On Inflation

The Feds recent proposal has many people concerned about inflation. While for others it just revives the debate of hyper inflation vs deflation. Minyanville brought about some greater perspective for me however this quote:

Inflation, like other economic entities, is controlled by supply and demand. The velocity of money is one way to represent the demand for “stuff” - when it goes up, prices tend to follow.

From Minyanville

I'm not sure this plays out in the real world but the idea makes sense. We're already maxed out and over leveraged. That's why the global economy is contracting. So it's only producers that can borrow, not spenders, not the banks.

Our American Challenge

Today we witnessed the inauguration of our nation's 44th president and yesterday we honored someone who helped make that possible.  

Dr. Martin Luther King Jr. was a citizen who worked against powerful forces to expand liberty, justice and equality.  When my grandfather fought in the second world war, and when this nation's founders fought the British in The American Revolution, it was those same ideals that stood at the forefront of our national consciousness.

We enjoy the hard fought gifts of liberty,and justice, for all as a result of the sacrifices of many.  With that freedom comes our own individual burden of responsibility for the condition of our democracy. 

And while we vote in an exercise of our democratic ideals, that act alone does not satisfy our democratic obligations.

In the aftermath of the September 11th attacks, our nation was asked to open up our wallets and spend for the sake of the economy.  Consumerism became synonymous with patriotism.

It is a popular idea, that the economic decisions we make, can be a force for good in this world.  Undoubtedly the tactic of "voting with your dollar" can effect change, but it still cannot satisfy our obligations as citizens.  

Today this country faces tremendous challenges.  In the face of these challenges we must bring individuals to account for their actions, however we must not be victims.  

Consumerism cannot be allowed to replace citizenship. Our responsibility to does not end once our representatives are in office. And we must not simply surrender our freedom to victimhood. As citizens of this democracy we are responsible for our own fates and the fate of this nation. Our biggest challenges are not terrorism, or economic calamity, rather they are apathy and dogmatism.

Yesterdays celebration of Dr. King and today's presidential inauguration serve as inspiration, as we each take up action defending against the apathetic and dogmatic tendencies within ourselves.

It is on each of us to take up a cause.  It is on each of us to improve our communities. It is on each of us to listen with humility and empathy to those with whom we disagree.  It is on each of us to be critical and to petition our media and our elected representatives on a frequent basis.  It is on each of us to accept the responsibility of our freedom and to take on the task of making this nation better.

Yes We Can.

It's Simple Economics.

Matt Bors @ Comics.com Via Campaign for Liberty Blog

The Shorts Are Comming

A different kind of short. (Hat tip Matt) As reported earlier tightening credit markets threaten to wreak havoc on on world trade. Bloomberg's Chan Sue Ling reports that Hong Kongs biggest try bulk carrier Pacific Basin Shipping Ltd. is having trouble moving it's shipments due to lack of credit availablility.

The Baltic Dry Index dropped 8.5 percent to 1,809 points yesterday, the lowest since August 2005. Pacific Basin dropped 6.5 percent to HK$4.75 in Hong Kong and Precious Shipping declined 5.5 percent to 12.1 baht in Bangkok.

Banks worldwide have curbed lending because of increased concerns about getting their money back. Shipowners are already struggling to obtain funding for new vessels. Precious Shipping took as long as 15 months to secure financing for 18 vessels it has on order, Hashim said.

Why is this important?

This is important because it could mean significant shortages of imported goods. Areas that rely on a significant amount of food imports could see strong price increases as supplies are depleted.

It will bring about a significant slow down in international trade. Goods traveling over-seas won't make it here, or anywhere. This will mean a reduction in the supply of available imports.

Retailers in this country could see this affecting their ability to provide products for sale during the holiday season.

As Matt pointed out to me the effects won't be noticed for some time, as things slow down and as it takes some time for the consumer at the end of the chain to notice a problem in a supply chain.

It could be weeks before we see a problem in our local supermarkets and stores if it comes to that.

I would assume eventually demand would go up enough that someone would work to finance the shipments, but in the meant time this could have many troubling effects.

Mortgage Failures are a Symptom, not the Disease.

In numerous places now, most notably the president's speech on behalf of his bank bailout, mortgage failures are being used as the scapegoat for a declining economy.

This is, the way I see it, at very incorrect and dangerous assumption. Mortgage failures are an indicator that something is not well in the system. The resulting impacts of the failures point to the heart of the issue.

Institutions that have been funding the debt have levered themselves to the point that they could not even withstand modest losses. And further more, not unlike some addicts, some of the financial institutions on Wall Street could not sustain any longer if they could not produce more and more mortgages.

Wall Street's financial institutions have over leveraged themselves. This country has over leveraged itself. Investment needs to be made into non-financial productive work.

These mortgage failures are indicators, margin calls. And instead of settling our debts, we're creating a $700 billion dollar bailout that threatens to continue the problem.

UPDATE: Finally here's an article on just this subject from the Financial Times via Naket Captialsim.

Dilbert Creator Polls Economists.

Dilbert Creator Scott Adams paid for a survey company to conduct a survey of 500 Economist Members of the American Economic Association to see who they thought would be better for the Economy McCain or Obama.

When asked which candidate for President would be best for the economy in the long run, not surprisingly, 88% of Democratic economists think Obama would be best, while 80% of Republican economists pick McCain. Independent economists, who in this sample are largely from the academic world, lean toward Obama by 46% compared to 39% for McCain. Overall, 59% of the economists say Obama would be best for the economy long term, with 31% picking McCain, and 8% saying there would be no difference.

Interesting survey if you ask me. Check it out. And be sure to check out his thoughts on the results here.

Great move Mr. Adams.
[The Scott Adams Blog Via Freakonomics]

Sharp Market Declines Held Up By Corruption

Mish's Global Economic Trend Analysis: Soft Canadian Job Market Masked By Public Hiring Binge: "Soft Canadian Job Market Masked By Public Hiring Binge."

How often are people here in effect, employed by the us government through bailouts and corporate welfare? How accountable can the recipients be in those situations?