Ruminations, April 26, 2009

Against inflation, against deflation, for flation

Actor William Powell, as fictional Senator Melvin G. Ashton in the 1948 comedy film The Senator Was Indiscreet, runs a presidential campaign in which he declares himself to be against inflation, against deflation but for flation. (Flation, we would have to assume, means price stability.) And that is the current debate in the financial community.

The financial leadership of the Obama Administration has conflicting views. In a conference at Vanderbilt University last week, Federal Reserve Vice Chairman Donald Kohn was for inflation when he said that while deflation was still a risk, he was targeting a 2 percent inflation rate and that he could prevent inflation from becoming an unwieldy problem by "reversing the programs, reducing reserves, and raising interest rates in a timely fashion." Speaking at the same conference, New York Federal Reserve Bank President William Dudley said that although the Administration planned to double the Fed's balance sheet to $2 trillion, they don't anticipate a resulting round of runaway inflation.

But, we have some dissention within the Obama Administration. Paul Volcker, Federal Reserve Chairman under Presidents Carter and Reagan and currently Obama's head of the Economic Recovery Advisory Board listened to Kohn and succinctly said, "I don't get it." He told Kohn that if we set and achieve a 2% annual inflation rate, then we are "telling people in a generation they're going to be losing half their purchasing power." Volcker has had experience fighting inflation and knows the difficulty: when he assumed the chair of the Federal Reserve, the annual inflation rate was over 13 percent and the policies he instituted are largely credited for halting our runaway inflation – It took Volcker several years to be successful.

Volcker's not the only one concerned about an inflationary policy. St. Louis Fed President William Poole posited that "We are very vulnerable to an inflation explosion ... [and] are underestimating the political forces [we're] going to face once the recovery starts." Volcker added, "I don't think the political system will tolerate the degree of activity that the Federal Reserve, in conjunction with the Treasury, has taken."

Just a bunch of Administration guys talking shop. In an article in the Financial Times, another administration guy, Martin Feldstein, chimed in. Feldstein, also a member of Obama's Economic Recovery Advisory Board, stated that under Obama's budget, "Even with a strong economic recovery, the ratio of government debt to GDP would double to 80 percent in the next 10 years." With a weak recovery it could be much higher. Furthermore, "Fed purchases ... have led to the enormous $700bn increase in the excess reserves ... when the economy begins to recover, these reserves can be converted into new loans and faster money growth." And faster money growth means higher, perhaps much higher, inflation.

In a world economy in which countries interact, we need to be concerned about what others are thinking and doing as well. In Spain, economists are worrying that deflation is now settling in. In Japan, there is speculation that a May 1 report will show that deflation has returned to Japan. In Britain, the Retail Price Index dropped 0.4 percent last month and in Ireland, it fell 0.7 percent -- that's deflation. Will these countries embark on fiscal programs to counter deflation with inflationary policies? Not so fast: In France, Finance Minister Christine Lagarde said that she's not concerned about deflation but, "We're more concerned about inflation down the road, not this year, not next year, but unfortunately soon enough."

When we have inflation, people are spending and the economy over-heats. When we have deflation, people are not spending and the economy cools. The Keynesian thinking goes that inflation can create jobs. That seems why, for political reasons, Keynesian politicians favor inflation over deflation -- at least in countries that have not experienced runaway inflation. However, our experience of the late 1970s shows that a country can have high inflation and high unemployment at the same time – what is called "stagflation."

The Friedman school of economics points to stagflation and says that a stable currency is best suited to provide economic growth. Looking at the years 1982 to 2007, we had a long period of growth (with a few blips) and relatively stable prices.

Within the Obama Administration it appears that Keynesian and Friedman economists are going at it, and it looks like they are leaning to the Keynesian side.

After listening to some of the pronouncements of the current crop of Washington financial experts, why does the incipient William Powell movie character seem to fit right in? When politicians begin imitating farcical comedies, it's disconcerting.

Hold the cream

A friend was, for years, concerned about her weight. Whenever she had coffee, she would always insist on skim milk -- not cream. Also, no sugar; artificial sweetener instead. Oh, and don't forget the donut.

Well, she was going to have the donut anyway and rationalized that if she cut back on the sweetener and the cream, at least she would be saving some calories.

This came to mind as I read of President Obama's cabinet meeting in which he insisted that the cabinet cut expenditures by $100 million. By 2010, the national debt is projected to be $17.6 trillion. At 5 percent, the annual interest will be $88 billion. The $100 million that the cabinet is targeting for saving comes to 0.1 percent of the annual interest of the debt.

It's kind of like saying, "hold the cream." I wish Obama would forego the donut.

Americans support torture

The Pew Research Center has released their latest statistics on American attitudes on torture and the results are surprising, especially if you read Pew's headline: "Views About Torture Remain Evenly Split."

The respondents were asked to complete the following statement: Torture, to gain important information from suspected terrorists, is justified ... (Often, Sometimes, Rarely, Never or Don't know).

The first three answers (Often, Sometimes and Rarely) seem to agree that there are some conditions under which terrorists can be tortured; 71 percent of Americans support that position. "Never" is the response of 25 percent – not really "evenly split," as the Pew headline purports. Here are the results:

Torture to gain important information from suspected terrorists is justified ...	All Americans	Democrats	Republicans	Independents
Often	15%	12%	15%	19%
Sometimes	34%	24%	49%	35%
Rarely	22%	22%	21%	23%
Never	25%	43%	14%	19%
Don't Know	4%	5%	1%	4%

It's interesting that 58% of Democrats support torture under some circumstances. One would assume, judging by the coverage of the statements in the media that Democrats were overwhelming opposed to torture in all cases.

Of course, there is still a debate as to whether the interrogations used by the CIA amounted to "torture" or were "harsh interrogations." One would have to guess that had the Pew Research Center used the term "harsh interrogations" instead of "torture," the results would be even more supportive.

More important, will the results of this survey have any effect on the Obama Administration's possible decision to hold hearings and, bring charges against members of the Bush Administration who engaged in "harsh interrogations?" If the Obama Administration continues to pursue investigations, will the investigations become persuasive or divisive? Can Obama abandon investigations, given his support by those party members who favor investigations? Will world opinion favor the actions of Obama, whatever they may be? Does world opinion mirror that of the United States with ostensible opposition but underlying support?

We live in interesting times.

Quote without comment

Senator Judd Gregg (R, NH) commenting to The Wall Street Journal on President Obama's budget: "We're headed on an unsustainable path. The simple fact is these numbers don't work and the practical implications of them are staggering for the nation and the next generation."

Robert J. Kulak
West Hartford, Connecticut

Ruminations, April 19, 2009

Torturous questions
This passed week, President Obama had documents released that identified the intense forms of interrogation that were allowed under the rules set forth by President Bush's justice department. These interrogations were conducted by the Central Intelligence Agency and were directed at enemy combatants at war with the United States. There is no question that the techniques used were at times harsh; whether or not they constituted torture is a subject of debate. Also under debate is whether or not the techniques were necessary.

On one side of the debate are those who believe that the moral authority of the United States should never be in question and that there are no circumstances under which America should ever employ techniques under which we could be accused of torture. They find the techniques used reprehensible.

On the other side of the debate are those who hold that, although distasteful, there are times in which "intense" techniques are necessary to save American lives. These people state that, in fact, the interrogation results did prevent attacks.

Who's to say which position is right? Persuasive arguments can be made for both sides.

The argument seems similar to a hypothetical situation that is often given to platoon leaders in training class. During the course of battle, they are told, you may encounter a situation that will test your ethics. You may be faced with the dilemma: do you save your principles and sacrifice your troops? Or, do you sacrifice your principles and save your troops?

What's the correct answer? There is no set correct answer. It depends on the situation, your principles and you.

Swatting the Taliban
The Swat Valley in northwest Pakistan is an area of 1,382 square miles and its geographical features made it a tourist spot and that was known as the "Switzerland of Pakistan." No more.

The Taliban operating in Swat has made it a dangerous spot not only to its citizens but to the Pakistani government. During the past month, the Taliban and the Pakistani government have agreed to a permanent cease-fire in the region; Pakistan has also agreed to allow the Taliban to impose Sharia law and, in effect, run the Swat Valley.

Since the agreement, the Taliban have been flocking to the area. This is not good news for the million or so residents of Swat, especially female residents. The West is concerned; BBC's Pakistan analyst Owen Bennett-Jones called the Pakistani-Taliban deal "a capitulation by the Pakistani state." Still others warn that this agreement may set precedent for the rest of Pakistan.

Maybe so. On the other hand, if you are fighting the Taliban, would you want them spread out across Afghanistan and Pakistan, or would you rather have them concentrated in an area 55 miles by 25 miles?

To be continued.

Dissing Vets
When an individual takes the oath of enlistment in the U.S. armed forces, he or she states:

I do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; and that I will obey the orders of the President of the United States and the orders of the officers appointed over me, according to regulations and the Uniform Code of Military Justice. (So help me God.)

Implicit in the oath (and understood by all who take it) is a pledge to give one's life, if necessary, in defense of one's country. To take that oath is an awesome commitment. People who take the oath should be accorded some respect.

Respect has not always been accorded to servicemen and -women or to the veterans. A Vietnam veteran told me about marching in a New Britain, Connecticut, Memorial Day Parade shortly after he had returned from Vietnam. Demonstrators threw rocks at him and his cohorts.

Other troops returning from Vietnam were spat upon and called "baby killers."

Things have changed a lot since then. There are few stonings these days. War opponents today commonly say, "We support the troops but oppose the mission." In other words, when a troop goes out facing an enemy intent on the troop's death, these war opponents hope that the American fails in his mission.

Last week, the head of the Department of Homeland Security, Janet Napolitano, was on thin ice in terms of respect for veterans. Homeland Security issued a threat assessment in which veterans were identified as a recruiting target of right-wing militias because of veterans' "combat skills and experience." Napolitano, herself a recipient of the American Legion veterans scholarship to Girls' State, then broke through the thin ice by suggesting that "the return of military veterans facing significant challenges reintegrating into their communities could lead to the potential emergence of terrorist groups or lone-wolf extremists capable of carrying out violent attacks." If her assumptions were well-founded, one would have to consider that this country is indeed in dire straits because we have created some 42 million veterans; people like Lyndon Johnson, John Kennedy, Dwight Eisenhower and Harry Truman not to mention Colin Powell, Richard Armitage, Al Gore and John Kerry were and are, according to Napolitano's assumptions, potential terrorists.

It is true that some veterans have had trouble "reintegrating into their communities." Is it any wonder? Put yourself in the veterans place. After taking the enlistment oath and putting your life on the line for your country, you have rocks thrown at you; people who claim to be loyal Americans support your enemy's mission rather than yours; your own government, to whom you have sworn to "defend ... against all enemies, foreign and domestic," views you as a potential terrorist. People who have taken the oath of enlistment should be accorded some respect.

If a veteran has any difficulty reintegrating into the community, it is generally not due to character or military experience. It is due to people who are dismissive of them. People like, perhaps, the Secretary of Homeland Security.

Quote without comment
President Barack Obama to American troops in Iraq: "From getting rid of Saddam, to reducing violence, to stabilizing the country, to facilitating elections -- you have given Iraq the opportunity to stand on its own as a democratic country. That is an extraordinary achievement."

Robert J. Kulak
West Hartford, Connecticut

Miss California takes stand against gay marriage

The Dude stands with Perez Hilton, agrees she's a dumb B*****!!!!