Rate Cut Euphoria Scares Me

I am not kidding.

To those Americans living solely between the oceans and the borders the rate cut was good news. In fact the Dow rallied to a multi-month high.

Yippee!!!!

How can this be a bad thing?

Well, as regular readers will know, I am concerned with the state of the dollar. My simple point is that a weak dollar is a symptom of a weak economy.

Let me see if I explain. The USA is running budgetary deficits. That means that every day the US Government uses other countries money to pay it's bills. This Government treats China and Dubai the way many people treat Visa and Mastercard.

This is how it works. The US spends billions of dollars more than it collects in taxes and fees. In order to pay for that spending the government goes to China and Dubai (and others but those two are currently the main purchasers) and says, "Please purchase our bonds at 4ish% interest so that we can keep spending".

As long as there are buyers of debt at these prices the economy is safe; but, if those countries decide to buy even a little bit less than needed, the US government would be force to either immediately reduce spending (not likely), raise taxes (not on Dubya's watch) or raise the rate on the bond to make it more attractive (hurting home buyers and generally slowing the economy but perhaps avoiding a catastrophic economic event).

By lowering the rate (as happened today) the government is making those all important debt instruments less attractive. And what happened to the dollar today, when the rate was decreased and the Dow jumped? It fell --again.

I laughed out loud while listening to the Glenn Beck Show in CNN today. He had an admitted doomsday economist on that suggested if all goes wrong the dollar could see a drop in its valuation of as much as 50% !!!

Guess what? It has already happened.

In January 2002 one greenback was worth 1.61 Canadian dollars; today the close was 1.0146!!!

Does this make sense to you? What it means is that anything purchase from outside the walls of Bushdom is now forty percent more expensive than it would be if it were purchase with pre-Dubya dollars. People, this includes oil. Yes, Oil! The quirky result of the massive military spending (largely the reason for the current deficits) is that by paying for it with debt we have increased the price of the commodity that was at the core of the action: oil.

Am I making sense?

Let me lay out a likely bad case scenario. While the USA is lowering the interest offered on its debt instruments, countries such as Canada that do not run deficits and have little risk of dollar devaluation are keeping their interest rates stable. So Dubai and China can get over 5% from a Canada that is paying down its debt and is a good bet to not default by devaluing or they can get around 4% from the US. So, Dubai and China buy a bit less American debt. This is not unlike what Daddy Bush faced after his, "No new taxes" speech. Remember that?

So, to summarize. The US dollar is plummeting. US debt instruments are less attractive to those who would be bailing the Bushies out. And spending is up.

Folks, this is frightening.

And unless we have an administration that is willing to reduce spending to equal the record tax and fee revenue (here) that Bush has collected the outlook is terrifying.

Forget recession, this is a recipe for a depression. Now, that is depressing and frightening.

Arrggghhhh!!!!!

Time for a plymouth and a nap.

For a related rant click here.

Overvalued, Devalued Dollar

A recent article in Bloomberg has fired up a rant. Ready?

As regular readers will know, I am concerned with the state of the dollar. My simple point is that a weak dollar is a symptom of a weak economy. This concern is fueled by the apparent lack of concern from the Bush administration.

All is not well.

Right now the US is totally dependent on foreign countries (mostly China) purchasing debt. That deficit that pundits like Tony B. and Pat B. (the "B" Twins) don't care about does not involve some fantasy banking system, quite the contrary, it involves real countries buying real debt at prices they are happy with.

It is that last part that scares me.

What would happen if the total debt became large enough that China, Dubai and others decided to purchase a bit less of of the fresh version? I am not talking about a fictitious dooms-day scenario, but a very real possibility. If foreign countries decided to purchase a bit less American debt, the US would be faced with two options. One, raise the interest payed in order to sell debt, or two, cut spending.

The second is politically unpopular, the first, devastating. An increase in debt rate would be a de facto further devaluation of the dollar (again, weak economy, weak dollar). This means an immediate raise in the price of every import --including oil.

Does this sound like fiction? Well, in the past 6 years the US Dollar has gone from purchasing 1.56 Canadian Dollars to the current rate of 1.06 Canadian Dollars. The neighbors from the north have not suddenly become the most prosperous nation. No, their economy has been stable. It is the dollar that is now two thirds as valuable as it was not too long ago.

What does this mean? It means that a huge amount of the increase in the price of a barrel of oil is only being felt in the US. The price of oil has not gone up near as much elsewhere. The dollar has gone down.

Okay, time to tie this to the article in Bloomberg.

Quote:

The U.S. Treasury took two years to persuade the International Monetary Fund to police global currency markets -- and just two months to trash the initiative once the IMF adopted it.

Treasury officials recruited the IMF to be a currency cop as China and other countries meddle with exchange rates to gain a trade advantage. Instead, the international lending organization took aim at the dollar, calling it overvalued in an Aug. 1 report.

More,

IMF staff economists told U.S. officials in meetings ended July 27 that their research showed the dollar was 10 percent to 30 percent overpriced, according to an account included in the 54-page Aug. 1 report.

The Experts that the US hired to look into currency fixing have come to the conclusion that the current greenback is overvalued. This is frightening.

This means abysmal US dollar purchasing power on the international stage is being artificially supported.

Who is overvaluing it? Not the US. No, the dollar is being held aloft by the countries that are happy to buy debt at an inflated price. To a large degree it is being artificially buoyed by the very country the pols are upset with, China.

China doesn't need to buy US debt. They could spend some of their enormous pile of surplus cash on their own economy. They could, in very short order, raise both the level and the numbers of the Chinese middle class to the point where the average Chinese family had a car instead of a couple of bicycles. (What would this do to the price of oil?) But they "choose" to buy overvalued American debt.

By the way, what do you think the response was to the IMF ruling?

...on Aug. 2 an aide to Treasury Secretary Henry Paulson told Congress that it's impossible to measure a currency's fair value.

So, to summarize. The US has asked the IMF to look into the Chinese currency because it is unfairly valued. But when the IMF looks at the unfair value of the greenback, the response is swift,

...it's impossible to measure a currency's fair value.

Where did I put my gin.

The American economy is not, as Karl Rove said on Meet The Press this last Sunday,

...dynamic and powerful, providing jobs and increases in real income for people.

After almost seven years of Bush/Cheney leadership, the American economy is weakened. It is not in serious trouble, but it is close. Overseas (and up north) the dollar now buys two-thirds of what it did less than a decade ago. The perception that all is well is part of the problem.

But all is not lost. I have a solution. It may sound simple, but that does not mean it lacks merit.

Stop borrowing.

That is the only way to regain control of the dollar. It is the only way to ensure that the dollar does not collapse.

How to stop borrowing? Simple. Spend less.

This administration is poised to collect record revenues (here), all they have to do to get out of this quagmire is spend less than they bring in.

Basic fiscal responsibility.

Simple.

Rant over.

Time for the last plymouth of the night. Cheers.

Saddam is Not a Threat --NSA Brent Scowcroft, 1996

This 1996 interview with Bush Senior's National Security Adviser is a great follow up of the now famous Cheney 1994 interview (Here). Once again this clearly supports that fact that a mistake was made when Iraq was made a priority over Afghanistan.

Not my Fault: Bush

"I did say it should be a goal of the nation to shut down Guantanamo, I also made it clear that part of the delay was the reluctance of some nations to take back some of the people being held there."

That was the president late last week. What he is saying, if I read his words correctly is that because some of the detainees are not welcome in their originating countries, Guantanamo cannot be shut down.

I have written before on the danger of taking white-out to the constitution and I am not about to here. Other than to say that these individuals need to have their day in court. Some of them might belong where they are, but if only one of them is an innocent then this needs to be discovered and corrected immediately.
More on Reuters

Bush's Democratic Tendancies

Well, not exactly.

But he has raised more tax revenue than any other president in history. Details here.

Yes, Mr. No New Taxes has somehow managed to collect a record $2,120,000,000,000.00 in the first ten months of the year.

You would think with record revenues that he would be paying down the debt. You would think that with record revenues the government could afford to help some of the folks with prescriptions, or medicaid. You would, of course be wrong. In true Democrat fashion, bush has not only collected record taxes, he has built the largest government is history and he has spent the most ever. Everything that scares the Republican machine about the democrats. (Well, that and two men kissing).

Now to be fair, compared to the GDP these taxes are not the largest in history, but they are so close that W should have his Republican decoder ring confiscated immediately.

Position Wanted: Loyal, Unprincipled Kingmaker Looking For Work

Now his son has emerged from the period in his life where an at-home dad is most needed, Karl Rove is going to spend more time with his family. Now, there is a dedicated family man.

No, he is what he has always been: opportunistic. With "W" set to retire he will soon be redundant and it is my guess that he is not ready to retire. It is my guess that, despite his articulated reasons for leaving, he is not ready to spend more time with his family.

The big question is, "Whose campaign is going to capitalize on his political advice?" That is what he specializes in. He is not a policy adviser as many people think. He has never worn that hat under "W". He does not specialize in "policy". He is/was George W Bush's political adviser.

My guess? After every one involved signs a mutual nondisclosure agreement, he will sign on to Fred Thompson's campaign. A political adviser as savvy as Rove must know that his presence is a liability.

Equally, he is a proven kingmaker and someone will want him on their team --even if it means secret skype conference calls at midnight.

No Warrant Required

It saddens me.

This administration continues to erode the freedoms that the founders saw as indisputable. We have often heard that the President's first obligation is the safety of the American people. This is, in fact, not true. The president's first sworn duty is to protect the constitution of the United States. The framers felt that the ideals of the country were more important than individual people, it is too bad that this President does not feel the same way.

We were told that the terrorists would win if we stopped shopping. That was absurd. Truth is the terrorists do not win when they blow up a bomb, or take down a building, or kill thousands of people; the terrorists win when they cause us to alter that which is fundamentally opposed to their way of life and foundational to ours: the Constitution and The Bill of Rights.

The founders would not be happy.
More in the New York Times

Tony Blankley's Wrong on General Petraeus

Now, I don't always agree with Tony B. but I usually understand his point. He is a learned man with lots to say. This time he is dead wrong.

For those who are not readers, let me summarize. In 1942 the following resolution was tabled in the English house of Commons,

"That this House, while paying tribute to the heroism and endurance of the Armed Forces... in circumstances of exceptional difficulty, has no confidence in the central direction of the war."

Mr. B. goes on to point out that shortly after that and after firing a string of unsuccessful generals, Churchill promoted General Bernard Law (Monty) Montgomery. Monty took charge and all was good. Mr. B. then makes the astonishing suggestion that General David Petraeus might be Bush's "Monty".

The big difference is simple. Churchill was a man that let his generals lead. If they failed, he sacked them; eventually he found a good one. The current executive branch takes an entirely different tact: they hire generals that can follow.

Churchill did not just listen to his generals (as Bush tells us he does) he did what they said needed to be done.

This argument is not complete without a discussion of the greatest general of WWII, General Dwight David (Ike) Eisenhower. How much instruction to you think he took from FDR? He was given a job --to win-- and the authority to do it his way.

This is where Tony Blankley is wrong.

Petraeus might be a "Monty", or an "Ike", but the current administration has proven themselves incapable of letting competent people do their jobs. If he still there in '09 he might be the next president's "Ike" but he will not be Bush's and it is not his fault.
Read Tony Blankley's opinion here.

Althouse: E! Online rumormongers about Laura Bush.

Althouse: E! Online rumormongers about Laura Bush.

Ms. Althouse never disapoints. I love this gem almost as much as I hope that W gets back on the program.

The President of the United States of America doesn’t get it.

The President of the United States of America is the one man in the world who is supposed to get it. We don’t need to know what is in his head and his heart, we only need to know that he is able to pilot the USS USA through rough seas. To do this, he has to get it.

What is "it"? Who knows.

But when you have the “the head of the Department of Justice and chief law enforcement officer of the Federal Government” ref committing perjury (yes, he has been given a week to rescind his statement) and when you have the Chairman of the Senate Judiciary Committee, Patrick Leahy, D-Vt. stating, "This attorney general has a severe credibility problem," and then under oath and during the proceedings, “I don't trust you", you have a symptom of a far greater threat.

And then you find out that this unabashed liar has the full support of the white house… Am I the only one waiting for someone to shout, “April Fools”! Bush Jr. holds a press con ref to extol the virtues of his friend Al. Mr. Cheney does an interview ref apparently and explicitly to state that Al has not lied under oath.

It is clear to me that Messrs Bush et al. (pun intended) are simply no longer competent to captain America and need to stop. Stop everything. Imagine they have a three party parliament (no, I am not saying that this is a better system, there is too much evidence to the contrary) and a minority government that is unable to pass legislation. It is only for another 17 months or so. Remember, a ship will not hit an iceberg if it is not moving. As for the security of the nation? I do not propose that everything stops, just the president and his outclassed (by nearly every one --bus drivers, cafeteria workers, my sister...) executive branch. Congress and the Senatorial committees can take over for a while. I guarantee it will not be worse.

My point? The President does not get it.