Thursday, November 6, 2008


God, that was a CRUSHING by Obama. Maybe people actually have the sack to get it in America after all. I'm still occasionally yelling when I see him called "President-elect." Now, let's get to hammering these deregulation, tax-cutting fools and bring some reponsibility and growth back to this economy.

To paraphrase Frederick Douglass, "Verily, the work does not end with the abolition of (Bush and the Republicans) but only begins. (Supply-side and simialr foolishness) has been the great hindrance. It has stood athwart the pathway of knowledge and progress, dreading nothing so much as the enlightenment of (Americans). This old and grim obstacle removed, and jets of heavenly light will speedily illumine the land long covered with darkness, cruelty and crime."

Or as Winston Wolf would say, "let's not start sucking each other's dicks yet." Lot of work to clean up, and I have the utmost confidence Barack can get a group together that will do just that. Unfortunately, we still probably have a million more job losses to fight through in the next year or so. Hang on tight.

Tuesday, October 28, 2008

Dow a 30% drop!

Sorry if I'm not breaking out the party hats for the Down getting back to 9000 today (and back within 2000 points of where it was....8 days ago). 10 years of being told by Boomers that the market always works in the long run, and I see the S&P down 10% since guys my age have been able to have any chance of investing. And thank God I don't own a house.

Ownership society? Fuck that. Give me a good-paying job and secure benefits, and I'll gladly take the extra taxes. You know why? Because there's no point in cutting income and capital gains taxes WHEN NO ONE'S GROWING INCOME OR CAPITAL GAINS ANYWAY! And this is leaving out the whole "being China's bitch because of our deficit," thing.

If you're the one non-Jake person reading this, don't be an idiot and vote McCain. Vote for the guy that actually has a clue about our problems, and some sort of coherent plan to fix it. It's not that hard, it really isn't.

Friday, October 3, 2008

Quick hit

The last 2 weeks have been rather unbelievable. Amazing what happens when you hire people to look the other way and let business and individuals be as reckless as possible. It's like folks never understood that Gordon Gekko's "Greed is good" was meant as a bad thing.

The amount of deficit and debt we will have to make up as a result of these last two-three months will take years and a heavy drawdown in growth along the way. Hang on tight to what you got, because payrolls are down over 750,000 so far this year, probably 1 million for the future, and no room for government to give the jobs or boost to get out of it. As a city employee, I have major fears over what will (or won't) be able to be passed down to state and local governments, which has already suffered greatly under this administration.

But in the meantime, I'll do my part to help Q4 GDP by being in bars for 6 hours before UW-OSU. I don't have much hope after last weekend's big meltdown in Ann Arbor, and the Brewers awful performance is no salve either, but I've been surprised before...

Wednesday, September 17, 2008

And it rolls on..

This is 1930s level. I am stunned at how badly this could be screwed up. These people on Wall Street need to be straitjacketed, and bent over hard.

Like most guys in my 30s, I have no expectations of Social Security or pensions, but I may as well pack it in and live close to the vest...or pick up a lot of bad habits so I don't make it past 75 (ah, it's your last 10 years that you add to your life anyway). I think I'll go with the bad habits.

And I hear that Ben Sheets is possibly asking out of another start early. SCREW HIM! The Crew has to win tonight and you're asking out. I'm almost at the "good riddance" point now.

Tuesday, September 16, 2008


Wow, I'm just stunned and amazed that for-profit corporations decided to swindle folks and make bad bets in an attempt to make a few extra bucks. Just stunned and amazed....

Now I remember exactly why I wanted nothing to do with the financial services industry. Douchebag central. And you gotta love McCain trying to say "We caused this culture of greed and deregulation, and we're gonna fix it!" Of course, there's nothing ever said by the GOPpers HOW to fix it, other than silly platitudes about out-of-control CEOs (where the policy seems to be "you're a bad, bad CEO. Don't be bad again.")

And speaking of bad CEOs, what's with Carly Fiorina saying Sarah Palin wouldn't be qualified to run HP, but that she's OK for VP? Ummm, I'm guessing VP's a much tougher job, although I would anticipate Palin being every bit the screw-up at her job as VP as you were at your job at HP, Carly.

But the really annoying part of that statement is the illustration of entitlement CEO culture. These folks really believe that their little piss-ant company and their (usually inherited) position is somehow more valuable in the grand scheme of things than policy-making, diplomacy, and national leadership. The disrespect these people have for those who decide to serve and improve this country is appalling, and needs to be called into attention.

Barack's sharpening the tone in recent days, but I want to see more, and I want it on my TV screen.

On my TV screen now is the Brewers, who seem to be continuing their epic collapse despite the new manager. Gimme football season, it's gotta be better than this 26th straight year of post-season futility.....or my portfolio.

Wednesday, September 10, 2008

Bizzaro world

So let me get this straight. 6.1% unemployment, increased poverty, $600 billion deficits, and widespread Wall Street corruption (and the assocaited fallout on our portfolios) aren't a big deal, and the same policies that got us into it are the ones to get us out of it.

Asking questions about a female candidate's views and management abilities is sexism, finding irony in promoting abstinence-only education and the resulting pregnancy of a teenage daughter is "off-limits", and calling the promotion of these same awful ideas with a different packaging "lipstick on a pig" is somehow a personal attack? But ripping on the choice of millions of Americans to do social service work over prostituting themselves to the highest bidder is perfectly fine, and supposed to be proof that "those do-gooders" don't get it?

And people are falling for this crap?

And the ridiculousness of the GOPpers would be a mere annoyance if there wasn't a real threat of people being stupid enough to believe this bullshit. You wonder why me and a lot of others in our mid-30s see no point in trying hard, because if these folks are allowed to succeed, it proves the game is fixed, and not worth participating in.

In addition, I'm watching the Brewers choke their way out of the playoffs AGAIN, losing 7 of 9, including 4 of 6 the freaking Reds and Padres. I'm not even panicking as much as I am totally disgusted, so maybe that's carrying over into my political views. It's almost not worth it for me to keep up with the Crew, even if they make it.

Amazing how a lot of these fears and angers go away when I'm drinking with friends. Maybe there's a point to that which I need to follow. Ah, who am I kidding, OF COURSE that's the point. Sports and beer is real, politics and economics are not, and maybe that needs to be the attitude I should take for the next 8 weeks.

Thursday, August 14, 2008

Update from the author

I've since made my way to Milwaukee to count some beans and hopefully watch C.C. Sabathia help me see my team in the playoffs for the first time since I started getting man hair. Let's just say I wasn't seeing a $600 billion deficit, 5.6% inflation and $3.69 gas being a "relieving low, low price." But hey, why not elect McCain when you can get even more fun on top of this entertainment of an economy, right?

Dear God, hope we're smarter than that, and that Ned Yost is smarter than I fear he may not be. I'll try to post more if it comes to me.

Monday, April 14, 2008

Barack on small towns

I gotta give props to Barack Obama for telling it like it is about small towns. I lived in a shit town like this in La Porte, Indiana, and the amount of people who were duped by the Karl Rove machine was enormous. It's not surprising. No one wants to admit they've been screwed over their entire lives- they want to believe that what they've been doing has a point, and that there's some kind of hope out there. So they grab onto the things they know and recognize, like God or guns or some other BS values issue, because they can realte to that. Looking into economic issues that have turned their once-vibrant communities into defeated ghost towns is just far too tough for people that are working 10-12 hour days and raising their families.

So no wonder these people fall for Yalies who tell them "I'm just like you," despite the fact that these people back policies that will guarantee small-town folks will NEVER have the chance to be "just like them". And I even think in the back of their minds they know this, but like a beaten spouse, they're so scared of what might happen if they leave the comfort of their losing situation. So they stick with their losing hand, and guarantee that they stay beaten down and in their current place. Which is exactly where the rich suburbanites want them to be. What these suburban wusses DON'T want is to have small-town folk actually compete with them, because then the suburbanites might actually have to earn their money and status. And God forbid someone have to work for what they get in America!

Obama's comments will piss off some people for a bit, but many of them are the 28 percent of dopes who still support this president, so they're irrelevant for this election anyway. And now that Hillary's trying to exploit this anger over the comments by saying "Oooh, what Barack said was hurtful. You people are just fine. I have Midwestern values just like you." WHAT? Sliming everyone in sight and sticking with philanderers for career reasons are Midwestern values? It will backfire once people say "Wait a minute, Bubba rammed through NAFTA. You guys have advisers with Colombian free trade organizations. You've lived in Arkansas and D.C. for 40 years and made 9 figures in the last 7 years. How are in the world are you like us?"

As a former Hoosier that still keeps in touch with the area, I just hope it happens sooner than later, so the Hoosiers can knock out the Billaries on May 6. We'll see if this country is soft and reactive, or tough enough to accept Barack's hard truth. And it's pre-empted any chance for the GOPpers to try to use stupid social issues this November, because Barack can say "See what I said back in April? They're trying to play you?" And if there's something small-town people can't stand, it's the idea of some rich city slicker trying to get something over on them.

Whether he meant to or not, Obama may have made a move that could be the winner. Or it could confirm that this country's down the drain. We'll see which it is.

Friday, March 7, 2008

Blowing my own horn

Here's a paper I wrote in May 2007 called "A Careful Depreciation of America". It doesn't have all the cool pictures and such, but it also was when the dollar was at a "shocking" $1.36. It's depreciated 14 percent since then.
Anyway, maybe this'll get me on "Google". :)

As the United States’ economy has expanded since 2001, one statistic that has expanded along with it is the country’s current account deficit, which reached $856.66 billion for 2006. Many of the Democrats elected to Congress in November 2006 pointed to the current account deficit amid concerns about globalization and the changes this has forced in the American economy, and coupled this criticism with the fiscal deficits that re-appeared starting in 2001. Others have countered this argument by saying the high current accounts and trade deficits are offshoots of strong economic growth, and are paying themselves off with higher living standards both in the U.S. and around the world. Federal Reserve Chairman Ben Bernanke recently said despite the U.S.’s trade deficits, protectionism was not the proper way to fix the problem, telling a crowd in Butte, Montana, “In the long run, economic isolationism and retreat from international competition would inexorably lead to lower productivity for U.S. firms and lower living standards for U.S. consumers.” (Associated Press, May 1, 2007)

But Bernanke also has to evaluate economic growth and the value of the American dollar as part of his job as Fed chairman, and both of those figures have dropped over the last year compared to many of the U.S.’s competitors. If the United States is willing to accept some fiscal and consumption changes that result in slower growth over the course of a few years, it appears that it can withstand a depreciation of the dollar. Foreign countries are driving ahead economically, and while their strong growth will be hampered, their strong internal consumption and investment means they will not be stopped by a U.S. slowdown. The United States could withstand a steady depreciation if it coincides with a larger effort to gets its current and fiscal deficits in order. Fiscal discipline in particular could prevent a more rapid depreciation that could cause crippling adjustments and maladies that would spread beyond the American borders.

1. The U.S. current account deficit and depreciation
The United States has seen its current account become blow up over the last decade, with its deficit going from just over $100 billion in 1996 to annual rates that threaten $900 million today. Its deficit has more than doubled since the U.S. dollar hits its peak in 2002, and reached 7 percent of GDP in the fourth quarter of 2005 before settling at 6.5 percent for all of 2006.

Many have become concerned with the current account deficit and dollar’s drop, especially over the level of capital inflows that are required to maintain the deficit. An economist told the Senate budget committee earlier this year that “the United States must attract capital inflows of almost $4 billion from the rest of the world every working day to finance our current account balance,” and warned that if countries were to pull back on the amount of money flowing to the U.S., that the dollar would drop very quickly and possibly trigger a recession (Bergsten, 2007). These deficits seem to have had an effect on the U.S. currency, as the euro’s value has gone up 53 percent against the dollar in the last five years, reaching rates over $1.36 per euro in April 2007.

Others have countered by calling the current account deficits an externality of strong U.S. growth that is not a concern, and instead something that should be welcomed. The United States’ increased appetite for imports over the last fifteen years matches theories espoused in Mundell-Fleming and other models, where increased incomes translate to more purchases from all sources, including foreign ones. And much like how the United States is credited with helping China and other economies by importing those countries’ goods during its robust expansion, the U.S. can have their economy pulled up by other countries that grow faster over time, as they become fertile markets for U.S. products. This is often related to claims that a dollar drop can turn into a good thing, as it can make U.S. exports cheaper overseas, and drive up income through an improved trade balance.

The U.S had a $232.5 billion trade deficit with China in 2006, and the yuan has appreciated nearly 7 percent in the last two years versus the dollar, as the Chinese agreed to allow more fluctuation in the yuan’s value. Officially, U.S. Treasury Secretary Henry Paulson has said a strong dollar and current trade policy is in the country’s interest, and a driver of a thriving economy (Reuters, April 20, 2007). But Paulson has also called on China to increase the flexibility of its currency, and the surplus of American dollars going to China combined with China’s 11 percent annual growth and signals that Chinese officials will put in monetary controls to cool their economy means the yuan would stand to appreciate more against the dollar in a freer-floating system.

2. Policy of depreciation
There is evidence that trade patterns are reflective of exchange rates. The U.S. dollar reached its peak against other major currencies in 2002, and after a year of recognizing and adjusting to the currency changes, U.S. exports have increased by 52.5% in nominal dollars over the last four years, compared to a 50.0% nominal rise in imports. But imports of goods also continues to increase, as consumption grows along with the U.S. economy. This increased appetite for imports was especially noticeable when the dollar appreciated in 2005, with imports increasing in nominal dollars by $16.83 million when comparing December 2004 to November 2005 (a 12.9% rise), while exports only increased by $6.49 million over the same time (9.1%).

With that in mind, a dollar depreciation could have a positive effect on export growth in the United States, and at least stop the growth of the trade and current account deficits, if not narrow them. The International Monetary Fund charted the United States and other countries that have had current account deficits, then later turned to surpluses over time, and said that depreciation and an improvement in the current account often went hand-in-hand. In these reversals, the currency depreciated by an average of 12 percent, and the current account was significantly diminished within 5 years, indicating that home and foreign countries respond to cheaper exports and more expensive imports (IMF, 2007). However, there was also a reduction of GDP growth of 1.4 percent in that time period when compared to the time in deficit, so there is a question as to whether the adjustment period may hurt the U.S. economy (IMF, 2007).

With that in mind, it is instructive to look at which economies adjusted their current accounts with little economic damage, and compare it with the ones that suffered economic setbacks. The IMF notes that the economies that handled a current account reversal best had

a larger-than-average total real depreciation (median of about 18 percent), which corrected a somewhat more overvalued currency and spurred export growth, and a strong increase in saving rates, associated with a substantial fiscal consolidation, which allowed investment rates to be sustained much closer to their pre-reversal values (IMF, 2007).

In other words, to keep the economy moving in this time of adjustment, the U.S. should be willing to depreciate the currency (an event that is already happening), tighten up its fiscal deficits, continue to encourage investment, and increase private saving. The fact that the U.S. has a large and long-term deficit may not make things much worse. The IMF notes that in advanced countries with deficits over 2 percent for more than five years, “the correction of these deficits has not been characterized by a larger decline in GDP growth or by a greater real effective exchange rate.” (IMF, 2007) The IMF adds that the ultimate drivers in current account adjustment were macroeconomic adjustments such as slowdowns in the economy and better stock market prices (IMF, 2007).

Another factor that seem to help countries during current account reversals is having a growth rate less than its trading partners before the reversal begins, which can help the depreciation and export growth occur. This can be working in the U.S.’s favor, as its economy is slowing down, with a growth rate of 1.3 percent in the first quarter of 2007, while China zooms ahead at 11.1 percent. The Euro zone and Japan also have picked up to expand at rates that match or exceed the U.S.

GDP growth, year-over-year

2006 Q1 2006 Q2 2006 Q3 2006 Q4 2007 projected 2008 projected
U.S. 3.7 3.5 3.0 3.1 2.3 2.7
Euro zone 2.2 2.8 2.8 3.3 2.3 2.1
Japan 2.7 2.1 1.5 2.5 2.3 2.3
Sources: European Commission, The Economist (April 28, 2007)

These indications of a growing world economy means that U.S. exports could be pulled up by growth in other markets, while simultaneously depreciating the currency. As an article in the October 21, 2006 issue of The Economist pointed out, “Asia is the world’s fastest-growing consumer market. The IMF forecasts that total household spending there will rise by almost 7% in real terms in [2006]. In comparison, the 3% growth in American consumption looks almost parismonoius.” The same article notes that much of the recent European growth is also consumer and investment-driven. While Asian economic growth would be hurt by an American slowdown, given their large trade surpluses to the U.S. and other big markets, American fates matter less to countries such as China, which had a third of its exports go to the U.S. in 1999, but only have a quarter of their exports go there now (The Economist, October 21, 2006). Real consumer spending in China has grown by an average of 10 percent a year in the last decade, and Japanese manufacturers are reporting shortages and plans for major expansion (The Economist, October 21, 2006). These Asian and European consumers may want to take advantage of cheaper American goods and services, making a depreciation a welcome measure for some American businesses.

However, those growing foreign economies may also put pressure on U.S. financial markets, since investors may decide to put their money in growing European, Asian, and emerging markets over the United States due to strong growth rates, and less return from depreciated American dollars. A cheaper dollar makes it easier for people to get into the U.S. market, but it also means that the recent run-up in U.S. stock prices does not translate into major profits for foreign investors, since those increased stock prices are muted by depreciated currency. And foreign companies which hold greenbacks could decide at some point to trade in what they have, as they would prefer to hold a currency in another market, which could accelerate the dollar’s drop, and cause a serious adjustment. With the U.S. still being a world economic leader, analysts say a dollar crash would “increase risk premiums and unnerve frothy financial markets around the world.” (The Economist, December 2, 2006)

Another potential drawback of a depreciation policy is that changing prices do not have the effect on the trade and current account balances as much as a difference in income does. The IMF estimates that a one percent change in income in the U.S. changes imports at a rate five times that of a one percent change in price, and other estimates put that figure at 7 to 10 times more (IMF, 2007, Chinn, 2005). Likewise, the income effect on exports is around triple that of relative prices, so the key to higher exports may lie with improved economic growth in other countries over a depreciating currency (IMF, 2007, Chinn 2005). So the desired reduction in the current account and trade balance would be more likely to be an offshoot of slower U.S. growth compared to the rest of the world over expenditure switching. And if the U.S. uses fiscal or monetary policy to jump-start its economy, all gains in the current account could quickly be wiped out due to the heavy tendency for the U.S. to spend its extra income on imports.

Recent U.S. trade patterns with China show that a currency depreciation can improve the U.S.’s trade situation, but in a limited capacity. China began to allow its currency to move against the dollar in June 2005, and the dollar has steadily dropped against the yuan since then.

In the 17 months after the yuan began to float against the dollar, U.S. exported goods to China rose by 33.6% to $4.858 billion, while U.S. imports of Chinese goods rose by 32.4% to $27.777 billion, so some of this could be credited to expenditure-switching. But the overall goods deficit increased by $5.372 billion in the same time period, because of the previously-higher amount of Chinese imports to the U.S (U.S. Census Bureau, 2007). The U.S. has seen an improvement in its deficit with China in the last three months, but some of that could be due to traditionally lower levels of Chinese imports in January and February, and the rocketing growth of the Chinese economy. It would take a much larger expenditure switch for the U.S. goods deficit with China to decline year-over-year, and could be more economic trouble than that would be worth.

The U.S. has relatively inelastic demands for imported consumer durables and non-durables, and actually spend more on petroleum products and automotive products as those prices go up (IMF, 2007). A depreciation could hurt consumers in that they would continue to buy these products even with the higher price tag, and limit their spending in other areas, causing a slowdown in certain industries. The U.S. should see a boost in tourism and IT capital goods with a depreciation, as those exported products have the highest elasticities, but IMF data indicates that sales non-durable consumer and industrial products are barely affected by a change in price, and food and durable industrial supplies actually could see their revenues drop with a depreciation (IMF, 2007).

The IMF notes that prices for foreign trade are somewhat sticky, as 64 percent of exchange rate changes are transferred to import prices worldwide one year after the currency changes. This figure lowers to a 42 percent transmittal rate in the United States due to competition for customers in the large U.S. market (IMF, 2007). The U.S. does benefit from an export pass-through rate that nears 80 percent, but the IMF adds that because the U.S. runs such a large trade deficit, depreciation “would lead only to a partial narrowing of the trade deficit in the absence of other changes, such as a decline in the domestic demand for imports or an increase in foreign demand for U.S. products.” (IMF, 2007) Given the IMF estimate that a 10 percent depreciation would improve the U.S. trade balance by 0.3 percent, the dollar may need to significantly drop more in order to make a significant dent in the 6.5 percent current account deficit the U.S. finds itself in. And a significant dollar drop would increase the chances of major financial and economic disruptions.

The speed at which capital can move is quicker than ever, and an economist points out that two-thirds of movements in current accounts come from a major change in parity of return between two countries (Bergin, 2004). A depreciated dollar and low rate of return could lead to a major shift out of U.S. assets could lead to an immediate worsening of the current account, and then make the resulting adjustment in import prices and inflation all the more jarring. Using fiscal discipline and reduced consumption of imports can lessen the need for a bigger depreciation and risk of capital flight, because with increased saving, the current account can stop its descent and reduce the surplus of dollars that require higher interest rates and a depreciating currency to allow the deficits to continue. Improvement of the fiscal and current accounts can also increase the chances of any depreciation being a smooth, orderly one, instead of having a brisk fall in the dollar that requires serious reactive action and economic pain.

3. Adjustments through monetary policy
Another method that could be used as part combating the U.S’s large current account deficit would be through monetary policy by the Federal Reserve. Part of the U.S.’s increase in its current account deficit can be credited to vigorously expansive monetary policy enacted by Fed Chairman Allan Greenspan starting in early 2001. As a result, U.S. consumption and housing investment boomed, which increased demand for imports. It also put downward pressure on the dollar for a second reason, as interest rates fell below the Euro Zone’s and neared Japan’s zero-level rates.

The cuts in rates started about a year before the dollar’s slide from its 2002 peak, and the Fed’s raising of rates from 1 to 5.25 percent coincided with the one time period of dollar strength against the euro in 2005. Monetary policy could have helpful effects on stemming a dollar drop, or could speed it up depending on what the U.S. decides to do. Strong European and Asian growth may allow the U.S. Fed to have its job done for them if the U.S. chooses to depreciate, as it can lead to a boost in U.S. exports that can result from a depreciation, and those growing economies may be tempted to raise rates above the United States. Foreign countries having higher rates would keep the U.S. from having to depreciate by lower its interest rates, and then deal with inflationary pressures that lowering American interest rates may cause. Europe’s growth also means that it may be prepared to adjust to a further depreciating dollar because it is less reliant on export growth to drive its economy. As an analyst notes, “the euro would have to rise to $1.43 to make the ECB raise rates by a quarter of a point less than it otherwise would have done,” and the dollar would have to go down another 5 percent from its record lows to reach that (The Economist, December 2, 2006).

However, there are concerns with using monetary policy as a tool to depreciate currency. A financial disruption due to dollar depreciation can cause Fed officials to try to stem the tide of drooping stocks and asset prices by loosening money, which can cause even more downward pressure on the dollar with lower interest rates and increased demand for imports through consumer spending. This could lead to a quicker-than-desired drop in the dollar, and can accentuate the financial instability while also leading to possible inflation due to higher import prices.

The increased holdings of U.S. debt by foreign investors has another potential pitfall, as the depreciating dollar may discourage U.S. investors from buying into more expensive investments overseas, and drop the value of those exchanges. With their domestic stocks and bonds dropping in value due to a lack of U.S. demand, foreign investors may lean toward cashing in some of their U.S. holdings due to the financial difficulties in their home country, which would cause a quicker dollar depreciation due to a surplus in funds, or cause the U.S. to raise interest rates further to try to encourage these foreign investors to stay in American funds. The raised rates can lead to slower growth or recession in the United States, and further discourage foreign investors from putting their money into America. Foreign holders have so far continued to increase their positions in U.S. treasury debt, as residents of the United Kingdom more than tripled their holdings to nearly a quarter-trillion dollars from July 2005 to November 2006 (Bengsten and Truman, 2007). In the same time period, people from oil-exporting countries rode the oil price rise to take on 50 percent more of the U.S. debt, and the Chinese also continued its purchasing of American debt, raising their holdings from $298.0 billion to $346.5 billion (Bengsten and Truman, 2007).

Canadians and Brazilians more than doubled their holdings in the same time, Brazil increasing to $51.0 billion, and Canada to $47.8 billion (Bengsten and Truman, 2007). The increased holdings of American debt allow it to continue to run these deficits and not suffer a major economic disruption in recent years, but a depreciation increases the danger of capital flight in the future, as foreign investors see the value of their holdings go down. The huge level of foreign holdings means the Fed has to be careful not to be overly expansive in its policy, as lower rates could lead to a flood of American securities on the market and lower prices. Perhaps a harbinger of the possible problems with foreign investors cashing out is the moves by Japanese investors over the same period. Japan is the largest holder of U.S. treasury securities, and unlike many other currencies, the yen has depreciated against the dollar in this time period, and has also lost value against other major currencies like the euro. While appreciating countries like China and the U.K. were increasing their holdings in 2005 and 2006, Japan dropped its holdings from $669.4 billion to $637.4 billion (Bengsten and Truman, 2007).

Conversely, the Fed may decide that dollar weakness and inflation are the bigger concerns and decide to raise rates, which increases the possibility of disenchantment with investing in the United States, and increasing the chances of an American recession. While exporters to the U.S. are more insulated from American economic problems, it still would have a severe short-term impact as a large market dries up, and cause rattling instability that could slow further economic development.

4. Recommendations and ramifications
The world economy can be comfortable with a gradual decline in the U.S. dollar, as an orderly shift could improve the United States’ yawning current account deficit, and put it and other countries on firmer footing for further growth down the road. The United States should not actively intervene to have the currency depreciate, because the U.S.’s slower growth and large current account deficit should continue a natural depreciation against the currencies of many other developed economies. The United States should also encourage China to continue to move toward a more flexible exchange. That, combined with the signaled efforts of Chinese officials to tighten money and capital controls to cool its hot economy, should put pressure on the yuan to appreciate against the dollar.

However, the dollar’s decline needs to be without major, sudden drops in order to maintain stability in the financial markets and lessen the need of central bank intervention. One of the ways that depreciation can be controlled is to make the dollar’s drop part of a bigger initiative to control the United States’ free-spending habits. The United States continues to run a negative savings rate where the amount that is consumed is more than the income of its citizens, and much of that consumption is in the form of imports, which drives down the current account balance.

One of the ways is to reduce the U.S. fiscal deficit, perhaps by using fiscal policy to remove the desire to consume at high levels. Expenditure reduction, either through increased taxes or reduced government spending, would have a cooling effect on the economy, and combined with the depreciation would result in a shift to exports as a source of growth over consumer spending. This also could stem some of the inflation effects from raised prices on imports due to a depreciation, as the United States would reply less on imports. Foreign countries which rely on a strong American market may suffer some disruption, but their increasing economies also could look to cheaper American goods to consume, satisfying needs in both countries, and lowering the large surpluses that appear in many emerging economies.

If the United States does not make attempts to improve saving and reduce this reliance on import consumption as a key component of its economy, a dollar depreciation could lead to serious consequences. The foremost concern with depreciation is that such a move could mean a pattern of stagflation. This would happen if a rapidly dropping dollar led to significantly higher prices in the U.S., and foreign investors pulling out of American markets as any dollar profits are eaten up by the lower currency. The Federal Reserve may have to respond to the financial instability by raising interest rates to slow down price increases and encourage foreign investors with a higher rate of return. Raising rates when economic growth is not high has plenty of dangers economically, as the higher rates can cut off U.S. investment in domestic industries and discourage borrowing in financial markets. This can result in recession in the United States, with some spread to overseas trading partners, and expansionary policies to get out of the recession can drive up demand and prices, which could depreciate the currency further, and start the cycle all over.

The key question is whether U.S. politicians and citizens are willing to take the short-term hit that could improve the chances of long-term financial serenity. Pandering to voters with tax cuts and refusals to limit spending has helped to put the U.S. in their current hole, and the lack of leadership from Congress and the President leaves the country in a precarious position. If the voters and their representatives limit themselves now with fiscal discipline and a steady depreciation, it may keep the U.S. economy from reaching the rapid levels of growth that exist in other countries around the world, but it will also allow needed adjustments to take place. If these small adjustments do not happen now, they will be much bigger and painful to deal with later, and it is in the U.S. and the rest of the world’s interest to tackle these problems as quickly as possible.

Saturday, February 16, 2008

Primary thoughts

As this big weekend approaches in the Badger state, a few relatively quick thoughts.

First, it's been remarkable looking at the IU meltdown as someone who's lived in Indiana nearly half his life since age 15. I think Bob Knight is a disgraceful, ogreish egomaniac, but at least it was his own personal actions that was disgracing IU when he was there. Compare that today, where the coach is a sleazy liar who shoved an assistant under the bus to deflect the blame, and the administration is going to let this POS coach them in a nationally televised game while they figure out the legally proper way to blow his ass out the door. I never thought I'd see a day where UW was the standard in basketball performance, coaching and integrity that IU wished they could be, but that is certainly the case today.

Also, it's primary time in Wisconsin, and as an Obama guy, it's hilarious to hear Hillary's response on NAFTA. "Well, I didn't focus too much on that because I was trying to do health care reform at the time." Yes, let's bring up your biggest failure leading to a GOP-controlled Congress for the next 12 years as an accomplishment that allows you to avoid a position on an important trade issue. Then again, Boomers are good at that failing upwards thing, where the fact that you had experience doing something trumps the question of "Did you do it well?" And by the way, a gracious thanks to Hillary for finally discovering that a 50-50 state like us exists after polling data indicates she might get something from us. I'm sure folks won't forget that in November if somehow she connives her way into the nomination.

With 10 more inches on the way, looks like I'd better take advantage of today, so I suppose I will, and sample some more fine lagers of the area. Especially since I spent 4 hours reading and digesting reports for my projects and classes, and will have nothing to do tomorrow as Madtown hits 90+ inches for the season. I'm still waiting for that look-ahead weekend we usually get around this time, when it's 50 for a couple of days, and a nice reminder that Spring arrives at sometime. But it looks like I'll have to settle for nonstop college hoops instead this year.

Thursday, February 7, 2008

Still not saying "Uncle"

Yeah, I survived that 13 inch storm that hit the Mad City last night. Hell, I even took my Corolla on an extra trip to pick up a buddy at the VA Hospital and then blasted through the sideways snow to meet buddies at (where else on a snowy day in Wisconsin?) the bar to watch Bucky win another one. Good times.

But given how this is the land of the Frozen Tundra, you'd think some would understand that going up hills, around buses, and in the wrong lane of traffic might ned badly...particularly when you're driving a POS small call. Yes, I saw you at Science Hall on Langdon Street, and you are not cool - although not as lame as the Lance Armstrong wanna-be I saw biking through this stuff in his official riding gear.

Enough of this grad research, it can wait till tomorrow and the weekend. And then it's the huge showdown with the Boilers, and I don't see them getting the call down the stretch this time. As long as the crowd does get frozen in time due to the -25 wind chills on Saturday (isn't it March in 3 weeks? C'mon weather!), I anticipate it being quite festive downtown on Saturday night.

Tuesday, January 29, 2008

The IU preview

As someone that's spent half my adult life in Indiana after going the University of Wisocnsin, I figured I'd give a little rundown for those of you unfamiliar with life and hoops in America's Dairyland. We drink a lot, we follow the Packers, watch other sports, play lots of euchre, create and read "the Onion", and for the three months we have good weather, do a lot of things associated with drinking outside with friends (inlcuding drinking numerous pitchers of local brews at our student Union). Since the Packers screwed the pooch and subjected the rest of the country to obnoxius Easterner talk for the Super Bowl, looks like we're down to drinking and watching other sports in the land of the Tundra. The temperature has dropped from 40 to -5 and -30 wind chills today, but it'll be up to a balmy 20 by the time the Hoosiers arrive. Which is great, as you can probably find Greg Stiemsma, Erin Andrews, Brent Musberger and Steve Lavin working on hooking up another muskie as they sit on a metal bucket for 2 hours with a line in the water. I prefer warming up with Capital Amber and Spotted Cow myself, but whatever finds you peace of mind.

My pregame recommendations include finding one of about 20 bars around the Kohl Center and warm yourself up before you make the hike over. Here is a quick Bloomington-to-Madison bar converter:

Bloomington - Madison
Nick's - State Street Brats
The Upstairs Pub- The Plaza
Kilroy's - The Kollege Klub
Kilroy's Sports- Brothers
Yogi's- The Nitty Gritty
Scotty's Brewhouse- The Great Dane
I'd have some comparison for UW's Paul's Club, but I can't think of an IU place with couches and trees in it.

And other than having a few more panhandling bums, no courthouse, and no car traffic, State Street may as well be Kirkwood. About the only difference is that we don't have the sweet candy-stripe warm-ups to sell at the local university gear shop, as we settle for striped overalls instead (why this isn't switched as a kind of exchange program is beyond me).

Of course, a major difference between IU and UW is the blindling paleness of the hair and skin of some of the Wisconsin players. UW features a Norse army of Brian Butch, Joe Krabbenhoft, Greg Stiemsma, Jason Bohannon, Kevin Gullikson, and possibly Thor as a walk-on. Combine the pallid complexion of many of the players and the tough team play Bo Ryan's teams are known for, it may get IU fans a bit nostalgic for the good old days (well, the old days preceding the Richard MAndeville era, anyway). While Butch has begun to take on the "Polar Bear" persona that Lavin takes care to remind us of approximately 29 times each UW game, he also can maneuver his face to look like one of the special kids from 4th grade when he gets fired up. Marcus Landry had a brother play down at Purdue last year, but he's come on to be a solid player worthy of Carl's name, and deserves props for the smooth James Worthy-style goggles he puts on. Landry's Worthy goggles and the UW student section's tie-dyed Grateful Red shirts also give UW a slight retro edge over DJ White's noble efforts to bring back the Ewing t-shirt.

But the key point is that this is a big one for both teams. UW is so hard to beat when Bo Ryan gets the crazed badger look going in the KC, so if IU can take it and go 7-0, they get the inside track for their first outright Big Ten title since Kurt Cobain and Bill Clinton were live, positive contributors to society. But if Bucky rides it home, the Big Ten goes up for grabs and it makes for a Big Ten February that should prove much more entertaining than the Eastern jag-bag fest that the Super Bowl is becoming. With MSU, OSU, UW, IU, and even Purdue at 6-2 or better, it could go back to an old-school "watch Martha the cleaning lady on Channel 4" -style of Big Ten year, culminating in a raucous Field House in March.

The Mellencamp albums are blaring (well, up till 1993), my words are getting about a half-second longer, and the angry arms-folded intense glare's coming on my face. Must be IU week. And I'll be there at the KC on Thursday night.

Wednesday, January 23, 2008

Tundra still frozen

Kind of surprised I got over the Packer loss as quickly as I did. Suppose it had something to do with the fact that they were outplayed and that in the back of my mind I thought the season might be too good to be true. But it is funny how the media's trying to jump on that Giant "team of destiny" bandwagon. I figure they can keep doing so for another 11 days, when that idea gets shot to hell by halftime of XLII.

Late January means basketball season anyway. I saw Tom Oates writing an article belittling the Badgers for squeaking one out over Michigan to go to 6-0 in the Big Ten against a suspect schedule. I'm sorry Oatsie, but because college basketball is a legitimate sport and not the BCS, I don't care too much about your style points, particularly against a Michigan team that had Manny Harris going Teen Wolf from the outside for much of the game. Good teams fight through substandard efforts to pull out W's at home, and that's what Bucky did last night. As a former Indiana resident with lots to talk on with Boilers and Hoosiers, having huge games against Purdue and IU sure put some extra zest into the next few days. Big stretch in general for UW, as the roadies that follow the IU game are at Minnesota and Iowa, both of which are serious danger games.

Oh, and it's looking like 10 to 15 below air temperature tonight, which kind of kiboshes the karaoke possibilities. My range is limited enough, but cold, dry air really doesn't help the circumstance when I need to go falsetto.

Plus, it's not intelligent recession behavior if I go out 5 or 6 times in aweek (even though it can be fun...). By the way, federal deficit will end up being around $350 billion this year according to the CBO, once war funding and tax rebates are hammered. Folks, it's called the Laffer Curve because not only was the guy named Laffer, but also because it's one sick joke.

Friday, January 18, 2008

Tundra freezing

Projected high of 0 with wind chill around -25 to -30 for the Mad City tomorrow. This'll make for a nice brisk walk to the Kohl Center to see Bucky keep on track vs. Northwestern tomorrow. These Easterners all think 15 is a bitter cold snap- softies. I just hope it feels REALLY cold for a lot of them Sunday night, but that's no sure thing for the Pack.

Hell, it's almost as cold here as the stock market (now negative for the 7 years of the Bush Administration). But I thought negative real wages were OK as long as it controlled inflation and was "business-friendly". Hmm, you're saying that may not be true?

Heck with it, back to the groove of the (aptly named for this evening) Arctic Monkeys.

Thursday, January 17, 2008

This is a blog?

This is all you need to start a blog? Guess I'll have one till they charge me for it. Stimulate that, Bernanke!