State of the Union (2-31-06)

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).

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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:

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.
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 (i.e. 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 increasing inflation and stagnating growth.

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.


One response to “State of the Union (2-31-06)

  1. Pingback: Fed Rate Cut Adds Pressure On China « Sic Semper Tyrannis

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