It Makes Perfect Sense to Me

Problem: Low interest rates for the better part of this decade led to stratospheric debt levels for speculative purposes that led to the housing bubble and its nefarious after-shocks. 

Solution: The Fed lowers short-term rates to an all-time low and is maneuvering to lower long-term rates, such as mortgage rates.

Problem: Coupled with low rates, banks and other financial institutions recklessly abandoned time-proven credit underwriting standards, leading to mounds of toxic debt (the "T" in TARP was originally meant to be "toxic" before it was euphemisized (new word) to "troubled".)

Solution: Lend. But prudently, of course. 

Problem: We are in the mess we are in because government spent without regard, without means, and without brains. We must all understand that deficit spending was solely President Bush's fault. 

Solution: Fashion economic stimulus plans that elevate spending to multiples of what was cited as being the problem in the first place. Even drunken sailors are horrified.

Problem: Corporations and individuals did not behave responsibly. This cannot be repeated.

Solution: A bail-out bonanza. You should soon receive your monogrammed tin cup in the mail.

Problem: Oil prices are at criminally high levels. Anyone associated with the oil business must be captured and publicly quartered.

Solution: Prices under $40/barrel are a sign of the coming Great Deflation. We should all be afraid. The fact that you are now saving $50/month on gas purchases is an ominous omen.

Problem: Housing prices shot through the roof. 

Solution: We must prevent housing prices from falling.

Problem: American consumers do not save and they spend too much. Consumers spend their own money. Government also spends consumers' money.

Solution: Lament the depressed level of Christmas season spending; criticize the consumer for saving in times like this; proceed to send them a freshly-minted government check so that they will go out and spend. Spend even if it means you have to put it on a credit card and are worried that your employment status is precarious. Just spend! 

If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand. Milton Friedman said that. 

Talk Big and Wave a Twig

Harry Reid proved to be even more of a wimp than I thought. Three days ago in "Watchtower Beams", the prediction was that Roland Burris would be seated as Senator if he insisted on asserting that Governor Blago's appointment is lawful. Mind you, Mr Reid obtained the support from Sen. Durbin from Illinois and 55 other Senate Democrats to "reject any appointment" by Hot Rod Blago. Even Mr Obama threw his support toward the appointment block.

Then, Mr Burris showed up in Washington, whispered "boo" to the pusillanimous Senate Majority Leader, and now Roland Burris will soon be the toast of D.C. The November 18th post, "Good for the Goose, Horrible for the Gander" also predicted another crack-job by the valiant Mr Reid in connection with Senator Lieberman.

Mr Reid folded but that is not a surprise. It isn't every day that we witness a Senate Majority Leader getting his teeth kicked in by a disgraced, corrupt, impeachment-bound Governor. It merits repeating that Mr Reid gutlessly said that the Iraq war "was lost". He is who he is.

BookWatch: The Ascent of Money

If you like books concerning financial history, then definitely read The Ascent of Money by Niall Ferguson. The evolutionary path of money as a medium of exchange to the complexity of today's financial system is well outlined. Mr Ferguson mixes in the right level of overview and detail as he covers the origins of banking to debt instruments to equity markets to hedge funds. Most compelling is how he introduces assorted personalities (no shortage of rascals) that shaped our financial world. Plenty of tidbits here and plenty of well-explained basics and beyond.

A Tax Cut in the Offing?

Word that Mr Obama is including a $310 Billion tax cut for individuals and businesses as part of a massive economic stimulus package should illicit only one response from congress: "Go ahead, I'm listening". Read November 26th post: "Cut, Baby, Cut". 

If the idea is to get money into consumer's wallets right away, then cutting the payroll tax would be the most direct and quickest way to provide relief to millions of taxpayers. Sending a check to those who did not pay income taxes in the first place is a giveaway, not a refund. A "permanent" cut in the income tax would be the best way to achieve sustainable consumer confidence that they will have less of their money taken away.

Naturally, there will be elements of the stimulus plan that will be designed to please the liberals. However, a significant tax cut is worth some degree of compromise if that's what it takes. But we have to watch the details and read the fine print.

Watchtower Beams - Sunday Talk Shows

Interesting how the Democrats yelped bitterly at President Bush's purported "extra-constitutional" executive policies and now, caught in the Governor Blagojevich imbroglio, they are threatening an unconstitutional blockage of Governor Blago's appointment of Roland Burris to the U.S. Senate. This one will be fascinating. My prediction is that Mr Burris will be pressured to withdraw his name by the Dems. If Burris insists on the appointment, he will prevail.

The talk shows naturally devoted time to the Gaza crisis. What will happen -- who will be disappointed -- when Mr Obama must actually make decisions? He likes to throw hints from the grandstands, like voting present. Let's see how he does when faced with decisions that will certainly attract criticism, no matter what he decides. No doubt that Mr Obama is rooting for President Bush to make a bold decision on American policy on this and other "hot issues" prior to January 20th. President Bush was constantly lacerated by backseat drivers like candidate Obama. 

Liberals, in the press and in congress, are insisting on quick passage of an economic stimulus package that may approach $750 Billion or more. They are also demanding that it has transparency (an overused word that makes certain people feel oddly comfortable I guess). Well, transparency (full, clear, and open disclosure) and quick do not actually go hand-in-hand. That's like being asked to provide a "brief, detailed, comprehensive summary". 

Senator Harry Reid continues to insist that his comments that "the Iraq war is lost" and "there is no sign that the surge is working" were somehow justified at the time his beautifully warped mind conceived these peculiar notions. He will block Burris, he says? 

Cuba and Singapore: 1959-2009

2009 is here and much is being made of the 50th year of Castro's communist revolution in Cuba. Brother Raul notwithstanding, Fidel Castro is still in power. On the other side of the planet, in Singapore, another man also came into power in 1959. His name is Lee Kuan Yew and he became Prime Minister of Singapore in June 1959 and held that position officially until 1990. He was then Senior Minister until 2004 when he became Minister Mentor and his son, Lee Hsien Loong, became Prime Minister. The point is that since 1959, Lee Kuan Yew has been the person who calls the shots in Singapore. He is the authority.

So both Fidel Castro and Lee Kuan Yew have held power for half a century. Who has done a better job for his country? We will grade them on economic progress. On human rights there no sense in comparing Castro with Lee. Yes, Singapore did ban chewing gum and did engage in caning of those who painted graffiti and they have been heavy handed with drug users and the press. Those limitations of freedom are child's play compared to the thousands of political dissidents that have been killed or imprisoned by Castro. Think of Castro as a mass murderer and Lee as strict school principal. Outsiders have no problem moving into Singapore. Cubans risk their lives in shark-infested waters on rickety rafts to flee Castro's hell-hole.  

Back to economic progress. In 1958 (the last pre-Castro and Pre-Lee years), Cuba had a population of 6.6 Million. Singapore had 1.5 Million. Cuba had a per capita Gross Domestic Product (GDP) of $3,170. Singapore's was $2,294. Cuba's per capita GDP was among the highest in Latin America and was higher than any nation in East Asia except for Japan's.

So where do these two countries stand in 2008? Cuba's population has risen to 11.5 Million, so it almost doubled. Singapore's population tripled to 4.6 Million. Singapore's per capita GDP is $48,900 -- among the highest in the world. Castro's beloved revolution has caused Cuba's per capita GDP to reach about $1,700! I write "about" because Cuba is not known for truthful reporting of economic data. It claims to have a per capita GDP of $4,500 but as of 2001 it was at $1,700. Things have only deteriorated this decade on the island so crediting Cuba with $1,700 is probably generous.

The juxtaposition of these two countries over the same 50 year period is mind-bending. It means that in 1958, Singapore's GDP was $3.4 Billion to sustain 1.5 Million people. Cuba's was $20.9 Billion for a population of 6.6 Million. At $225 Billion, Singapore's GDP has risen 66 times in 50 years with a population that has tripled. During the same time, Castro's Cuba can only show a GDP that has shrunk to $19.5 Billion although it's population has doubled.

Again, toss aside Castro's criminality, failed social engineering and overrated health care -- he has been worse than an abject economic failure. Why? Because he followed a failed communist central planning, central control, economic policy that was really only geared to keeping him in power and in control. For Singapore, Lee Kuan Yew's economic policy was free market, free trade, and growth oriented. 

President Nixon once remarked that Lee Kuan Yew was the most intelligent person he ever met. YouTube has several Lee interviews that show the magnitude of his understanding of the global economy and world trends. YouTube has Castro footage that fully display his ability to excoriate the United States. Unfortunately, Cubans cannot substitute excoriation for food. Trash talk is not a nutriment.

Today, Singapore's skyline features well-lit, elegant, modern buildings. By contrast, Havana looks worse than the South Bronx of the 1980s. A huge ghetto. This is very different from how the two cities looked and compared in 1958. Lee Kuan Yew's dream was one of a prosperous and free Singapore -- an "East Asia rising" success story. Fidel Castro envisioned a Cuba that would learn to hate capitalism and the United States -- a Caribbean circle within Dante's Inferno. Both succeeded.

Happy New Year!