MANDATE? FOR WHAT?

election day is tommorow. what will happen and what will it mean.

well it looks like the republicans will take the House, bye nancy; and the dems will hold the senate but only like 52-48 and reid may lose, bye harry.

prop 19 probably fails but smoking grass will become like a traffic ticket.

anyhow, the republicans will be talking about their mandate and as usual, when people think they have mandates, they will get it wrong and overreach.

some wise politician once said its about the economy stupid and that is alot of what is going on here. while it is true that the economy blew up under bush, obama has had 2 years to be effective and hasnt been. the stimulus didnt stimulate, and the war on business and capital combined with the incredible diversion of time and political capital to achieve a pyrrhic victory on healthcare leave us with high unemployement, low growth, and the banks and big business on the sidelines and voters pissed off

so this is very off with their heads, throw the bums out; as opposed to boy i have faith in the republican party or the tea party.

now there was a golden age for a short time when clinton was in the white house and newt controlled congress but i dont think thats what will happen here. not clear what can be accomplished with a republican congress with a pseudo mandate and clueless democrats and a class warfare president; but if something isnt, then the anger being directed at democrats will be shared with the republicans

wish em luck

Why Easier Money Won't Work:

The Fed risks fueling a destructive bond market bubble, while any gains from a weaker dollar will come at the expense of those to whom we hope to export.

By JOSEPH STIGLITZ

The Federal Reserve, having done so much to create the problems in which the economy is now mired, having mistakenly thought that even after the housing bubble burst the problems were contained, and having underestimated the severity of the problem, now wants to make a contribution to preventing the economy from sinking into a Japanese-style malaise. How? As Chairman Ben Bernanke announced last week, through large-scale purchases of U.S. Treasurys—called quantitative easing, or QE.

The Fed is right to be worried.

If high unemployment continues, America faces the risk of losing human capital as the skills of the unemployed erode. It will then become increasingly difficult to bring the unemployment rate down to anywhere near the levels that prevailed in the mid- and late 1990s, and the higher unemployment rate and lower output will make the current pessimistic budget projections of the Congressional Budget Office and the Office of Management and Budget look rosy.

The problem is that, with interest rates already near zero, there is little the Fed can do to restart the economy—and doing the wrong thing can do considerable damage. In 2001, (then) record-low interest rates didn't reignite investment in plant and equipment. They did, however, replace the tech bubble with an even more dangerous housing bubble. We are now dealing with the legacy of that bubble, with excess capacity in real estate and excess leverage in households.

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Reuters

U.S. Federal Reserve Chairman Ben Bernanke

Today, the Fed is paying too little attention to the transmission between the interest rates paid by government and the terms and availability of credit to small and medium-sized enterprises (SMEs). Large businesses are flush with cash, and small changes in interest rates—short-term or long—will affect them little. A banker rightly asks if such a business comes asking for money, "What's wrong with it?"

But it is SMEs that are the source of job creation in most economies, including the U.S. Many of these enterprises are starved for cash. They can't borrow money at the interest rate that big banks, big firms or government can. They borrow from banks, and many of the smaller local and community banks on which they depend are in dire straits—more than 800 are on the FDIC's watch list.

Yet even if the banks were willing and able to lend, lending to SMEs is typically collateral-based, and the value of the most common form of collateral, real estate, has fallen 30% to 40%. No wonder then that credit availability is so constrained. But QE in the form of buying U.S. Treasurys is not likely to affect this much. It will have some effect in lowering mortgage rates, and lower mortgage rates will put a little more money into people's pockets. Higher real-estate prices may also allow some SMEs to borrow more. But these effects, though positive, are likely to be small—so small as to make a barely perceptible difference in America's persistent unemployment.

There is another channel through which easing will have some positive effects: Equity prices are likely to rise. But for all the reasons just given, this is unlikely to have much effect on investment. Nor will most Americans, burdened with debt and diminished retirement accounts, likely embark on much of a spending spree. Nor should they. Doing so would only delay the deleveraging that is necessary if we are to have sustainable growth going forward.

There is another downside risk: QE may not even succeed in lowering interest rates, or lowering them very much. Given the magnitude of excess capacity, there is little risk of inflation today. But if the inflation hawks come to believe that the risk of future inflation is real, then they'll believe that short-term interest rates will rise. This will mean that long-term interest rates, even now, may actually rise, in spite of the massive Fed intervention, because long-term interest rates are based on expectations of future short-term interest rates.

QE poses a third risk: The bursting of the bond market bubble that the Fed is seeking to develop—the sequel to the tech and housing bubbles—will clearly have adverse effects on the economy, as we should have learned by now.

The advocates of QE point to another channel through which it will strengthen the economy: Lower interest rates may also lead to a weaker dollar, and the weaker dollar to more exports. Competitive devaluation engineered through low interest rates has become the preferred form of beggar-thy-neighbor policies in the 21st century. But this policy only works if other countries don't respond. They will and have, through every instrument at their disposal. They too can lower interest rates. They can impose capital controls, taxes and bank regulations, and they can intervene directly in their exchange rate.

Under the gold standard, there was supposed to be an automatic adjustment mechanism, as a country with a trade surplus would see an inflow of gold and an increase in prices, leading to an automatic real appreciation of its currency. It never worked as smoothly as it was supposed to, but in the modern economy with fiat money, the adjustment processes can be short-circuited even more easily. China, for instance, has sufficient control of its banking system and economy that it can simultaneously maintain a stable exchange rate that generates a surplus and prevents inflation.

Such policies may come with a price, but the price may be less than the alternative: the bankruptcies and unemployment that would follow from disruptive currency appreciation as the U.S. lets forth a flood of liquidity. That money is supposed to reignite the American economy but instead goes around the world looking for economies that actually seem to be functioning well and wreaking havoc there.

The upside of QE is limited. The money simply won't go to where it's needed, and the wealth effects are too small. The downside is a risk of global volatility, a currency war, and a global financial market that is increasingly fragmented and distorted. If the U.S. wins the battle of competitive devaluation, it may prove to be a pyrrhic victory, as our gains come at the expense of others—including those to whom we hope to export.

Mr. Stiglitz, a Columbia professor, won the 2001 Nobel Prize in economics. The paperback version of his book "Freefall" is just out by W.W. Norton.

AT LEAST WE ARE NOT FRANCE

as i constantly despair about the state and prospects for america, i am at least grateful that at least we are not france

sarkozy is trying to implement a small, totally correct thing, moving the retirement age for pensions from 60 to 62. the "workers" are on strike. they can strike there way to poverty. all these welfare states, including america, have unsustainable structures given the benefits committed to versus ever longer life expectancies taking account birth rates and the ratio and workers to retirees.

it just doesnt work. what needs to happen in france is for the average french person to support the government and say we need to do this

vive la difference

SUBLIME TO THE RIDICULOUS

THE SUBLIME. recently there have been stories that remind me how amazing people are capable of being. like the chilean miner resecue. here we have a wonderful country, shaken by a terrible earthquake with tremendous loss of life and property; digging out largely on its own; without the help of sean penn; confronted with a potential tragedy with 33 miners trapped deep below the surface. the country rallied, the world rallied and unlike most of these occurrences they were saved. NASA helped. a small drill bit company in berlin, pennsylvania dropped everything and made special drill bits that ultimately led the successful of 3 different drill attempts. the owner of the business said it was the most important thing he had done in his life.

then there is the story of the unemployed construction worker who jumped into his car and chased the bad guy who abducted and attacked a young girl. he chased him down at obvious risk and rescued the girl.

these are the things we are capable of as individuals and as a species.

and then you read the rest of the news. a few items that caught my attention; not all that important maybe but of interest to me

THE RIDICULOUS

joy behar and whoppie goldberg walked off the set of the View during an interview with bill o'reilly, see it on youtube, where he calmly said 3 things; that obama refused to express his opinion on the ground zero mosque after saying the constitution allows for it; bill said the same but that it was inappropriate, wow, what a fiery word; and then he said why, because Muslims killed americans on 9/11 at that location.

joy and whoppie got up and left. outraged by the truth. now upon reflection bill said he should have said muslim extremists, not just muslims; you watch it and tell me. if joy and whoppie are america, i want out

lastly, bernanke said more or less today that the fed should ease more because of high unemployment. well that sounds good at 30k feet but what on earth can they do? rates arent low enough? 3 years treasury bonds at 35 basis points or so! its not the cost of money, its the availability of money. printing dollars and spewing them into the economy? how is that going to create jobs? the fed cant create jobs! if anything it should raise rates so savers can get some return and let the market function on its own. if the government wants to create jobs it needs to create an environment where business can create jobs. that would involve creating an environment where companies know what the rules are and can count on some stability of rules, taxes etc. perhaps investment tax credits and accelerated depreciation to encourage capital investment? perhaps less class warfare on businesses?

how can we be capable of such courage and sacrifice on the one hand and such stupidity and venality on the other?

SPECIAL INTERESTS, GLASS HOUSES

president obama has been making speeches attacking the "special interests" funding this election. this is code for the us chamber of commerce and others funding political advertising and the Citizens United supreme court decision opening up corporate spending. the nastier version implies that "foreign" money is being spent. the chamber says it segregates domestic vs. foreign money. does the SEIU? a union where the I stands for international.

now i realize nerve or chutzpah is not in short supply in the democratic party, but its rather amazing for a party totally in the economic thrall of union and trial lawyer money to decry the us chamber of commerce for weighing in also

its ugly and expensive out there. the vicious ads of jerry brown vs meg whitman; carly vs barbara. the only winners are the media companies but what the hell, their stocks will go up

ps, read michael milkings wsj op ed for some clear thinking on how to get this country back to what it could and should be

HEALTHCARE AND ENERGY SOLVED

taking a cue from jonathan swift, i have come up with a solution to both our energy and healthcare problems.

my eureka moment came during a recent visit to Memphis Tennessee. i was staying at the weston and when i check in i was in line behind 2 couples who were so large that they blocked all view of the front desk.

i then went into the elevator and it had a sign on maximum number of people and maximum weight. if you divided the two, it called for an average weight of about 167 lbs. however looking around, the average looked around 250.

i then went to the gym and was the only person there, two days in a row.

so it re-emphasized that we are one fat assed nation!

so here is my idea

we will have mandatory liposuction for all overweight people
the fat will be rendered and distilled into a fuel

this will result in a healthier population and a new fuel source. more people will fit in elevators, plane fares will come down as weight will be lower and fuel costs per flight lower; plastic surgeons will make enormous money and spend it on fancy cars and restaurants and clothes.

a virtuous circle.

NET NEUTRALITY AINT SO NEUTRAL

as frank lund says, words make a difference. junk bonds bad; high yield bonds good. have you noticed that almost all legislation passed by congress has the word reform in it. financial reform, health reform, campaign finance reform. we are just a country of reformers, making things better all the time.

which brings me to net neutrality. now net neutrality sounds like it must be a good thing. the net is important and neutrality is a good thing so net neutrality must be a really good thing. Switzerland is neutral and they are good right? aside from taking deposits from despots, drug and arms dealers.

anyway down to cases. there was an excellent article in the nytimes of all places but sourced by reuters that framed it as a battle between the pipes and the swipes. the pipes are the people who build the physical infrastructure to deliver bandwidth, verizon, att, direct tv, etc. the swipes are the people that use this bandwidth to deliver digital content like apple, google, microsoft etc.

now the pipes have spent and continue to spend year in and year out tens of billions on capital expenditures. and they want a return on this capital. the swipes and all the app and content providers want to ride on all this capital investment with a somewhat parasitic business model where the costs are born by the pipes and when they either raise prices to support their investment or offer premium service for a premium price; people howl at the evil pipes.

now where else is it ok to have unlimited consumption of a scarce resource for a flat, capped fixed amount? if you use more water, you pay for it. if you use more electricity, heating oil, gasoline, etc you pay for it. so why is it a crime to charge for more bandwidth? it aint free.

this has very little to do with neutrality. it is merely a commercial fight that should get sorted out in the market place. we should aspire to something akin to universal internet connectivity at some reasonable level of bandwidth but if i want more and faster i should be able to get it and have to pay for it.

your thoughts?