First He Predicted The .com Bubble Burst, Now . . .
This sure gets my attention: “Yale economist and housing expert Robert Shiller warned that ‘the collapse of home prices might turn out to be the most severe since the Great Depression.’ Shiller was the economist who predicted the bursting of the dot-com bubble earlier this decade.”
Plenty of troubling signs on U.S. horizon
By David Crane
The consensus among economic forecasters seems to be that we are headed for a soft landing from the current turmoil in financial markets –- a bit of a slowdown but nothing too serious.
This is the tone, for example, in the latest global forecast from the Economist Intelligence Unit.
But don’t bet on it.
One troubling sign –- the risk of a recession in the United States. In an appearance before the Joint Economic Committee of the U.S. Congress a few days ago, Yale economist and housing expert Robert Shiller warned that “the collapse of home prices might turn out to be the most severe since the Great Depression.” Shiller was the economist who predicted the bursting of the dot-com bubble earlier this decade.
Such a decline would have a spillover effect across the economy through what economists call the wealth effect. It has been estimated that $4 trillion (U.S.) in household wealth would be lost if U.S. house prices fell 20 per cent.
Americans would feel much poorer and this would affect a broader range of consumer spending, from autos and appliances to travel and electronics. Shiller has warned that “we could see much more than the 15 per cent real drop in national home price indices that we saw the last time.” That was between 1989 and 1996.
Another troubling sign –- continued weakness of the U.S. dollar. Indeed, it may be that the recent cut in interest rates by the U.S. Federal Reserve is designed to lower the value of the U.S. dollar and boost U.S. exports while lowering imports. This would protect some American jobs at the expense of other countries, including Canada.
The Canadian dollar is now within reach of the U.S. dollar, the Japanese currency has strengthened, and this past week the euro rose above 1.40 to the U.S. dollar for the first time.
Another bad sign for the U.S. dollar is Saudi Arabia’s plan to break its peg to the U.S. dollar. The Saudis reportedly have $800 billion (U.S.) in their Future Generation Fund and the Gulf Co-operation Council countries altogether have an estimated $3.5 trillion under management.
There are concerns that the cut in U.S. interest rates will discourage foreign investors from continuing to invest in U.S. dollar securities and drive the dollar down further.
In an International Monetary Fund seminar earlier this month, Nouriel Roubini of New York University warned that a U.S. recession was inevitable.
“I expect that this financial turmoil is going to persist and it will be a vicious circle where the real economy gets worse and the financial markets get tighter and vice versa, the tightening of financial conditions leads to a slower economy,” he warned.
How The Falling Dollar Affects Americans
US consumers’ standard of living may drop as they pay more for foreign goods, but demand for American labor will rise, say economists.
By Rob Scherer
Staff writer of The Christian Science Monitor
from the September 24, 2007 edition
New York - The saga of the sagging dollar continues.
All year, the dollar has drooped compared with other major currencies. Last week, after the Federal Reserve reduced interest rates, it fell even further – now at a level not seen since 1997. The Canadian loonie is even stronger – on par with the greenback for the first time in 30 years.
But does a less prestigious portrait of George Washington (on the dollar bill) have any meaning for most Americans?
Economists say the falling dollar has pluses and minuses for the economy. For consumers who like to buy European automobiles or French cheeses, it means their standard of living will go down as they pay more money for these goods. But for American workers on the assembly lines at places such as Boeing or Caterpillar, it means their employers’ products will be more in demand.
“After the pluses and minuses are all netted out, I think the lower-valued dollar is good for the economy,” says Mark Zandi, chief economist at Moody’s Economy.com. “The growth we’re getting from trade is helping to cushion the blow to the economy from housing.”
The last time that the buying power of the US dollar was this low was about a decade ago, according to Federal Reserve Board statistics. But the major difference was that the dollar was rebounding from its low point in the mid-1980s when the major industrial nations decided it was overvalued. It was also easier to make changes in the trade numbers because the price of oil ranged from $22 a barrel (in 2006 dollars) to $26 a barrel, and China’s exports were tiny. The US trade deficit was about $230 billion.
This time, the dollar has been on the skids for the past five years. The price of oil is about $80 a barrel. The Census bureau reports the trade imbalance with China alone is $141 billion through July.
So far this year, the greenback is down 7.6 percent, including another 2 percent last week after the Fed reduced interest rates by half of a percentage point.
One of the greatest concerns is that a lower-valued dollar will add to the inflation rate, since imports could become more expensive. So far that hasn’t shown up in the inflation numbers.
“It will take awhile to build into the system,” says Bill Witherell, chief global economist at Cumberland Advisors in Vineland, N.J. “Right now, it’s [inflation from imports] within the bounds which permitted the Fed to move.”
However, some other economists aren’t sure a falling dollar will help improve the trade deficit. They argue that the two major components of the trade deficit – oil and imports from China – are not really affected by the dollar gyrations. In July, the two areas represented 80 percent of America’s trade imbalance.
“If you can’t adjust imports of oil, and most are priced in dollars, and you can’t adjust currencies against Chinese yuan, which is pegged to the dollar, depreciating the dollar does not get you where you want to go,” says Peter Morici, an economics professor at the University of Maryland’s business school.
Mr. Zandi, however, counters that the rising price of oil will eventually mean that Americans get serious about alternatives or cutting down on consumption. “It’s having an impact, but it’s just not as noticeable yet,” he says.
He believes China’s slow appreciation of its currency – about 10 percent in the past two years – will ultimately result in fewer Chinese exports. “It will have a big impact two to four years down the road,” he predicts.
Some Federal Reserve watchers are not surprised that chairman Ben Bernanke opted to lower interest rates. Mr. Bernanke is a keen observer of the Great Depression in the 1930s. “In his studies of the Depression, one of his main criticisms is that the US was on the gold standard and did not get off of it,” says Axel Merk, president of Merk Hard Currency Fund in Palo Alto, Calif. “Had they been able to lower the value of the dollar, Bernanke argues, “the officials could have reduced the hardship.”
Some investors, including Mr. Merk, are skeptical that sacrificing the dollar is beneficial to an individual’s pocketbook. Globally, that skepticism has seeped over into the gold market and is one reason the price of gold is now above $732 a troy ounce, a 27-year high. So far this year, gold is up about 15 percent.
“Gold appreciates as the dollar declines,” says Merk.
So far the weak dollar has not kept investors from buying stocks, bonds, and real estate. The Dow Jones Industrial Average is up about 10.5 percent year-to-date and the Standard & Poor’s 500 index is up 7.1 percent year-to-date.
“You could argue it’s a problem if there is a rout of the dollar and it affects stock prices,” says Zandi. “But we are not there yet, and as long as the decline is orderly, it is one of the key conduits which helps ease the problem.”
Christian Science Monitor . . .
Watch Out! Terrorism “Exercise” Planned . . .
Let’s see, they had an exercise about planes crashing into skyscrapers on 9-11 and, well, we had 9-11. Then there was a drill in London on 7-7 about bombs in their subway and, well, there were bombs in their subway on 7-7 . . .
WASHINGTON, Sept. 25 (UPI) — The U.S. Department of Homeland Security announced plans to conduct the largest and most comprehensive counter-terrorism exercise to date.
The exercise in Arizona, Oregon and the U.S. territory of Guam from Oct. 15-19 is the fourth in a series of congressionally mandated exercises. Top Officials 4 say the exercise will involve 15,000 participants from all levels of government as well as the governments of Australia, Canada and the United Kingdom. TOPOFF 4 will also include the private sector in a full-scale, simulated response to radiological dispersal device attacks.
“The National Intelligence Estimate and recent activity overseas reinforce that we are in a period of increased risk,” said Homeland Security Secretary Michael Chertoff, in a statement. “Exercises like TOPOFF help test response capabilities at all levels, strengthen national preparedness and deepen international coordination. By responding realistically to these simulated attacks, we’re able to identify our strengths and weaknesses, build better partnerships, and gain valuable knowledge for securing the nation against terrorist attacks and other natural disasters.”
Officials say TOPOFF 4 will focus on five areas in an effort to test interagency coordination, planning and preparedness including prevention, intelligence and investigation, incident management, public information and evaluation.
“TOPOFF stresses our preparedness and response systems with situations that no single agency or jurisdiction could handle on its own,” said David Paulison, Federal Emergency Management Agency administrator. “The right response actually takes thousands of individuals working together. This exercise is about strengthening working relationships within our partners in federal, state and local agencies, emergency management communities and private industry groups. It’s about increasing preparedness by sharing information and processes.”
Judge Clears Gitmo Jurisdiction Appeal
Having a formal legal education, I can tell you this is a very dangerous precedent. The “Military Court” has jurisdiction over enemy-combatant cases in order to determine if it has jurisdiction. “Proof” to support jurisdiction will be offered by the prosecutor and, by hook or by crook, the poor schmuck will be stuck in the middle of a trial regardless. The Bush Administration is doing everything possible to completely circumvent normal legal channels and decide everything in back rooms, without lawyers and outside the Constitution.
WASHINGTON, Sept. 25 (UPI) — A military trial judge has the authority to determine jurisdiction in a military commission, a military appeals court ruled Monday in Washington.
The ruling paves the way for proceedings to continue against suspected terrorists at the y Naval Station in Guantanamo Bay, Cuba, according to the American Forces Press Service.
In June a military trial judge dismissed charges against Canadian detainee Omar Khadr, who was charged in April with murder and support to terrorism among other charges. The judge ruled that the trial court did not have jurisdiction to hear the case because Khadr was not officially classified as an enemy combatant. This ruling was based on the Military Commissions Act requiring detainees to be classified as alien unlawful enemy combatants before they can be tried by a commission.
Even if the prosecution could present evidence showing the accused was an unlawful enemy combatant the judge also ruled that it wasn’t the military commission’s role to determine jurisdiction.
After several appeals the prosecution filed an appeal in July with the Court of Military Commission Review challenging the judge’s dismissal of the case, which resulted in Monday’s announced ruling.
Officials say the ruling gives the military judge authority to ascertain whether jurisdiction exists to try Khadr.
“Both the prosecution and defense have been vigorously preparing for this day, whatever the outcome,” said Air Force Brig. Gen. Thomas W. Hartmann, the legal adviser to the Office of Military Commissions Convening Authority, in a statement. “We have a ruling from the (Court of Military Commissions Review) that tells us how the military judge can determine jurisdiction. Now it is time to move forward.”
Retired U.S. Generals Criticize War
” . . . this administration is immune to good advice.”
SAN DIEGO, 23 (UPI) — More than 20 retired U.S. generals have gone public with their disapproval of how the United States has approached the war in Iraq.
Retired military leaders like Major General Paul Eaton said that they chose to openly voice their displeasure with the current U.S. administration’s approach to the war after finding their advice ignored by top-ranking officials, the San Diego Union-Tribune said Sunday.
“The ethos is: Give your advice to those in a position to make changes, not the media,” Eaton said. “But this administration is immune to good advice.”
Eaton’s comments were echoed by other former military heads, who said the government’s approach to the war was unwise and unfair in a democratic society.
While the retired generals were attempting to ensure the safety of U.S. troops stationed in Iraq, some retired military officials have said the comments likely had the opposite effect.
“When we are at war, voices that may give aid and comfort to the enemy can cost American blood,” Navy Vice Adm. David Richardson told the newspaper. “I would not want what I said to in any way affect our troops’ morale and effectiveness.”
Free Speech Takes Another Beating
“And then when I said to Lieberman, ‘This war is wrong. America is wrong.’ I was arrested. Somehow I doubt the same thing would have happened had I said ‘God Bless America’ really loudly.”
By: Mike Ferner
September 23, 2007
Washington — Free speech took a beating with another round of arrests September 18 in the nation’s capital. It was administered by the police at a rally sponsored by the most unlikely-sounding group to be involved in such a thing: Veterans for Freedom.
U.S. Senators Joe Lieberman, John McCain and Lindsey Graham were among the featured speakers at the rally held in Upper Senate Park on Capitol Hill. About 150 people attended the rally to support the group’s pro-war position, as did about 30 people who were not in support. Before the rally concluded, Leah Bolger, David Barrows, Christine Rainwater, Anne Kitridge, and Anne Katz were arrested by Capitol Police.
Barrows said he had gone to the park because he heard Lieberman was going to speak. When the Senator was talking, Barrows spoke out, “I don’t want your ‘bomb and run genocide’ in Iran.”
As soon as I did, a plainclothes policeman came up to me and said, “You’re under arrest,” the 60 year-old D.C. resident continued. But, Barrows said, instead of going with the officer immediately he moved another six feet closer to the stage, whereupon he was placed under arrest.
It wasn’t until he was taken to the Capitol Police station that Barrows discovered one of the charges against him was assault. “They told me I was being charged with assaulting a Gold Star mother at the rally. When I looked at their report, the accuser’s name and address had been blacked out but I recognized the photo of a well-groomed Asian-American woman I’d seen around Capitol Hill several times. Why in the world would I assault a Gold Star Mother? It makes no sense.”
Barrows was given a “stay away” order (not allowed to step foot on and Capitol property which includes the Capitol Building, the five House and Senate office buildings, and assorted bits of property adjoining them) and has a trial date pending.
Bolger, a retired Navy Commander and member of Veterans For Peace, said she went to the park for the same reason Barrows did, “to hear Lieberman, McCain and Lindsey Graham. She was arrested and charged with unlawful assembly. After a night in the D.C. Metro Police lockup she pled not guilty at her arraignment. Trial is set for October 23 in D.C. Superior Court.
“It’s just bizzare,” the Corvallis, Oregon resident said. How can I be charged with ‘unlawful assembly’ when I was at an outdoor rally in a public park sponsored by someone else? I was in the Hart Senate Office Building when I heard Lieberman was supposed to speak, and I went to hear him.”
She said she was sympathetically talking with a member of a group called “Families United” about the pain of losing a loved one, when a Capitol Hill police officer told her and Adam Kokesh, co-chair of Iraq Veterans Against the War (IVAW) to move to the other side of a sidewalk serving as a rough demarcation line between the Veterans for Freedom members and others, generally defined.
Bolger continued that, “At one point in his remarks, Senator Graham gestured to those of us separated from the main group and said, ‘These people just don’t get it. The reason your loved ones fought and died was for them to have the right to do what they’re doing right now.’ Bolger responded out loud to Lieberman that “You can’t win when you’re killing innocent people.”
“Then the cop told me, ‘this is your second warning,’” Bolger added. “And then when I said to Lieberman, ‘This war is wrong. America is wrong.’ I was arrested. Somehow I doubt the same thing would have happened had I said ‘God Bless America’ really loudly.”
While The Secretary of State Runs Interference For Blackwater . . .
U.S. Repeatedly Rebuffed Iraq on Blackwater Complaints
By Sudarsan Raghavan and Steve Fainaru
Washington Post Foreign Service
Sunday, September 23, 2007; Page A18
BAGHDAD, Sept. 22 — Senior Iraqi officials repeatedly complained to U.S. officials about Blackwater USA’s alleged involvement in the deaths of numerous Iraqis, but the Americans took little action to regulate the private security firm until 11 Iraqis were shot dead last Sunday, according to U.S. and Iraqi officials.
Before that episode, U.S. officials were made aware in high-level meetings and formal memorandums of Blackwater’s alleged transgressions. They included six violent incidents this year allegedly involving the North Carolina firm that left a total of 10 Iraqis dead, the officials said.
“There were no concrete results,” Lt. Gen. Hussein Kamal, the deputy interior minister who oversees the private security industry on behalf of the Iraqi government, said in an interview Saturday.
The lack of a U.S. response underscores the powerlessness of Iraqi officials to control the tens of thousands of security contractors who operate under U.S.-drafted Iraqi regulations that shield them from Iraqi laws. It also raises questions about how seriously the United States will seek to regulate Blackwater, now the subject of at least three investigations by Iraqi and U.S. authorities. Blackwater, which operates under State Department authority, protects nearly all senior U.S. politicians and civilian officials here.
U.S. Embassy officials did not respond to several requests to describe what action, if any, was taken in response to the six incidents involving Blackwater. Mirembe Nantongo, a U.S. Embassy spokeswoman, said the embassy always looks into anything “outside of normal operation procedures.”
In the United States, Blackwater is facing a possible federal investigation over allegations that it illegally smuggled weapons into Iraq that later might have been sold on the black market. The accusation first appeared in the Raleigh News & Observer. The company on Saturday denied the allegations, calling them “baseless.”
(Yeah . . . using innocent civilians for their sick, evil amusement while illegally selling weapons to insurgents, but the Secretary of State is actively running interference . . . hmmmmmmm.)
C.P.I. Lies About Inflation . . .
CPI’s Lie on Household Inflation Doesn’t Wash
By John F. Wasik
Sept. 24 (Bloomberg) — The U.S. consumer price index continues to be a testament to the art of economic spin.
Since wages, Social Security cost-of-living increases and some agency budgets are tied to it, the government has a vested interest in keeping it as low as possible.
Yet your real cost of living — what you keep after taxes, medical bills, college expenses and other household costs — is probably much higher than the 2 percent annual rate the government reported in July, showing a slight decline.
Millions are falling behind inflation because wage increases aren’t keeping pace with the cost of medical care, lost employment benefits, homeownership expenses, energy and transportation.
And there’s also a goliath looming in the U.S. economy that makes the government’s consumer gauge more deceptive. Even with the stinging reality that housing values are dropping in many markets, homeownership costs such as taxes, maintenance and financing are still rising much faster than the index.
Last week’s half-point cut in the Federal Reserve’s target rate — to 4.75 percent — will do little to shield more than 2 million homeowners from foreclosure for adjustable-rate mortgages that are resetting to monthly payments people can’t afford.
The recently expired U.S. housing boom is continuing to strain household budgets, though little of this home-related inflation is measured by the consumer index.
Little Relief
Rising home values forced up assessments for property taxes, which are slow to fall when the housing market recedes. Since these levies are based on rising home values for last year, few will see relief in 2007.
Gerald Prante, an economist with the Washington-based Tax Foundation, found that median real-estate taxes on owner- occupied housing went from $1,614 in 2005 to $1,742 last year.
“That’s an increase of 7.93 percent, more than double the inflation rate in that time period,” Prante says.
Those tax levels may sound like nirvana to a New Jersey resident, where median levies are almost $6,000. Vermont, Illinois, Rhode Island, Massachusetts, New York, Connecticut and New Hampshire all have rates that are more than $3,000, with many upscale areas exceeding $15,000 per year.
The single-largest expense for most Americans is housing, accounting for as much as a third of household outlays. Yet the Labor Department’s Bureau of Labor Statistics only tracks “owner’s equivalent rent,” or what a home would yield if it was rented out. Rental units and homes are two very different animals, though, and the government casts a blind eye to total homeownership expenses.
Mistaken Perception
Most critics of the CPI have had a field day with the index based on the unrealistic tracking of housing costs. The bureau, which compiles the index, has stated that it isn’t a complete cost-of-living index. The common and mistaken perception still persists that consumer inflation is represented in this measure.
Medical expenses are given short shrift as well. It wasn’t that long ago when employers could cover almost all of an employee’s health-care bills.
Now workers are shelling out an average of $3,281 from their paychecks for family medical coverage, according to the Kaiser Family Foundation, a non-profit organization based in Menlo Park, California. The average premium for a family policy is more than $12,000 annually.
Since 2001, health premiums have risen 78 percent while wages have only gained 19 percent. The government’s inflation measure during that stretch was 17 percent.
Lost Benefits
You are keeping pace with inflation if your income can cover losses in benefits or other household items costing more. If you are paid in bonuses and commissions, you can often close the gap in good years.
Salaries often fall short, though, because many raises are based solely on the consumer index.
What no government gauge can tally is a household’s net worth. This is all of your wealth — home equity, stocks, bonds, business capital, retirement plans — minus your debts.
Having a positive net worth is a step in the right direction. Yet most families don’t experience this sense of wealth until their children are out of college — another huge expense that has been climbing at triple the rate of the consumer index.
If you were counting on home equity to boost your net worth, the housing bust will certainly give you pause for reflection.
Are you in an area where home values are stable? That’s largely dependent on local employment and economic conditions. In a market glutted with homes that can’t sell, you have a reason to be concerned and shouldn’t depend entirely on selling your home at a future date to create a retirement fund.
Inflation Hedge
Not relying upon home equity exclusively for your nest egg is smart financial planning.
One of the best ways to beat inflation is to own securities that hedge inflation risk and its many facets. Don’t go out shopping for energy, health-care and gold stocks, though.
Think long-term and diversify. Over the last 80 years, large- and small-company stocks have beaten an average inflation rate of 4.3 percent, according to Ibbotson Associates, a Chicago-based research firm owned by Morningstar Inc.
Small stocks, generally companies with market values of less than $1 billion, averaged almost 13 percent annually since 1926, with large firms returning about 10 percent.
Since these two asset classes are among the most volatile investments, you can’t expect those returns every year. During the Great Depression, small companies lost from 10 percent to 60 percent.
Make your inflation-beating strategy simple. Invest in index or exchange-traded funds through your 401(k) or retirement plans. Two big-basket vehicles include the Vanguard Total Stock Market VIPERs or its Small-Cap VIPERS.
When making goals for your portfolio returns, it’s wise to avoid using the government’s inflation rate as a benchmark. Aim higher. Shoot for outpacing your household’s cost-of-living increase. That’s the most important number to beat.
Saudi Arabia “Divorcing” The U.S. Dollar?
The London Telegraph reports that Saudi Arabia seems poised to re-peg its currency to avoid inflationary pressure caused by the weakening American Dollar. This move would have serious effects on the United States.
The first major consequence of this is that any change in the Riyal to the Dollar would significantly impact the cost of oil. By increasing the value of the Riyal relative to the value of the dollar, the cost to produce and transport oil within Saudi Arabia would increase (from the U.S. consumer’s perspective) overnight. Nearly all oil traded in the Middle East is done using the Riyal pegged to the dollar.
The second consequence is that Saudi Arabia, our close friend and ally, holds a significant number of U.S. Treasury Bonds as well as other public and private securities. As the dollar weakens against other international markets, investing in the United States becomes less and less attractive. The only way to make U.S. Treasuries more attractive is to increase the interest rate, which is exactly the opposite of what the Fed recently did when cutting interest rates to spur the stagnating economy.
Other countries seem very concerned about the U.S. dollar. Meanwhile, in America, the government is practically shutting-down to castigate MoveOn.org about a newspaper ad . . .
Secretary of State Rice Blocks Blackwater Investigation
By Sue Pleming
WASHINGTON (Reuters) - A leading Democratic lawmaker on Tuesday accused Secretary of State Condoleezza Rice of interfering in congressional inquiries into corruption in Iraq’s government and the activities of U.S. security firm Blackwater.
Democratic Rep. Henry Waxman said State Department officials had told the Oversight and Government Reform Committee he chairs they could not provide details of corruption in Iraq’s government unless the information was treated as a “state secret” and not revealed to the public.
“You are wrong to interfere with the committee’s inquiry,” Waxman said in a letter to Rice. “The State Department’s position on this matter is ludicrous,” added Waxman, a vocal opponent of the Bush administration’s Iraq policies.
The State Department had no immediate comment on the letter or Waxman’s allegations of interference but it has in the past dismissed the California lawmaker’s comments as partisan.
Waxman said security contractor Blackwater, which was involved in an incident in which Iraqi civilians were killed last week, said they could not hand over documents relevant to an investigation without State Department approval.