Posted by
Nathan on Thursday, May 31, 2007 6:32:00 PM
Ladies and Gentlemen,
I must pull myself away from typing
practice for a moment to speak on some issues that are heating up and
I'd like to get in a word before President George W. Bush speaks at the
State of the Union Address (tonight at 9:15ET).
- - - - -
Samuel A. Alito will be sworn into the Supreme Court next to John G.
Roberts. I mentioned in an email before the November 2004 Presidential
election that Bush would not use a 'litmus test' for replacing a
Supreme Court Justice. Well, there has definitely been a 'rightward
shift' on the bench. Conservatives are pleased by what will entail a
more traditional interpretation of the US Constitution. Make no
mistake, decisions by the Supreme Court have had major effects on the
direction of civil society. We will see a judicial branch which
ascribes to: increasing executive power (i.e. the President will have
more freedom to collect information), limiting a woman's choice to have
an abortion (i.e. disallow women to abort a pregnancy after the third
trimester), and otherwise providing America with more conservative
underpinnings.
- - - - -
Iran will be reported to the
U.N. Security Council in March by all six major industrialized
countries (US, Britain, France, Germany, Russia, and China) if it
continues to defy the IAEA (International Atomic Energy Agency), our
U.N. watchdog. This is a pivotal moment in world affairs; these nations
whom are perceived to have the greatest stake in a properly functioning
and secure international political economy have aligned over security
interests. Now let me issue a small caveat because therein lies a
delicate interpretation:
--> Britain is an ally of sorts with whom we are obliged to reckon
--> France has nuclear weapons they are not afraid to use them
-->
Germany doesn't want nuclear war and, as the largest economy of the EU,
it will benefit from an international political economy that remains
stable
--> Russia has just entered the world stage with
energy (petrol, nat gas) and it doesn't want to jeapordize its
influence by making a faulty political decision on such an order of
magnitude
--> China is inextricably bound with the US in terms of Dollar-Yuan/Renminbi trade flows and securities holdings
-
- - -
Quickly, I'd like to mention Hamas, the Islamic
Resistance Movement in Palestine. Although it may not come up today,
it's important because Mid-East tensions are flaring and it has a lot
to do with history, war, diplomacy, conflicting loyalties, and the like.
Since WWI, The U.S. has supported a Zionist state (Israel) located on
the west bank of the Jordan River, a territory which includes
Jerusalem, the holy city of all three Abrahamic faiths. Without going
into a long history of World Wars and the 'passing-of-the-torch'
debate, it is necessary and sufficient to explain that American
intervention in the Mid-East is necessary to shore up a political
vacuum which would otherwise exist.
In the eyes of 'public
opinion,' it seems that Americans will continue to blindly support
Israel without regard for the conflicting needs of both Jews and
Muslims in the Mid-East. Hamas is an interest group which is decidedly
against the occupation of Israel in Palestine (the territories overlap,
in fact, I couldn't even provide the distinction b/w them if you asked
me). The conflict lies in rhetoric. Bush has to make a choice, here.
Will we continue to support a Jewish state without regard to the needs
of Islamic nationalists in the Middle East or will we make some
compromise and be flexible in the boundaries which were established way
back in the uncertain times of multi-polarity?
The Hamas
leadership is not seeking to establish a Theocratic [Islamic] regime,
rather, a pluralistic society with faith-based principles of tolerance
and unity. Hamas is, indeed, an Islamic force pursuing
self-determination. It seems like Hamas is being construed as some type
of terrorist organization which we now must contend with in the
Mid-East. Although I may be putting myself out on the line, here, I do
not believe this is the case. Of course, it depends on your
point-of-view.
Conservative rhetoric says, "We must back Israel
at all costs." In my personal opinion, it is more realistic to state,
"There is a problem, here. How do we define loyalty? And what are the
repercussions of such doctrine espousal?"
- - - - -
Now for the economy, I stated in 'Jesus; Interest Rates,' (June 2005)
that, according to market signals (i.e. Dallas Fed Gov. said we may be
in the last round of the tightening cycle ball game...), "...low
interest rates, given steady rates of inflation, should continue
indefinitely." Furthermore, I went on to declare, "...[the] Real Estate
[market] will continue to burn hot as home values soar with high levels
of available credit." At the time, it seemed this interpretation was a
fair chart for a course that would play itself out over the next 1-2
years. It has been just eight months since that time and you have seen
the rates plateau for yourselves. My Dad says, "Yeah, but 'low' is
relative."
In the letter, 'my big chance,' (April 2005) I made a definition:
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tack
n.
Nautical.
1. The position of a vessel relative to the trim of its sails.
2. A course of action meant to minimize opposition to the attainment of a goal.
3. An approach, especially one of a series of changing approaches.
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The winds have changed and it will be prudent to state that inflation
is coming soon. Right now, interest rates are being held at
artificially low levels via a process termed 'financial repression.' It
is a common Asiatic technique for filtering low-cost loans into a
command economy for military-industrial development.
Chinese
financial repression is beneficial for the US in the short-run because
we receive cheap money to refinance homes for a better rate & term
or to cash-out. Sometimes we reinvest [cash-out] money in our property
to experience Schumpeterian 'windfall profits,' (e.g., refurbish
kitchen for capital gains) while other times, we just blow it out the
expense column.
Chinese national banks (e.g., Hong Kong Bank
and Shanghai Bank) use the Yuan/Renminbi to buy dollar-denominated
assets such as 'zero-risk' government bonds, T-bills, long- and
short-term notes, mortgage-backed securities, and the like. They get
the security of American money to run their economy as well as the
advantage of relatively inexpensive goods for export in foreign markets.
We cannot avoid inflation because US consumer interests are bound with
Chinese aspirations for a military-industrial complex. We are
mortgaging our posterity for the 'here-and-now' while simultaneously
bankrolling Chinese development out of our own pockets. It is a
mutually beneficial situation that cannot last long.
Economists
like to say 'there is no free lunch.' If we have any indication of what
the future may hold, it is possible that we can check the history books
and look back to the Kennedy-Johnson era marked by excessive war
spending and exporting of inflation which led to, among other things, a
dramatic pressure on the currency which ripened conditions for
oil-price shocks in '71 and '73. Thereby, followed by slower economic
growth and rising inflation - i.e., stagflation.
The idea is
that this 'free money' you're getting from your house isn't really
free. In economic terms, we like to say, 'there is no free lunch.'
Financial repression is an artificial maneuver that causes interest
rates to stay low for the short term and then, as inflation rises and
the value of currency declines, interest rates will spring back up and
the market will collapse.
Essentially, that money you got on
refinancing your home is Chinese money. That interest rate on your home
mortgage is staying low because the Chinese are funneling money into
the US through financial repression.
In 'Money & Economy'
(February 2005) I used the allegory of lions at the zoo to explain the
international economy as it pertains to us as American citizens. In
that story, I explained that inflation is waste. The connection I want
to make here is that profligate spending leads to inflation and that is
bad.
The nation has two deficits:
1. the Current Account (Imports minus Exports)
2. Government Budget (social programs and military spending -- national overhead)
As citizens, the only part of the 'twin deficits' we have control over
is household spending. In the aggregate, American household savings
rates are negative. People are using their homes like ATMs, taking cash
out to buy hummers, plasma screen tvs, and using the money to go on
vacations. Fun fun fun.
We have spent loads of money rebuilding
Iraq. We did not go into Iraq to build a nation. There isn't any more
money in the government's budget for nation-building nor will there be
measures to increase the budget for the rebuilding efforts in Iraq.
When this 2006 money runs out, that's it.
Oil companies across
the globe are benefitting from the highest petroleum prices in history.
My Dad made a good point that high energy costs lower corporate profit
margins due to increased transporation expenditures which increase cost
of goods sold. Prices must be increased to sustain profitability, and
thus workers demand higher wages to keep up with inflation. Hi hi hi hi
hi hi hi. You can see everything goes up. That is one way to experience
inflation.
Inflation can also be experienced by way of
overextension. This is the most popular explanation and it pertains to
the Current Account (household spending on foreign goods) as well as
the government budget (war in Iraq, foreign aid, national social
programs including provision of health care and social security to
illegal immigrants who have children inside our boarders).
Right now, we see both tendencies on the rise. Energy prices are going
through the roof and as Americans we are overextended both at home and
abroad. More on this later. The President is speaking now.