It's Still The Economy, Stupid

Wednesday, November 03, 2004  

Green voting patterns

In Maryland, my current residence, David Cobb got just 3,229 votes out of two million plus. He was outpolled seven to one by Maria Allwine, the Green candidate for Senate (vs Barbara Mikulski). In six of the eight Maryland house races, there was a Green candidate, who all performed far better than Cobb; most performed better than Allwine. Theresa Dudley got 5% of the vote in Maryland's 4th District. Patsy Allen got 3% in Maryland's 3rd district. Keith Salkowski got 3% in Maryland's 2nd. Greg Hemmingway pulled 3% in Maryland's 7th.

In Oregon, my soon to be residence, Cobb got 4,524 of one and a half million votes. Teresa Keane, the effective Green Party candidate (it does not appear Oregon recognizes the Party on the general ballot), outpolled Cobb 9-1 and got 2% of the popular vote. Greens had a harder time in state legislature races, with all three candidates pulling 1% or less of the vote.

It appears that Greens had far more success in their traditional strongholds than in 2000 in local elections, though their support in the Presidential election completely evaporated. Nationwide, their best success was in Washington DC, not only a heavy Democratic stronghold but one where the wedge issue of statehood is embraced by Greens but much less so by Democrats. Greens won 6 of 12 Advisory Neighborhood Commission seats, pulled 7% in the House delegate race, and almost 10% in the City Council races.

Lesson #1: find good candidates and run them in as many races as possible. Greens had 432 candidates in 2004. They should set a goal of 1,000 for 2008. The ultimate goal should be every race in every election. From personal experience, it feels really good to have several "G" lines on the ballot.

Lesson #2: continue to grab issues neglected by both parties. These include pulling our troops out of Iraq immediately, a single-payer health care system, balanced budget, and local issues. This does not mean only grabbing issues important to the liberal side of the spectrum. Greens have an opportunity to run for such "non-partisan" seats as Secretary of State or Board of Elections where they can paint themselves as the referee between the two major parties.

Lesson #3: go full bore or not at all. Cobb ran an invisible campaign, first saying he was for a "safe states" strategy and then saying he was for campaigning hard in all states. I did not see a single Cobb poster, commercial in any media, or press release of an appearance in Maryland by him or Pat LaMarche. The next Green candidate for President should run like Nader in 2000 or not at all.

Lesson #4: act more like a political party than a tea party. Dissenters in the Democratic Party and the GOP are brought into the fold or removed. They are not allowed to act as a poison toward their party's electoral chances. That Kerry was partly a compromise candidate is probably the biggest reason for his failure to win. There were enough dissatisfied Democrats: the Deaniacs, anti-war Democrats largely with Kucinich, and Nader 2000 voters. They might have been voting for Kerry, but they were not the kind of enthusiastic supporters that drag their roommates to the polls to vote for Kerry. Kerry couldn't embrace the center, and he couldn't embrace the left. Similarly, Nader 2000 voters abandoned Cobb entirely.

Greens need a unified party as soon as possible, certainly before their primaries in 2008. If that means leaving people behind, so be it. In an election like 2004, and 2008 will be more so, your positions have to be clear and dissent is not allowed. Otherwise what is the point of voting for a compromise? They need to treat the party as a serious party, not one that allows a focus on candidates getting thrown in jail protesting voting machines or the war. They need to find their own Karl Rove or Terry McAuliffe and run all races behind this centralized leadership rather than a loose association of state parties. The local leadership can then concentrate on finding candidates and getting on ballots, rather than worrying about information control or running campaigns.

My next post will be on my Green Party blog, launch date TBA. Thanks all who have visited and made comments. Like Poland, you will not be forgotten.

posted by Teddy | 8:30 AM |

November 3, 2004

As you can see, a promise from me is about as good as a pledge from the Democrats to "fight for Ohio".

A few thoughts...

1) Bush won fair and square. He won despite an increase in turnout of 12 million voters. The Kerry campaign seems to think that provisional voters will break their way, but it certainly won't be enough in Ohio. They're more likely to pick up a state like New Mexico. There are provisional voters in almost every state. This may make the final vote total closer, but won't change the Electoral College in a meaningful way. Kerry could ask for a recount, but in the age of voting machines with no audit trail, he might as well ask for a highway to Mars.

2) Third-parties bit the big one. Nader got less than 1/2 of 1%. Cobb was outclassed by both Badnarik and Peroutka. In fact, Badnarik almost outpolled Nader, indicating that Democrats accomplished their task of returning nearly all third-party voters to the fold. And they still lost. Cobb ran a horrible campaign and fully deserves to be banished to the nether-regions of the Green Party organization. When you can't get one-third of registered Greens, you just suck. The big four third parties managed 900,000 votes in total, only about a third of what Nader got in 2000.

I still don't regret my decision to vote Green, and I still think third parties have a future. Their work begins today. There's probably only room for one third party to make an impact, and it will depend on establishing their own identity, getting candidates in on every ballot, and grabbing hold of simple issues to contrast themselves with both major parties, particularly the anti-war, anti-interventionist platform. Currently, sad to say, Nader and Badnarik represented this idea better than Cobb. If the Greens can heal the division within the party, get Peter Camejo back into the fold and get Nader's support (it's highly unlikely Ralph will be physically able to run in 2008), they have a chance to regain some relevance. Otherwise, there's very little hope for the Greens in 2008.

3) In this election, everything simply got overwhelmed by the "end times" rhetoric that both the GOP and Democrats used to good effect. Both sides were predicting the end of the world if the other candidate was elected. The reality is that doomsday prophets are never right (if they are, what would it matter). We will survive the next four years of Bush the same as we survived Pierce, Grant, Harding and all the other corrupt, incompetent Presidents we've had. With the focus on "the most important election of our lifetime", both party bases turned out, but third-party voters were even more likely not to want to show up (why, when Kerry and Bush get 12 million more votes?)

4) Maybe in their own mind they have a mandate, but despite picking up four House seats and two Senate seats, the GOP is handicapped from enacting the most radical facets of their plan. Iraq is a mess, and there is simply no way a Pyrrhic victory in Falluja or even capturing Bin Laden is going to provide any relief for the constraints of the budget, the constraint of our overstretched armed forces, the constraint of world opinion, and the constraint of the economy.

There is simply no way to go into Iran without a draft, and we'd pretty much need to have Israel take on Syria. Reducing our current forces in Iraq will allow the resistance to destabilize the situation further. North Korea has nuclear weapons, so we're reduced to negotiations whether we like it or not. Bush could try to pre-emptively take out Iran's nuclear facilities, and might even be able to get away with it. The reason is that both Iran and al-Sistani know the U.S. is overstretched and they are secure as long as they do not take an aggressive role that would invite a U.S. military response. Why provoke it, even if the U.S. cancels the January elections or invades Iranian airspace to conduct an armed attack. The current popular resistance is giving U.S. fits, and further aggression only intensifies it. Better to let the U.S. dig it's own hole, rather than to meet the fate of Al-Sadr's followers.

As far as the budget goes, appropriations for Iraq, Afghanistan and whatever else start from a position of -$500 billion. The U.S. is by far the world's greatest debtor and is currently existing on the kindness of foreign central banks, who maintain demand for U.S. debt and the dollar because the alternative is worse.

The economy is running on the fumes of the housing bubble and overconsumption. For the next four years, the threat to the dollar and interest rates will only grow. Trying to inflate only hastens the dollar's demise, as foreign central banks will offset the inflationary impact with a stronger currency. That's the EU's current policy. Japan is offsetting purchases of U.S. dollars with the retirement of bad debts in its banking system. China is offsetting their purchases by enticing inflows of foreign capital and purchasing companies that produce natural resources. All of these are stopgap solutions that do not correct the longstanding imbalances within and without the U.S. economy.

Bush is going into his second term with the economy threatening to unravel at any time, with the Fed raising interest rates, with huge trade and Federal deficits, and with 54 million Americans detesting him and all he stands for. If Democrats were to offer true resistance, the GOP will be doomed in 2008. What does that mean? This means picking a successor to Daschle in the Senate who will impede every single initiative by the GOP, and fight as dirty and effectively as possible for four years. It means forcing closet Republicans like Zell Miller out of the party.

More importantly, it means using economic muscle instead of political muscle. If 54 million Democrats were to cut their spending by $4000 per year, GDP would contract by 2% immediately. If 54 million Democrats were to double the gas mileage on their vehicles, it would reduce our oil consumption by 15 billion gallons a year. They could also participate by reinsulating their houses, putting in energy efficient windows, adding solar cells, reducing their air-conditioning and heating use. We won't need to fight for oil resources if we stop using them.

The only way for Democrats to have a voice the next four years is to use this power, because they failed at the voting booth. They will need to prove that it is still the economy, stupid. They need to put their money where their mouth is. Otherwise, they simply need to accept they are losers and their campaign for swing voters failed. The swing voters went to Bush. I truly believe that we can remake this country into one the world can be proud of, that we have the power right now to do it. The only question is whether "we" have the motivation.

Update: The General explains it well with fewer words.

posted by Teddy | 6:21 AM |

Thursday, October 28, 2004  

October Surprise

I've been looking for a good topic to go out on and this one finally inspired me. I'm moving back to the West Coast soon and this will be my last post here. I'll resurface on my own blog and won't be called Teddy Salad. I want to concentrate on Green politics and it doesn't really fit in here.

My wife surprised me today by telling me she will vote for George Bush next Tuesday. Since I don't plan on voting for Kerry, and that she's my wife, instead of shouting her down in outrage with a list of Bushie-boy's 101 greatest retard moves, I listened to her logic and it made sense. Not enough to get me to vote for Bush, but at least it made sense, unlike the screaming-banshee idiocy you might see, oh, here.

Her rationale was that as a future small business owner, voting for Bush is in her enlightened self-interest as he will lower (or not raise) her taxes and decrease (or not increase) the regulation of her business vis-a-vis Kerry. She mentioned that even though you can make a case that this is only a perception - a second term for Bush may actually be worse for the small business owner - it is still something Kerry has been unable to refute, so she throws her lot in with the GOP. Even though she's not yet a millionaire, she points out that generally everyone wants to be richer and more important, and though Bush's tax cuts overwhelmingly benefit the top 1%, she could be them someday. Bush wouldn't be an impediment to the process and would ultimately be her benefactor.

The metaphor she used was the first-class passenger on an airplane. When you start flying first class, you no longer identify with the passengers in coach. You feel you worked hard to make enough to enjoy the privileges of first class, and anyone showing sympathy with the coach class is perceived as a threat, because there are only so many first class seats. Whether these feelings are right or wrong is irrelevant. She simply noted that Bush is very effective at using this reaction by saying he will "protect us". What he is actually protecting us from, you can discuss among yourselves. I have my own ideas and, as I said, it does make sense. She noted that she's getting more conservative as she gets older, and I mentioned this was a pretty common phenomenon.

Her other observation was more trenchant. As a new citizen, she still has the perspective of someone outside the U.S. She prefers Bush because he embodies the "Ugly American": ignorant, selfish and mercenary. Kerry might put a more noble face in front of the U.S. but it would have little impact on policy. American foreign policy would still be ugly, interfering and arrogant. It would simply have a less repugnant commander-in-chief. She prefers the leader that would embody the ugly reality, rather than the lie.

Both of us hate lies, and this election has had nothing but lies. Both candidates are painting themselves as something they are not. Bush pretends he cares about us 'Merkans, and Kerry pretends he's not Bush. They lie to us and we lie to ourselves.

The "debate" has focused more on Vietnam than Iraq, and it's interesting that neither candidate can even come clean on the old lies, much less discuss the new ones. They discuss bad decisions already made and irreversible, rather that the real decisions that need to be made in January and beyond. The media pretends this all means something, and talks about momentum more than solutions. Americans, as Mencken observed, are getting what they deserve and getting it good and hard.

My reactions to all this is to vote for Cobb. I otherwise wouldn't vote, so short of a "none of the above" I'll stick with my registered party. If anyone reading this really wants to flame me with the standard "not voting for Kerry is a vote for Bush" crapola, my reply is that I could still vote for Bush, so don't piss me off because I can still change my mind.

None of this is to say I don't want Kerry to win. I think Kerry would be the better President for building the Green Party. He's put himself in an impossible situation and has a very small chance of either coming through on his mildest campaign promises or getting re-elected. He embodies the "no difference between the Republocrats and Dempublicans" idea of Nader perfectly, he comes on the heels of a disasterous Bush term and if he appoints a couple of pro-choice Supreme Court justices, the Democrats won't be able to use threats to Roe vs Wade as ammunition anymore.

Heck, Kerry's term would build all third-party candidates. If the economic situation gets dire enough, you might see an odd merger of Green-Libertarian-Constitution-Independent parties behind some opportunistic candidate promising a balanced budget, non-interventionist foreign policy, and reducing defense spending to pay for health care, welfare and retirement benefits. A lot can happen in four years and I'm no psychic. Even the Red Sox won. I didn't see that coming either.

If Bush does prevail, I still know the world isn't coming to an end. Somehow I survived the first term, and with enough psychedelic drugs and alcohol I'll be able to survive until 2008. Neither candidate will be able to do much with the economy, though Kerry might be able to postpone the economic collapse for a little longer. If I had to be honest, my personal economy has improved more in the last four years than ever before, though that has a lot more to do with getting married and buying a house as the bubble was inflating. My wife and I are looking forward to a new baby and a peaceful life away from DC politics. That's a heck of a lot more important in the grand scheme of things.

Anyway, thanks for putting up with me and my screeds. I wish you all the best. Keep working for a better world and keep smiling. Thanks to Mary Beth for hosting this site and giving me a chance to experience blogging. Peace. Teddy out.

posted by Teddy | 1:37 PM |

Thursday, August 26, 2004  

Income and Poverty Data

The Census Department reports the number of people in poverty increased 1.3 million to 35.9 million. In the same publication, Median Incomes declined 0.1% (the press release considers this "unchanged"). The number of uninsured rose 1.4 million to 44.961 million and the proportion of uninsured rose to 15.6% from 15.2%. Based on the anecdotal evidence and the continuing rise in inflation and health care costs, the same or greater increase should be expected when the 2004 data comes out next year.

Angry Bear has more in-depth analysis and the Carpetbagger muses about the new timing of the release.

posted by Teddy | 10:54 AM |

On Government Statistics

Here's a pretty good primer on government economic data and its potential bias. I'd particularly recommend the final paragraphs that deal in more detail with the unemployment and employment data published by the Bureau of Labor Statistics. I hope that further installments in this series come out soon.

A couple of additional notes:

Inflation statistics are the most prone to bias since their manipulation has the greatest effect on other key statistics as well as the greatest effect on government budgets. Both GDP and productivity statistics use inflation statistics as key building blocks for their own data, so downward bias in inflation statistics leads to upward bias in both GDP and productivity statistics.

Economists acquiesce to this bias by accepting that higher prices will lead to substitution from more expensive goods to cheaper alternatives, but not the reverse. They also assume that over time there are quality improvements in goods but not quality reductions.

Having bias does not mean that the statistics are not useful, as long as the bias is consistent. A consistent bias means that marginal changes in the data series are still meaningful. An increase in the over-the-year inflation rate from 1% to 4% still indicates rising inflation, even if the true numbers were 4% and 7% respectively. However, the longer the period of time between data points, the less likely the bias is consistent and the less comparable the data. For example, it's probably no longer useful to compare CPI inflation from the 1960s with the present rate.

Finally, the main reason the BLS establishment survey is "more accurate" than the household survey is due to its benchmark. Each year, the level of the employment series ard adjusted by the census of quarterly unemployment insurance records. The population estimates for the household survey are benchmarked to population control updates from the Census, but the estimates for employment, unemployment and labor force are never benchmarked. State and Local estimates from the household survey actually use establishment survey data and unemployment insurance data as part of the estimation process.

The benchmark revision is published twice a year for U.S. data and once a year for State and Metro Area data and is the indication of how truly accurate the estimates have been. The latest benchmark revision in February 2004 lowered total nonfarm employment by 122,000 or 0.1%.

posted by Teddy | 9:03 AM |

Tuesday, August 10, 2004  

Not dead yet.

But swamped by work. Posting will be limited through next week.

posted by Teddy | 7:41 AM |

Wednesday, August 04, 2004  

Better writers than I

Sean Corrigan is the best I've read involving Pure Austrian economics. His archives are over at

Matt Taibbi continues to do amazing work over at the New York Press. This week's Press has both "The Liberal Case against John Kerry" as well as "The Conservative Case against George Bush".

posted by Teddy | 7:36 AM |

Tuesday, August 03, 2004  

Comments on Kerry's economic plan

The full .pdf text can be found here, and the summary is over at Daily Kos.

Oy. The saddest part of this whole exercise was realizing that it still made sense by globally replacing Kerry/Edwards with Bush/Cheney in the document. Every proposal is essentially revising or reworking existing legislation, most of which was implemented by Bush (war on terror, No Child Left Behind, tax cuts, ad nauseum) . I guess the Democrats must not worry that much about Nader or the whole "no difference between the parties" meme because there is no significance between a Kerry/Edwards and a Bush/Cheney plan in this document.

And before Democrats start screeching about Roe vs. Wade, do a search for "abortion" (instances=0), Roe vs Wade (instances=2, one in passing and another listing the faults of the two Federal judges which Bush already appointed for life to U.S. Circuit Courts) or "right to choose" (instances=3, one is the "right to choose a doctor", the other two are non-specific, the first that the Republicans have eroded the right to choose without any mention of instances or even what we're choosing (our long-distance carrier, paper or plastic, what?!?) , the second that this right to choose, whatever it is, is never taken away).

The top priority is Iraq, and Kerry has no solutions except "building alliances". My experience in building alliances is limited to Civilization II, but even my rudimentary knowledge is enough to know that your ally needs to get something in exchange for cooperation. The three things I think our potential allies will need, we are either unable or unwilling to provide: improvement in the security situation, command over their own armed/peacekeeping forces, and economic stakes in the reconstruction. In lieu of foreign support, the only way to get the 40,000 soldiers Kerry wants is to keep all current military forces on "stop loss" forever, or bring back the draft. This would bring our total forces to 180,000 - less than half of the number Eric Shinseki estimated (and Democrats have used to point out Bush's ineffectiveness) we'd need to effectively police the country.

On economic activity, this plan is nothing but tax cuts, tax breaks, subsidies and investments. There's a bit in there about a balanced budget in four years which must be a typo. Not even Bush was crazy enough to try pull that one. All this stimulus works at cross-purposes with another Kerry priority, reducing our reliance on foreign oil (which of course is the influence on our current policy in the Middle East), because the kind of economic growth it generates, if any, will increase our energy needs to run new manufacturing plants and spend our higher incomes.

On health care, apart from paying through the nose to get more health insurance for kids and seniors, and prescription drug care, there is nothing to reform or change the system, except for tangential affairs such as reforming malpractice insurance - which as a big GOP talking point must be another typo. A lot of budget-busting corporate welfare there.

In short, I haven't heard so many empty promises since I told my wife I'd landscape the back yard. Let me make a few predictions about a Kerry Presidency.

1) We'll probably bring back the military draft. As we don't need that many people, it will probably get bundled into a public service commitment, like a 2-year mandatory term. It will take 6-12 months to train the new recruits and assimilate them into the armed forces. By that time, Iraq might be chaos to the point of being not salvageable, and plan B would be to hold hasty elections and fortify 100,000 soldiers in their bases before some type of Beirut-like retreat. I'd put the odds about 50-50.

2) Kerry will have a divided Congress and spend most of his time fighting over minor legislation. Republicans will take all of 15 seconds to remember they used to like balanced budgets, announce a budget crises and block every single non-pork spending bill. Budget fight will take so much time that there suddenly won't be any time or willingness to pass other legislation, such as undoing Bush damage to environmental laws.

3) The economy will fall into a recession and the bailouts will begin. A number of economists are already fearing a recession starting in early 2005. The Pension Guaranty Corporation is near bankruptcy. Unless the airlines can screw over their pensioners, they're going to dump their whole mess on that agency. The housing bubble will pop and we'll probably have to step in for Fannie and Freddie too, if they don't blow themselves up with derivatives first. Banks now have nearly a third of their funds in home mortgages. We now have a -$5 trillion net investment position with the rest of the world. There is simply no room for any kind of recession, and any resulting bailout would amount to a monetization of large amounts of debt, killing the dollar, raising interest rates and inflation and worsening the crisis.

4) The next president will be extremely unpopular. Bush and Greenspan have set all the dominoes to fall, but they haven't actually begun to collapse yet. The likelyhood of doing so before 2008 is extremely high. Unlike the bubble conditions, where lower interest rates stimulated economic growth, low CPI inflation and asset prices, the anti-bubble conditions will work in reverse. Kerry will have the additional handicap of total animosity from the GOP and its supporters (20% of Americans) at an order of magnitude above Democratic opposition to Bush. It's very difficult to see Kerry achieving any of these goals without alienating either Republicans or his own party or more likely both, and unlike Clinton or Reagan, he doesn't have the "party savior" mantle to help him. Like either Bush, he can only ride on his predecessor's coat-tails while facing restiveness on all sides. It's a recipe for total failure, which is too bad because change is badly needed. Unfortunately, there is no change written in Kerry's Plan for America.

posted by Teddy | 9:23 AM |

Summer Sucks
I've lived in the Washington DC area since 1996, and have yet to get used to the summers. Having grown up in San Diego probably spoils me from enjoying any other climate, but living in a former swamp is worse than most places.

This summer is worse than most because not only has it been hotter and more humid than most, but I just got back from a two-week vacation in Oregon where they have no idea what a "heat index" is. Portland had one of the hottest days on record while I was there (104 degrees), and I still found it preferable to a mild day in metro Washington, where you break into a sweat just thinking about walking somewhere.

Then there's the terror alert BS, where an Terror Alert Level alert means ID checks getting into every building even though this same security looks on passively as I nearly get run over by half a dozen cars crossing the pedestrian walkway on the way to work, after an hour on the Metro, which has no entry safeguards whatsoever, and sits like a duck at every Red Line stop packed with customers and with train doors wide open at every stop because they haven't been able to fix their defective switches for a week now.

I can't help but make a quick cost/benefit analysis and think the whole thing is stupid.

I really didn't want to come back from Oregon.

No, I wasn't energized by the Democratic convention.

I have a (possibly) interesting story about that, as I attended a Kerry meetup at Anzu in Adams Morgan about a week or two before the convention. My observation was that there was very little mixing going on. Even the people hawking books and other campaign material were just talking to each other rather than pushing their wares despite a capacity crowd inches away. Everyone there just seemed to show up, talk to the few people they knew, eat the hors d'oeuvres (which were wholly inadequate, though the calimari was very good) and leave. I think Bill Press was supposed to give a talk, but I left before anything happened. It was more an agglomerative experience than an interactive one, not much different than going out dancing in Adams Morgan on any other evening.

I suppose that's what happens when you're running Anyone But Bush. The only thing that matters is finding the right person and there's very little to talk about once you've decided except to hold pep rallies and raise money until the election. The conversations I overheard were almost entirely complaints about Bush policy rather than discussions about how Kerry's policy will improve matters.

There was no inspiration to break me out of my summer funk. In fact, it made things worse. In particular since it was drizzling when I stepped outside, the kind of summer rain here that actually make you feel scummier than before, because it isn't nearly enough to wash anything clean. It just lifts the dirt off the ground into dirty puddles and nothing dries out very fast afterward. Bleh.

Anyhoo, I suppose I've a few things to catch up with: growth is slower (not surprising), jobs report comes out Friday, budget deficit estimated at $478 billion for 2004, trade deficit will probably approach $550 billion, inflationary pressure continues to build, and stock market going nowhere. The outlook is as dreary as the weather. I'll try to pull myself together and get back to work.

posted by Teddy | 6:22 AM |

Friday, July 16, 2004  

Retail Sales and Inflation
Retail sales declined 1.1% in June, reversing a revised (downward) 1.4% gain in May.  The trend of retail sales growth is downward, which started well before any effect of the Fed's recent interest rate hike.  The LA times attributed the decline to energy costs
The current official savings rate is around 2%. Not counting "imputed rent", that figure is around -5%.  The nonfinancial sector added $2.2 trillion in debt between the 1st quarter of 2003 and 2004, which means that around 20% of GDP is being generated by borrowing.  Plugging in the numbers, mortgage debt of $7 trillion, an average interest rate of 6%, 2/3 of Americans owning their own homes, and wage income of $5.3 trillion implies that on average, 12% of wage income go to mortgage payments each month.  Add in property taxes and principal, and that figure rises to about 20%.  Factor out a large chunk of older Americans who own their homes free and clear and the number rises higher still.  There is very little room in family budgets to absorb higher consumer prices.  At this point, rising prices in one area immediately digs into retail sales elsewhere.
Consumer prices rose 0.3% in June.  The bond market is rising solely because this number is less than the 0.6% rise in May, but the year-over-year rise in consumer prices increased to 3.3% in June from 3.0% in May, 2.3% in April, and 1.5% in March. That doesn't look like an inflation threat that is diminishing to me.  I suspect the bond market reaction is more speculative in nature (lots of short covering, perhaps) than any fundamental reaction to inflation.  (And you can take your "core index" cookie and stick it up your, hey!  I don't fill up my gas tank with Pentium IVs)
In any case, the yield curve is flattening and this is not good in the short, medium or long term for those playing the curve.  In any case, the dollar is down significantly today against most currencies, which doesn't indicate any foreign central bank buying.  Gold, another inflationary barometer, is up $3.30 today.  If we use the CPI to deflate retail sales, growth is shrinking even faster than the nominal figure.

posted by Teddy | 9:03 AM |

Tuesday, July 13, 2004  

I'm sick of this and I'm sick of you.

Village Voice on the health-care crisis effects on young workers, who often either aren't offered coverage or can't afford care.

America's approach to paying for medical care stretches back to World War II, when regulations made accident and health insurance for employees tax-exempt. Meanwhile, a simultaneous wage freeze and worker shortage encouraged employers to offer insurance as a perk to attract labor, explained Ken McDonnell, a research analyst with the Employee Benefit Research Institute.

During the same period, England instituted universal coverage. The reasons we didn't are a complex knot of social and political influences now nearly impossible to untangle. "I think part of it is who's being served here. In more homogeneous societies, like in Scandinavian countries, [universal health care] came as a no-brainer," said David Jones, the president of the Community Services Society, a New York nonprofit. "But we're not homogeneous. There's a sense that 'We've got ours, I'm not sure I want to give it to those guys.' "

As employer-sponsored insurance took hold, the number of uninsured dropped steadily, reaching an all-time low of 23 million in 1976. But the very availability of good care quickly drove premiums up. In the 1980s, health care costs exploded, with annual increases peaking at 18 percent in 1989, before slowing briefly in the 1990s. Increases hit the double digits again in 2001, and reached 13.9 percent last year.

Perhaps not surprising, companies began to balk at providing benefits, leading individuals—the self-employed, the unemployed, the employed but not covered—to go it alone. Reforms designed to help the older and sicker buy private insurance served to further squeeze the able-bodied but vulnerable. Prices today are all over the map. A young, healthy adult in California can find basic catastrophic coverage for under $100 a month, but the same person would have to pay $280 for a similar plan in New York, largely due to differing state regulations.

I'm not sure what policy they refer to, but sign me up! My crappy basic coverage is $150 a month, but that's my 25% contribution. The total bill is $600 a month, and that's for a pretty big company which (I assume) has some leverage on price. Meanwhile...

For Lars Russell, in his early twenties, the cost of health insurance came as a shock. He graduated last year from the University of Michigan and moved to New York. "It's not really anything I can afford," he said in November. "I don't even have car insurance right now."

Russell would get little sympathy from McDonnell, the benefits research analyst. "That's life," he said, when asked about the huge number of uninsured young adults. "If you're young and healthy, you're going to take risks. It's life everywhere."

McDonnell cited an unwillingness to pay for insurance as a big reason young adults go without coverage.

It's a fine line, however, between being unwilling to pay even $100 a month and being unable to. And it's significant that when offered health insurance by an employer in exchange for a deduction from each paycheck, 74 percent of young adults take it, just a hair less than the 79 percent of older adults who do the same. "The argument is that if it's that important to you, then get a job that offers health insurance," said McDonnell, who, like so many experts on health care issues, is over 35 and has long had jobs with good benefits.

I've got a cuppa STFU ready for you, Ms. Russell. Who's gonna pay when Lars ends up in the emergency room for an appendectomy? Yep. It's coming out of your wallet. And the more people that bail out of the system because of cost raises the bill for you too. If, as the logic goes, healthy young people don't buy insurance, that means there's a much older and sicker risk pool that the industry still has to make a profit on. Does that make it clear why more people are uninsured and rates are going up 20% a year? Maybe if this principle is clear, you could explain it to those running the DC metro system.

There's a reason why single payer works in every developed nation but our own. No country pays more than 11% of their GDP on health care. We pay 15% of our GDP. There will always be complaints about their systems, but you won't be able to convince anyone in Canada, England, Germany, etc to dump their system for ours.

posted by Teddy | 12:53 PM |

Thursday, July 08, 2004  

Put on the cuffs, you're going for a ride

Some inspired verse from Roger Ailes (the good one).

The Fed raised the target Fed Funds rate 1/4 point to 1.25% last week. This was the least unexpected move in history, so unexpected that 10-year Treasury yields fell by nearly a quarter point to 4.5% after the announcement.

There are two self-equilibrating forces at work in this economy. The first is in mortgage finance. On one side you have the homeowner. They might pay 6% on a 30-year fixed mortgage, but after the tax-deduction the effective rate is more like 4-5%. Most consider it an expense like rent, so the perceived rate is probably much lower than that. As long as prices appreciate faster than whatever that rate is, buying a house is a very profitable investment. In fact, with 0% down, the rate of return on equity is infinite. Not too much gonna beat that.

On the other side is mortgage and structured finance. They make money by playing the yield curve. At the low end you have money market and Fed Funds around 0-1.25%, and at the other end are mortgage loans earning 5-6%. The steeper the yield curve, the more money the industry can make. Not surprising then that the big players had their best years ever in 2003. Citibank alone made a cool $10 billion, Freddie Mac made $5 billion, Fannie made about $8 billion...and so on.

And the more you leverage, the more profit you make. Let's say you're a hedge fund. You borrow $100 million in capital (at 6%) and use it to short $1 billion of 10-year treasuries yielding 4.5% and buy $1 billion of mortgage-backed securities yielding 5.5%. The spread on this trade is 1%, and your interest costs on capital is effectively 0.6% (1/10th of 6%). The profit is $.004 on every dollar invested, so if you've got $1 billion hedged that's $4 million. There's nothing stopping you of course, from doubling that to $2 billion, or $4 billion, except the nerves of the people financing you (which in the case of JP Morgan or Citibank might just be a call down to Fred and Ginger in finance, or your golfing buddy Desiree over at Salomon Brothers).

You can cut your borrowing costs and increase profits by shortening the term on your loans. Maybe keep rolling over 90-day notes at 1.5%, which increases profitability to 0.85% (1%-0.15%).

The best part is that the whole system is self-equilibrating. The economy tanks, people flee stocks into Treasuries and rates go down and a new flood of homeowners rush to refinance, and everything gets restructured (you take profits on the mortgage-backs your long, too). The economy improves, and you know the Fed has pegged the low end of the yield curve, which gets steeper and more money for everyone!

The second system is between the U.S. importer and its foreign creditors (mostly East Asia). Low interest rates and rising asset prices mean we don't have to save, so the Japanese provide all the lending we need and we buy their products. If the dollar is in danger, the central bank prints Yen and buys all the dollars necessary to fix the exchange rate, as well as purchase all the debt we can issue. The central bank has infinitely deep pockets and can keep the process going, regardless of how "doomed" the U.S. currency appears. Of course, the numbers may get pretty big and start to alarm people after awhile, but if the U.S. economy improves, so does the dollar and the pressure is off East Asian central banks to protect the dollar. Contrary investor has a pretty good rundown in their July MO.

From the article, it's pretty easy to see the consequences of the Fed hike will not be decreased physical investment. Not a lot of that is going on. The effect will be on the yield spread, which is going to cut the amount of money available to the financial sector. This is why the Fed has to move deliberately and telegraph their moves well in advance. They cannot raise interest rates 1/2 point when the previous move was to announce inflationary bias, because that would cause volatility in the various spreads and crush some poor souls working with 20-1 leverage and 0.4% margins. It has to be one step at a time. With the latest employment report and another one due before the August Fed meeting, Alan and Co. will make the next decision just as painfully obvious as the last one.

Instead the worry is that someone will have to stop the credit creation machine. Maybe inflation impinges on consumers so much they can't afford to push up housing prices enough to make it profitable. Maybe enough people start moving money out of the low end of the yield curve that creditors can't leverage as much. As interest rates rise and the yield curve flattens, money is draining out of a system that was swollen with leverage by this most recent panic stimulus. The only question is who will starve for income and begin de-leveraging, and when. The Fed is acutely aware of this, so any excuse to not raise another 1/4 point in August will be seized upon.

The latest tightening may already be too much. There is simply no room left for error, because the behavior of players in this game has not been to correct errors, but take any advantage the Fed makes available. Rather than de-leverage, the financial system reacted by expanding at an exponential rate. Prices rose exponentially, lending, and so on. Every marginal move, therefore, is toward contraction and agents will react at the margin. We're at the peak of the roller coaster. Commence holding breath now.

posted by Teddy | 7:29 AM |

Wednesday, July 07, 2004  

My favorite economic event, next to "Hearing Test Thursday"

The BLS Employment Situation, that is, showing June employment growth of 112,000, far fewer than anticipated.

Pretty much down the line this report is a retracement of previous strength in employment growth. Manufacturing had reversed a five year trend years of job losses (3.25 million since early 1998) in 2004, but June showed the first decline (-11,000) of the year. All gains came from service industries as construction and mining employment was flat in June.

Job gains were in (surprise, surprise), temporary help services (+12,100), health care and social assistance (+29,500), accommodations and food services (+13,300), membership associations (+11,400, probably gearing up for the elections), and transportation and warehousing (+19,200, of which 5600 was "couriers and messengers"). Outside of McJobs, there wasn't a whole lot of job growth in June.

In fact, I'm really surprised at how few industries in the entire economy outside of health care show any sustained growth. Very few industries had any significant change in either direction. That temp services has popped back up to the top gainers list indicates that despite recent profit growth, nobody is really all that keen to begin hiring in earnest.

Billions in tax cuts and no follow through in employment. And real hourly earnings have fallen over the past 12 months, the first time this has happened since 1995. If housing ever started to look anything but stellar, people might start to worry about how they were going to make the payments.

posted by Teddy | 8:52 AM |