedded in legislation already on the books that have not seen the light of day? How does one invest, take risks, and create jobs with so many unknowns?
There is a economic theory called The Rational Expectationists Theory that I think explains our current behavior which our President refers to as laziness. The R E believe that it is harmful for the government to try to influence output, employment, and prices through fiscal (gov spending and tax) and monetary (controlling the money supply) policies. Having experienced past policies (mostly Keynesian), we, the R E, have learned what to expect, and we will change our behavior (investing, saving, spending) therefore making these government influences ineffective.
For a basic example, take the Federal Reserve. It has added 3 trillion dollars to it's balance sheet. (I find it interesting that the stock market has recovered about 3 trillion dollars since it's 2008 low). The Federal Reserve is currently funding one half of our 1.4 trillion dollar deficit. With these facts, how does an R E invest? Buying gold might give one some protection from the Fed printing all those falling in value dollars. But what are the negative economic effects of accumulating gold? Franklin Roosevelt once said in one of his "fireside chats" with the American people, that "hoarding had become an exceedingly unfashionable pastime." He was pleading with the people to take their money out of hiding and deposit it in the banking system so that the economy could multiply. To help accomplish this, he created the FDIC. Buying gold has the same negative effects of hoarding because it defeats what The Fed is trying to accomplish, which is to grow the money supply to stimulate growth and jobs.
In my opinion, most of us are Rational Expectationists. We will start taking risks, creating new products, ideas, hiring new workers, and therefore increase our national income when we have the confidence that America will again become Reagan's "Shining City Upon A Hill." When we restore our rightful place in the world as the country with the most economic freedom.
No, the American people are not lazy, and have not lost their creativity, but the same cannot be said for our leaders. Our President and The Bernank have tried the same old tired solutions and their outcomes are obvious. Where is their creativity? Where is Obama's leadership? Who is lazy?
Raising tax rates is not the answer because the problem is to much spending. President Reagan in a similar situation cut tax rates and created 19 million jobs. His rationale was that cutting tax rates "starved the tumor of government." Raising tax rates would only result in more spending.
Barak Obama and Ben Bernanke are considered brilliant academics, but as the great philosopher Forest Gump once said " stupid is as stupid does."
Ray Zimmerman
What will our tax rates be in 2013? What will be the cost of Obamacare if proven constitutional, or not repealed? Will Green energy, which is laughingly uncompetitive with fossil fuels (especially natural gas) still be subsidized by the American taxpayer? Will Dodd-Frank, Sarbanes Oxley, and our cumbersome, inefficient tax code be with us? Will we ever have a financial road map, called a budget, passed by this democratic senate? After all, it has almost been 3 years. How many draconian regulations are imbedded in legislation already on the books that have not seen the light of day? How does one invest, take risks, and create jobs with so many unknowns?
There is a economic theory called The Rational Expectationists Theory that I think explains our current behavior which our President refers to as laziness. The R E believe that it is harmful for the government to try to influence output, employment, and prices through fiscal (gov spending and tax) and monetary (controlling the money supply) policies. Having experienced past policies (mostly Keynesian), we, the R E, have learned what to expect, and we will change our behavior (investing, saving, spending) therefore making these government influences ineffective.
For a basic example, take the Federal Reserve. It has added 3 trillion dollars to it's balance sheet. (I find it interesting that the stock market has recovered about 3 trillion dollars since it's 2008 low). The Federal Reserve is currently funding one half of our 1.4 trillion dollar deficit. With these facts, how does an R E invest? Buying gold might give one some protection from the Fed printing all those falling in value dollars. But what are the negative economic effects of accumulating gold? Franklin Roosevelt once said in one of his "fireside chats" with the American people, that "hoarding had become an exceedingly unfashionable pastime." He was pleading with the people to take their money out of hiding and deposit it in the banking system so that the economy could multiply. To help accomplish this, he created the FDIC. Buying gold has the same negative effects of hoarding because it defeats what The Fed is trying to accomplish, which is to grow the money supply to stimulate growth and jobs.
In my opinion, most of us are Rational Expectationists. We will start taking risks, creating new products, ideas, hiring new workers, and therefore increase our national income when we have the confidence that America will again become Reagan's "Shining City Upon A Hill." When we restore our rightful place in the world as the country with the most economic freedom.
No, the American people are not lazy, and have not lost their creativity, but the same cannot be said for our leaders. Our President and The Bernank have tried the same old tired solutions and their outcomes are obvious. Where is their creativity? Where is Obama's leadership? Who is lazy?
Raising tax rates is not the answer because the problem is to much spending. President Reagan in a similar situation cut tax rates and created 19 million jobs. His rationale was that cutting tax rates "starved the tumor of government." Raising tax rates would only result in more spending.
Barak Obama and Ben Bernanke are considered brilliant academics, but as the great philosopher Forest Gump once said " stupid is as stupid does."
Ray Zimmerman
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