Sunday, May 31, 2009

Negative interest rate?

I was reading about a comment made by Harvard economist Gregory Mankiw in which he stated that a negative interest rate might be what is needed to avert a recession. I do not understand how that would avert a recession because it would destroy all incentive to save money and cause lending to businesses to stop completely since the negative rate would mean that you would lose the principle as a result of lending under the best terms.

What is more likely to happen is that massive inflation hits when the economy recovers, due to the printing presses being in high gear the past two years, and the Fed will be forced to raise interest rates. I would appreciate that since my I bonds have a negative real rate and CD's are getting 2% interest. At those rates, I would get better returns filling up a container of gas and then reselling it to a neighbor in a couple of months.

Saturday, May 23, 2009

Trickle down poverty

Today the Bloomberg News released an article about the impact of people moving from six figure high powered job to working menial jobs for low pay. This trend has been going on for years, but only once it started to hit the big earners did it get any attention. Back when the factories were being moved to Mexico by GM and Ford in the Eighties the talking heads in the media said it would be a blessing for the American consumer to have cheaper cars. Well first came the cars, then every manufactured good, and suddenly there is no need to financial workers here because all of the wealth is leaving the country. Shocker of the year, I know. Of course these same people who move their addresses to Switzerland and the Cayman Islands to avoid paying taxes sure don't renounce their citizenship to also stop enjoying the protection of the military that everyone else's tax are paying for.

Tuesday, May 19, 2009

Cafe Oy Vey

Today's CAFE standards rise will end up causing the cost of vehicles to rise since the standards are being put into place within a framework of safety features which weigh down vehicles. There are only two ways to get more mileage out of a conventional engine, either reduce the weight or improve the engine efficiency. Since the internal combustion engine is pretty peaked in the efficiency we can get out of it, and the safety features won't go, then the next best course of action is to experiment with new materials to cut weight. These carbon fiber parts will greatly reduce the weight, but will cause the price to sky rocket since carbon fiber has higher manufacturing costs than plain steel.

Further, the CAFE standards include trucks, which means that some creative accounting is gonna occur to get the numbers to add up to an average of 36 MPG. Most likely what will happen is that small cars and hybrids will shoot up the numbers and trucks will gain maybe one or two MPG, since there is not a lot of gain without sacrificing torque. In short, the long term impact on auto prices from CAFE standard increases is to raise the price of automobiles for the sake of saving fuel. This will not make economic sense since the fuel savings for small passenger car drivers from an upgrade, even to a Prius, is just not there. Driving 12,000 miles per year, at $4 a gallon, you are looking at a longer time than the vehicle life to break even if you switch from a used Civic to a Prius. Sounds like a bad deal to me.

One more reasons to remove church tax exemption

Churches, since they are not in the business of making money, have been laying off workers since donations have slowed down. Naturally those workers want to collect unemployment after years of service, only to be denied. Apparently the same laws which allow churches to collect money tax free and allow megachurches to house their pastors in mansions and fly in private jets also allow the churches to avoid paying unemployment. There's something ironic about the whole thing that an institution claiming to be about helping the less fortunate tries to save a buck by shafting its workers. At least the local Diocese has some self insurance, but why should churches be allowed to sell wares and not be taxed on them?

Sunday, May 17, 2009

Eu tu Prius?

Finally some competition has entered the electric hybrid market after the Prius swamped previous entrants such as the, better looking in my opinion, Honda Civic Hybrid. Toyota plans to announce a new $22,000 Prius to compete with the Honda Insight. All is well and good with competition in this segment, though it is going to be a rough ride for car makers until consumer spending responds positively. I personally would much rather see something like a hydraulic hybrid truck which would give huge amounts of horsepower boosts along with a mild fuel savings. For me a hybrid makes no sense since the fuel savings do not add up against the additional cost of a new vehicle. I am pretty sure that is true for most people, and that is why they occupy such a small part of the auto sales pie.

Friday, May 15, 2009

Sweden is so socialist, the CEOs fire themselves

Glorious moment all cubicle dwellers! In the merry land of beautiful blonde socialists, a CEO has resigned in order to keep half the workforce from being fired. In this country, one of the Olympians would have decreed from on high that certainly half the workforce should be cut, and then have a bonus equal to their salary given to him. Such brilliance, it can only come from a mind polished at Wharton and refined by fine parchment of many a financial self help book.

I am a believer in companies who are in financial trouble making all of the workers and management feel the pinch, rather than just laying people off. At least it sets an example if there is a top down tightening. However, when a firm gives bonuses to the top while cutting pay and laying off on the bottom, how can morale possibly be good?

Wednesday, May 13, 2009

My apologies

I am sorry for not posting more frequently lately. I have been ill for the past three days.

Sunday, May 10, 2009

RIP label man

I will read the nutritional labels twice today in honor of the late lobbyist for nutritional values being reported. How else would we ever know that Twinkies contain nothing that can even be considered in the same universe as healthy?

Real Unemployment Fell For Once

The U6, the real measure of unemployment taking in underemployed and marginally unemployed workers fell for the first time in ages between March and April 2009. This could be a result of either discouraged workers simply giving up (more likely), or that more part time workers are becoming full time (very unlikely). I can only hope there is so of the latter occurring since the economy is so consumption based on that has fallen off a cliff on the news that people without jobs tend not to buy much.

On another note, I have heard anecdotally that some businesses related to people taking shorter vacations closer to home have done well. Places like local wineries, bed and breakfasts, and day spas have seen stable to increased business, likely because nobody can afford/wants to take the risk of their job not being there from taking a long vacation. Maybe this will help build back some of the main streets which have been decimated by big box stores, just maybe.

Wednesday, May 6, 2009

Stress test mess

Tomorrow we will hear that the big banks lack the capital to survive a prolonged recession as the stress test report is released. Of course the same banks such as Citi and Bank of Failmerica reported that they had a profit not but a few weeks ago. How is it that banks can not make money with FDIC insurance and centralized banking? The easy answer is that the leveraging is beyond ridiculous. Ratios as high as 50:1 exist where for each dollar that is in a bank 50 are in various investments through margin accounts and so on.

Banking has historically been one of the easiest businesses to succeed in, with great families such as the Medicis and the Rothschilds amassing enormous fortunes that gave them control of nations. In the New World, however, banking was more of a wild frontier, with so called Wildcat banking in the West. With these banks, like the modern day grifters, they leveraged highly in order to make a huge profit. Of course this only worked so long as deposits kept coming in to cover withdrawals and no run occurred. Since they offered deposits which had no gold backing them, the likelihood of losing all of one's wealth was high. However, as history has shown through episodes such as the Tulip Madness, people will blindly follow crowds who promise riches. After panics in 1837, 1873, 1893, 1896, 1929 people still do not understand the need for financially conservative practices. Yawn

Monday, May 4, 2009

One difference between Carter and Obama

is that Obama will get to name someone to the Supreme Court. The appointment of the Souter replacement will not change the court much because the ideological balance will remain 4-4 with Kennedy the deciding vote. The main thing that Souter's departure means is that it is likely either Ginsburg or Stevens will also probably be replaced during the next four years to try to replenish the bench, since Thomas, Alito, and Roberts are all fairly young for the Supreme Court and Scalia is 63, so he has a decent shot at staying through the term. All in all, nothing will change too drastically from the Souter departure unless one of the conservatives has to quit. Then things will get interesting.

Friday, May 1, 2009

Dispatches from the Swine Flu Front

Apparently everyone but me here is concerned about the swine flu, with prodigious amounts of sanitizer being dispensed everywhere I go, schools closing, and the media talking about swine flu like the world is ending. However, instead of running around like a chicken, I went to a mass on May Day for St. Joseph the Worker, which was in German. It was an amazing experience and makes me feel weird that I observe both Labor Day and May1st. Maybe I have more in common with the recently mocked "Christian Capitalist wearing a union jacket" guy than I think!

On an economic note, the Chrysler bankruptcy seems like such a strange spectacle. Chrysler, a company known for making gas guzzling POS's, will merge with a car company known for making matchbox size cars. Granted, Fiat does have some ownership of good car companies such as Ferrari and Maserati, but those operate autonomously. Fiat has this monstrosity which shows they are compatible with the lack of design that is Chrysler:

Well, the best thing about that car is that its hideous facade could be used to scare away the swine flu. This Chrysler bankruptcy is an amazing animal. The only people who seem to be putting any money up are the US taxpayer, to the tune of eight billion big ones. Maybe it is because I am just a provincial bumpkin, but doesn't a firm have to put down money to purchase another firm, or am I living in some kind of backwards utopian world? Next thin you will know, I will be believing in such fantasies as student loans cause tution to rise, leading to more student loans.