Consumer Spending Drop A Brick

To the surprise of absolutely nobody, consumer spending dropped this month. This is not rocket science, since the grocery stores have not dropped prices while our wages and wealth have fallen, if we have work at all. I still see milk for 4 dollars a gallon even with the price of gas halved here. It's a very curious thing that when gas prices rise they are directly fueling price increases, but when they plummet they are not a factor to cause price drops. If only consumers here would stop buying overpriced goods, then market forces might work. Unfortunately that is only a pipe dream, as one in five American house buyers has a house worth less than the remaining mortgage.

Fed Meeting Today

Everyone's favorite group of quasi independent bankers meets today to discuss the probable rate reduction, which would be just another notch in the belt of the Bernanke Fed and its love for the low interest rate.

The Fed believes that inflation is not a worry because the world's economies are so bad, which I also aree in the very short term to be true. If stock markets are losing 70% of their value from last year such as the Shanghai Index, then the loss in wealth tempers inflation concerns because a lot of money is not needed to be printed to cover the new wealth in an economy.

In the long term, however, the story is quite different since there has been an inertia from the last two Fed groups to raise interest rates regardless of inflation. When the markets stabilize and prices run up on commodities again, your dollar will buy much less with a 1% interest rate than a 3% interest rate, etc. Beware the short term fixes for they may hold long term curses.

9 more days until the end of the three year election

One of the problems with early voting is that you get weeks of hearing about the campaign when you no longer care since it does not apply to your vote. Well in my trip to the polling place at my school I noticed a couple of things: 1) turnout is way,way up, 2)black voters are coming out in huge numbers, and 3) young people are showing up in bigger numbers. If this is the case in a state where McCain will not lose unless he cooks Bevo(the UT Mascot) while wearing an OU Jersey, I can only imagine the trends in places where the presidential race is actually close.

That being said, this was also the first election I really cared about none of the candidates. My only view was to vote them all out, as nobody currently in power should be reelected since they have presided over such incompetent rule.

Today's update on the Fed's Printing Press Operations

Just when you thought the Fed could not blow more money on attempted market manipulation comes word that we are now on the hook for up to 450 billion more. With this latest round of fiscal malfeasance, the Fed and Treasury have add over a trillion and a half dollars in debt just this year. In other words, the debt level added this year is more than a quarter of what the total national debt was in 1993. Hurray for the party of small government.

Here's a video where Bush claims his 2003 budget will cut the deficit in half in five years. This pretty much sums up the legacy of Bush on economic matters, speak a big game and fail to follow through.

Getting Drunk on The Taxpayer's Money AIG Style

Apparently billions of dollars in the past two weeks has not been enough to satiate the pirate at AIG, as they are now tapping on a paper purchasing agreement from the Fed worth up to ten billion dollars. The same company that took 87 billion, or $87,000,000,000 of my money and your money, then received an additional 37.8 billion, and now they want a little extra time at he government trough.

Why is a company too big to fail? In a country where for years the economic mantra has been that "free market capitalism is the best way to achieve wealth" there should be riots in the streets over such government intervention. Instead, the corporate fascism is accepted as though government actually has power to do good for the economy. The problem is that government cannot effectively decide what 300 million people want on a daily basis, and no corporation can do so either. If the people do not want to invest in companies because they are illiquid, then government can only delay the problem because they cannot make every illiquid company liquid so that investors will flock to financials. If only someone actually advocated personal responsibility in DC...

final debate, final analysis

To borrow a tired cliche, McCain accomplished too little, too late. He finally came out swinging and bringing up the dubious connections Obama has with people like the terrorist Bill Ayers and Obama's propensity for government largesse. When McCain referred to Obama as "Senator Government" I actually saw a spark of life in their campaign. Unfortunately, a quick joke won't roll back the huge market losses, the bailouts, the high oil prices.

McCain also brought up the issue of school vouchers which are long overdue. Competition between schools for students is necessary because the current educational system is stuck in neutral since the current funding allocation gives high funding to both high and low performing schools. This means that the incentive for a poor performing school to improve is not that great since a lot of funding will dry up if there is too much improvement. If students could choose where the tax money for education went, then school districts would have to treat the students and parents as customers rather than serfs. As it is now the taxpayer is only seen as a dollar amount by the school districts since they are tied to the land via geographical school tax assessment. Vouchers will free the taxpayer from the school district fiefdom, which is long overdue.

Market volatility and political reality

Last week saw people losing over half their portfolio value in one week, and Monday saw the largest absolute increase in the Dow in history, so are happy days here again? The answer is that we will not know until the injection of capital into the financial system is completed. If(and that is a big if) the bailout plan succeeds the velocity of money should increase, which would avoid a depression since a low velocity means money is not being loaned out or used to purchase goods and services.

Even if the bailout succeeds, the political landscape will be changed by the economic realities of the last eight years. The first lesson is that the Republican party cannot claim to be the party of financial responsibility as they have presided over the complete removal of any spending restraint. Secondly, the McCain/Caribou Barbie campaign is in very dire straights with three weeks left in the election. Since early votes are already beginning in some states and will all be starting by next Monday, this last debate is really the final gasp in the campaign. If McCain comes across as badly as he has the last two debates, with stumbling and playing for a tie, prepare for the polls showing Obama up double digits to increase. Is the debate performance going to be too little too late?