Friday, June 27, 2008
Wednesday, June 25, 2008
Thanks to Myrhaf for pointing to a fantastic article, "Does McCain Understand Markets?" by John Stossel discussing my favorite topic, the free market, or at least why a supposedly pro-free market candidate seem to put down the free markets constantly, and the "dreaded" speculator. I love Stossel, calm, cool, collected - just parsing McCain's words and showing him for what he is, as great a collectivist as socialist Obama.
Obama wants us to sacrifice for the poor and disenfranchised. McCain wants us to sacrifice for something "greater than ourselves" - I assume that means the state. Both think personal success, and independent, self-interested action is morally suspect.
Tuesday, June 24, 2008
Inflationary policy in the US helps anyone who holds large baskets of commodities. It's why your house is normally considered an inflation hedge. So the owners of the world's largest inflation hedges are countries owning oil reserves. As I mentioned in my previous post, those owners in many cases are not friendly to the US, and/or are blatant dictatorships.
So I did a little back of the envelope calculation. Take the several oil producing nations who have ill or mixed intentions to the US (Venezuela, Russia, Saudi Arabia, Iran, Iraq). Now since inflationary effects take time to trickle through an economy, those people who sell the base commodities that drive the economic cost structure get to spend inflated dollars before prices have all inflated to match, essentially getting free money.
So I took the oil production capacity of these unfriendly countries, assumed that the delta from $70 to $130 /bbl oil is due to inflation, and assumed that time delay in price increases would give them essentiall one year's worth of free money. The result: we just gave our enemies something in the range of $400-600 BILLION in free money. That's roughly equivalent to the total esimated direct cost of the Iraq War.
Stunning... and monstrously self-defeating.
By the way, the economic disaster that is US energy policy is terribly on my mind in the past weeks. I work for the company mentioned in my previous post, and my life over the last several weeks has been divereted into crisis mode of, you guessed it, raising prices. I have several different issues with the whole fiasco, but I'm too damn busy raising prices to get decent posts out! :)
SO instead I'll point you to other posts that I think address some of the same issues. Galileo over at Galileo Blogs has a great post on the most infuriating aspect of Congress' "non-action" actions toward this whole situation: the creation of the speculative scapegoat.
I've had this post brewing in me (is that what they do, exactly, brew?) since I got home from Spain.
In my previous post on monetary policy, Fire Sale, I highlighted indicators of the effects of the Fed's disasterous monetary policy as reflected in the most recent run up in the price of oil (or should I say decline in the value of the dollar). In that post I predicted what the future indicators were that this cycle was playing out as an indicator of Fed's causing of inflation, namely that the initial profit surge seen in the economy due to export volume would have to cease and be followed by subsequent rise in the prices of products.
Once again, it seems, my blogging life has intersected with my professional life, as on 5/28, CEO of my company Andrew Liveris, announced a broad price increase on Dow's products of up to 20% due to rising raw material costs, namely crude oil, and energy. Dow is a perfect barometer of the effects of monetary policy as it's primary feedstock, oil is denominated in dollars and will see the effect of inflation of the dollar. Several petrochemical companies have followed suit with similar announcements. This is the first step of the inflationary effect and it took about a quarter or two to manifest itself in the first step on its journey toward the consumer. Give it another two to three quarters to manifest itself broadly in the economy. Recognize that prices are going up in a depressed economy which means demand destruction, and stagnation soon follow.
And our illustrious Fed? What was it doing at the same time? As a June 5th Wall Street Journal Editorial, "The Buck Stops Where?" pointed out, after several years of rising commodity prices, and falling dollar valuations, relative to major currencies that aren't pegged to the dollar, it seems the Fed and Chairman Ben Bernanke has now expressed concern over possible inflation.
This week current Fed Chairman Ben Bernanke waved the white flag over Mr. Volcker's point by declaring his own public concern "that the dollar remains a strong and stable currency." Apologies accepted, provisionally.
The tragedy is that this is big news. The Fed has monopoly power over dollar creation, and concern for its value ought to go without saying. Yet so great has been the Fed's dollar abdication in recent years, and especially since last summer, that Mr. Bernanke's words have come as a great global relief. As the dollar has strengthened in welcome response, the price of gold and oil has fallen in each of the last two days.
The question now is whether the Fed will follow up its new words with action. "We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations," Mr. Bernanke said on Tuesday, a sign that the Fed may be waking up to the inflation threat. But the Fed chief also signaled that he isn't about to tighten monetary policy any time soon because current "policy seems well positioned to promote moderate growth and price stability over time."
Price stability where? Not in the U.S., where every economic report shows rising price pressure...
The Bernanke Fed has also been oblivious to the fact that it runs a global dollar bloc. Central banks in dozens of countries peg or otherwise link their own currencies to the world's reserve currency, which is the dollar. They do so for the sake of exchange-rate stability, which helps with trade and investment flows. They essentially subcontract their monetary policy to the U.S. central bank.
The Fed's dollar indifference has sent an inflation shock through those dollar-linked economies. This week alone, we've read about price riots in Vietnam; inflation hitting 10.1% in Kuwait; Abu Dhabi contemplating price or wage controls; South Korean and Indonesian central bankers considering rate hikes; and the Chinese letting the yuan rise ever higher to curb inflationary pressures imported from the U.S.
Many of these countries are now delinking from the greenback. Meanwhile, the dollar plunge has translated into a net transfer of trillions in wealth from the U.S. to the rest of the world. The result has been the largest decline in America's global economic influence since the 1970s.
If the editorial language strikes anyone as incredulous, it's no surprise. While oil prices dropped on this news, they were soon back up. I'm not sure why they would have dropped in the first place since Bernanke's stance to not tighten monetary policy belies its complete misunderstanding of the situation. In a June 18 follow-up "FED Mood Titls Away from Rate Increase" it's clear that this inflationary pressure does not worry the FED as much as it might think.
As the editorial points out, the FED has complete control over inflation of the dollar. If there's inflation out there, it is due to inappropriate monetary actions by the FED. Notice how in most of the FED's language it treats inflation as some causeless effect out in the world. As such the FED's action to curb inflation are never viewed as self-correction, but rather as attempts to keep the unruly market in check.
The misguided policy is that the FED wishes to believe that it's stimulatory actions (keeping interest rates low) will "stabilize" the housing market before it has to deal with inflation. But let's go back to our lead story and price increases. It takes time for prices to trickle through to the consumer. When it does its destabilizing effects will overwhelm any stimulus the FED thinks it's injecting in the short term. Inflation has already been unleashed, and is a torpedo headed for the housing market. Since the FED is the only agent that can act to head it off, keeping a "steady as she goes" monetary policy is a recipe for disaster! If the housing market is bad now, it won't be helped when the cost of materials that go into new starts and renovations skyrockets, as it is sure to do.
And today we have an even larger signal of this effect as in no less than 3 weeks after it's first announcement, Dow has again announced broad pricing increase of up to an additional 25% on it's products. Including these increases and the ones most chemical companies have been making over the last 12 months that's more than doubling of prices!
The FED will not make substantive moves (whole digit percentage points move upward in interest rates) until the furor over inflation reaches a deafening roar. It will not do so because it believes it is helping the situation instead of the primary cause of it. It misunderstands its own cause and effect and the consequences will be disastrous. It doesn't see that it has launched the inflation torpedo now working its way through to consumer product prices. Leading indicators of this? Look at airlines and chemicals. Airlines are highly dependant on oil, and are a direct pass through of oil costs to the consumer. Chemicals are only one step removed from oil, and manufacture products that are ubiquitous in almost all downstream markets. Both these industries are reeling with price increases and reduced demand.
The FED will make time-delayed reactionary moves. Free markets on the other hand act in an anticipatory manner moving ahead of the impact based upon actual cause and effect. This in fact is the best empirical case to be made for privatization of monetary policy. Businessmen cannot afford to wait until a crisis exists to act. They must anticipate it. As long as the FED is oblivious to its own shenanigans, it cannot act in this fashion.
The cure is known, and can be enacted now, but it is not popular. It's essentially a tightening of the money supply, as was effected by the Reagan FED to head off stagflation of the late 70's, and it rests primarily in the hands of our money regulators. If the free market were running monetary policy it would already be in effect. Of course one could argue that we never would have gotten into this mess in the first place.
Thursday, June 19, 2008
Sorry for the delay folks! Without further adieu, here is this week's round up.
Kim presents A Big Ol' NASA Commercial posted at Kim's Play Place, saying, "What's NASA's next mission? According to them it's establishing a moon base. As far as I can tell, it's convincing school children that NASA is required for most technological advances."
Peter Cresswell presents Not PC: Opera House For Dubai By Zaha Hadid Architects posted at Not PC, saying, "It's well known that back before he abandoned drawing identifiable figures, Pablo Picasso could draw like an angel. In an opposite twist, now that former deconstructionist architect Zaha Hadid has elected to produce actual buildings -- and in this stunning piece of architecture for the shifting desert sands of the Emirate's thriving megalopolis she has done that and more -- she's revealed as a woman with talent to burn, which was what she had mostly been doing with it up to now."
Paul McKeever presents Meridianfrost as Jim Taggart: Contrived Laughter in Lieu of Rational Counter-argument posted at Paul McKeever, saying, "I was audiobook-listening to Atlas Shrugged the other day, and got to the final scene between Jim Taggart and Cherryl. Almost immediately thereafter, I viewed a video on youtube in which a post-modernist's response to an Objectivist's video was, essentially, a video of the post-modernist viewing the Objectivist's video and laughing. In this short blog entry, I consider the similarities between Jim Taggart's debating strategy, and that of the youtubing post-modernist. Along the way, you may find yourself being introduced to a fellow Objectivist in the trenches: Brandon Cropper."
Rational Jenn presents Once Again posted at Rational Jenn, saying, "This is the latest update in my first real experience with civil disobedience. We've refused to complete the hideous "American Community Survey" and I've been urging fellow recipients to do likewise. This has been going on since December. And I am still getting hits on my blog that are originating from the Census Bureau in Washington, DC. Will they keep coming?"
K. M. presents Civil Service and The Constitution (Part 1) posted at Applying philosophy to life, saying, "This is the first of a now concluded 3 part series on the Indian constitution and its effects on the bureaucracy."
Edward Cline presents The Year of the Long Knives: Part III posted at The Rule of Reason, saying, "While the Democrats wish to destroy the American Revolution, the Republicans seem to have forgotten it ever happened, which explains not only why they have never been able to defend it, but have been complicit in its steady destruction. Republican presidential candidate John McCain is not any kind of reactionary alternative to Barack Obama. If the current political environment can be likened to a coin, then heads it is altruist, tails it is collectivist, and McCain is simply the ridged edge on its side."
That concludes this edition. Submit your blog article to the next edition of objectivist round up using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.
oh, and almost forgot! Sorry C. :)
Sunday, June 08, 2008
So as I embark on the next third of my life, I think the goal will be to reach my 80th year and be hardly able to remember this day, for all the rich memories in between. Anyone up for an adventure?
Anyone who knows me, knows that music seems to accompany everything I do. So here you go. Music for the adventure of the next 40 years (substitute philosophical references in place of religious ones, please. Let's see. Does "Galt's Gulch or Bust medallion" fit in place of "plastic dashboard Jesus"?)
To strive, to seek, to find, and not to yield...
Thursday, June 05, 2008
You've had plenty to keep you busy while I was gone as Oblogger continue to turn out some fantastic essays and posts. I returned to find some 400 unread posts by Obloggers after only a few weeks. A ton of goodness if you subscribe to our combined feed. I just got done browsing them and always amazed at the quality and clarity of some of these posts. The best of my perusal can be found on my favorites feed.
Of particular note, Greg Perkins over at Noodlefood gives us the third in what is shaping up to be a great series analyzing Why the New Atheists Can't Even Beat D'Souza. Our newest Oblogger, Kostubh, over at Applying Philosophy to Life gives us a short but concise look at the tendency of people to want to use government regulation as a shortcut to solve problems in society in his article Individuals and Society. And then, as if to concretize the principle, three other Obloggers take on specific issue that illustrate examples of this: Galileo looks as the scapegoat of "speculation" in todays financial crisis. Stella at Reasonpharm looks at the world without the seemingly "necessary" FDA. And Ergo ponders whether or not the use of government stimulus during a financial crisis is warranted. One of my favorite and most articulate Obloggers, Ed Cline over at Rule of Reason weighs in with some powerhouses. First with a great Memorial Day post on heroism, and with a great post looking at non-policy in Iraq. Dan Edge at Edge of Reason has a great memorial day post remembering "Tank Man" from the Tiananmen Square massacre, and Titanic Deck Chairs looks at the concept of individual right vs. "human rights" in the current China debate. He also has a great post, marveling at the ease in treating illness today. And finally, in one of the sweetest most hilarious YouTube videos, Optional Values shows us why listening closely is soooo important.
Well, look, there's my own Objectivist round-up right there, and now that I've finished it, I know that you, dear reader, have had plenty to read while I was gone recharging my batteries. And recharge I did. After work meetings in Warsaw, I spent a week's vacation in Spain. The highlight of my trip revolved around art. In Warsaw I got to hear a concert of Chopin, including the 2nd Piano Concerto, played at the National Symphony, which was a bit like watching a home team favorite. I also discovered some Polish painters from the 19th century at the National Museum which I'd not heard of before including Siemiradzki, Zmurko, Gierymski, and Jozef Brandt. It was discovering heretofore unknown artists from an era which was all too short and all too glorious in the history of art.
In Madrid, I had the pleasure of hearing the Royal Philharmonic Orchestra play Beethoven's 4th Symphony and a rousing rendition of Tchaikovsky's 5th, which ended to an eruption of "Bravo's!" from the audience. I also discovered the work of Impressionist Joaquin Sorolla in the setting of his own home and studio. Although I'm not a fan of the Impressionist school in general, early impressionists, who still retained some of the more traditional form from the earlier era sometimes have paintings with wonderful themes, as does Sorolla, and generally passable technique. Particular favorites were "Una Investigacion" [An Investigation] and "Instantanea" [with an Instant Camera]
So that's it. I'm back. Batteries recharged; and hopefully a few posts coming out quickly in the next few days.