The American Spectator : Markets Shout at Operation Twist

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Markets Shout at Operation Twist

By Ross Kaminsky on 9.22.11 @ 6:10AM

Or maybe they shrieked, as the Fed yesterday confirmed it’s helpless to prevent a double-dip recession.

Following yesterday’s meeting of the Federal Open Market Committee (“FOMC”), the financial headlines were about “Operation Twist,” the risky and destined-to-fail Federal Reserve strategy of “extend[ing] the average maturity of its holdings of securities.” But it was not just this misguided policy that cost stock investors dearly; other aspects of the Fed’s statement pointing to increased economic pessimism roiled the markets, knocking the Dow Jones Industrial Average down 2.5% and the S&P 500 down almost 3%.

Along with the cratering of stocks, the yield on the government’s 10-year note fell to a record low of 1.86%, and the 30-year bond made a stunning fall to under 3% after the Fed said that an unexpectedly large 29% of the securities they would buy would be between 20 and 30 years in duration. Most of the rest will be in Treasury notes of duration from six to ten years.

The panic accelerated Thursday morning with stock index futures pointing to an opening 300-point loss for the Dow Jones Industrial average, and the yield on the government 10-year note plunging to below 1.8%. Meanwhile, oil fell 5% on a blood-red screen of commodity prices.

Let’s start with Operation Twist: Over the next 9 months, the Fed will buy $400 billion of Treasury securities with a duration between 6 and 30 years, and sell an equal amount of securities with maturities of three years or less.

The move is monetarily “sterile”, meaning it does not inject net new cash into the system and therefore is not “QE3.” The fact that it is “sterile” means that it’s essentially a fiscal move rather than a monetary move, and there is a good argument to be made that this is something that, if it really should be done — which it shouldn’t — should be done by the Treasury instead of the Fed.

With interest rates this low, it’s a great time for the government to be borrowing long-term, namely selling notes and bonds of 10 to 30 years in duration. But with the Fed buying that same paper, the government is not taking advantage of these low rates; it’s as if the government were loaning to itself, which gives you a clue as to just how effective this scheme is likely to be. (To be sure, rates would not be this low if the Fed weren’t buying long-date paper and expected to buy buying more. Nevertheless, economic weakness this severe would have long-term interest rates quite low without Fed manipulation.)

In addition to not taking advantage of low rates, by going out that “far on the curve” the Fed is taking much more interest rate risk with taxpayer money than it should ever take. (As interest rates rise, the risk to a fixed income investment rises with the duration of the investment.)Yes, the Fed can hold the paper to maturity and never realize a loss. However, if interest rates rise, which they must some day despite the bleakness of today’s environment, the opportunity cost to taxpayers could be in the tens of billions of dollars.

The Fed seems to think that it will spur economic activity by lowering long-term rates because the inability to get any return even on a 10-year treasury might spur people into buying stocks, starting business, and might also allow more people to refinance their homes.

But if the problem were really the competition between long-term government paper yields and the potential return from other investments, it’s difficult, or rather it’s impossible, to believe that a 1.75% 10-year note (or wherever Twist might send the yield) will somehow spur economic activity when a 2.25% rate didn’t. No rational person will make a major change in course, especially in an economic environment this unstable, for a half a percent. Thus, the fundamental premise of this scheme seems essentially preposterous.

But wait, there’s more! Many pension funds and other retirement accounts rely on purchasing government paper for the “fixed income” part of their portfolio. Reducing the return on those items will harm people who are soon to retire. When government securities offer unacceptably low yields, those funds will find other fixed income investments, most likely the highest quality corporate securities and perhaps some government-backed “agency” mortgage securities. In other words, the Twist will drive credit supply to the places that least need more credit.

Meanwhile, the part of the economy that does need more credit, namely small and mid-sized businesses, may find the Twist making it even more difficult to get a loan than it is now. That’s because banks make much of their profit (or at least they have in the past) by borrowing money in the form of bank deposits over a short term at a relatively low interest rate and lending money, such as for company operations, new cars, or homes, over a longer term at a higher interest rate. By “flattening the yield curve,” i.e. lowering the longer-term rates while raising the shorter-term rates, the Fed creates less profit potential for banks considering making such loans. With banks already hesitant to loan to all but the most creditworthy clients (it’s often said lately that the only people who can get a loan are people who don’t need one), the Twist will further dampen banks’ interest (pun intended) in making loans.

Certainly part of the Wednesday market sell-off was due to the realization that Operation Twist is not an economic savior; indeed it poses at least as much risk as potential gain for the economy.

But one particular sentence in the Fed’s post-meeting statement was probably even more damaging: “[T]here are significant downside risks to the economic outlook, including strains in global financial markets.”

Nowhere in the Fed’s prior statement following its August meeting appeared either the word “significant” or the word “global.” Those who follow Fed-speak and the details of its statements are well aware than the addition, removal, or change of a single word can have substantial meaning.

To add the word “substantial” to an FOMC statement shows substantial fear by the Fed that we are teetering on the brink of another recession. Such language serves as a bearish reminder that the Fed’s monetary gun is pretty much out of bullets.

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About the Author

Ross Kaminsky is a self-employed trader and investor and is a senior fellow of the Heartland Institute. He is the host of The Ross Kaminsky Show on Denver’s NewsRadio 850 KOA at 11 AM on most Sundays. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.

Letter to the Editor View all comments (131) | Leave a comment Leave a comment

Timothy L. Pennell| 9.22.11 @ 7:04AM

First of all, the Stock Market is a JOKE. It's not that it's another Ponzi Scheme. It isn't one. It's a PYRAMID SCHEME.
The Uber Rich buy up Stocks, when the price is low. That drives the prices UP. Once they go up? They sell them, which makes them go back down.
Rinse, and Repeat and Repeat, and Repeat.
Everybody makes money. Everybody's having a good time.
Mom and Dad, and Grandma and Grandpa, however, are getting played.
Whoever has their retirement locked up in the Market, makes nothing. Their Investments are LONG TERM. Their money keeps the Stock Price at a, more or less, steady position, whereby, the Millionaire and Billionaire Friends of Obama, guys who run Corporations that PAY NO TAXES, like Jeffery Immelt, and the guys who's Investment Firms HAVEN'T PAID TAXES, since 2002, like Warren Buffett, manipulate the Price, as only they can.
The end result is that the SUCKERS at the bottom of the Pyramid, search the Sunday Papers for Coupons to clip, while the Crony Capitalist USEFUL IDIOT Friends of Hussein, spend their days in the Game Show Money Booth, where the door is shut, the fan is turned on, and they have ALL DAY to grab as much money as they can fit in to their pockets.
Meanwhile, the FED is not your friend. The FED is a Secret Organization, not seen, since The Knights Templar. They print money to SAVE their fellow Knights. They used OUR MONEY to bail out the Banks of Europe. The Banks that are OWNED by their fellow Knights. Bernanke is looking out for Bernanke.
Power Corrupts, and Absolute Power Corrupts, absolutely.
Add: Money is the root of all EVIL, in to the equation, and you get The FED. And, you get the Stock Market. And, you get Washington.
Add them all up, and ya know what you get?
You get what we're going through, right now.

Sam Vaughn| 9.22.11 @ 8:18AM

Abslute power corrupts absolutely, that is the downfall of socialism.

Mike Hawk| 9.22.11 @ 8:38AM

Money is not the root of evil. The love of money is. The Oborg collective loves everyone elses money as much as their own. That is the root of the problem.

Buck Ofama| 9.22.11 @ 3:35PM

>Money is not the root of evil. The love of money is.
Correct. This is a phrase that most people get wrong, including "I could care less" and "All that glitters is not gold"... both illogical.

Ross Kaminsky | 9.22.11 @ 10:25AM

The majority of the ownership of US stocks is by institutions such as pension funds, retirement accounts, and insurance companies.

The idea that it's just the playground of the rich is, like some of the other economic ideas mentioned in these comments, paranoid fantasy.

While stock prices can be "wrong" based on investors' incorrect perceptions of potential value, that is not the same as saying that it is a Ponzi scheme.

Stocks represent ownership in companies, nothing more and nothing less.

And if you have a retirement account, then you probably own stocks, as does almost every adult who has or has ever had a job in this country.

David C| 9.22.11 @ 10:55AM

Demographic trends that Japan experienced over the past twenty years devastated their economy and stock market. When market demand and the velocity of money fall, recession/depression follow. Stocks indices just reflect this through their pricing.

The US is entering a period where demand will surely drop and the markets will go to 4,100 or so because of her aging population. Fed cannot stop this. Pushing on a string in Econ 101. 25% unemployment as well. Gold and commodities will crash as well. This is as natural as the tides.

Question is, after the great depression we got WWII. What will we get from this depression?

Ross Kaminsky | 9.22.11 @ 11:22AM

You could be right on the demographics if the US does not come up with more sensible immigration policies.

JP| 9.22.11 @ 12:14PM

Ross,
This is something that's been worrying me for a few years. As a matter of fact, the housing slump could be a permanent feature due to our inverted demographic.

As far as future immigration goes, we may find that there will be a dearth of available immigrants in future decades. Even in Mexico and South America birthrates are plunging. Brazil already passed below the 2.1 level (40 years ago it was at 5 children per female).Mexico still produces a surplus of children (2.4 children per female); but if trends continue, it will fall below 2.1 children per female this decade.

Even in Islamic nations, the birthrates are falling below replacement levels (see Indonesia, Egypt, Algeria, Iran, and Turkey). Either the US will dramatically increase its supply of children (easier said than done), or it will have to be such an attractive society that it will attract the dwindling number of foreigners.

Al Adab| 9.22.11 @ 1:10PM

How can we be expecting a double-dip when we never recovered from the first one? The Left expects this economy to be the new norm, the baseline for future centralization efforts. Very European looking is it not?

Buck Ofama| 9.22.11 @ 3:37PM

>Even in Islamic nations, the birthrates are falling below replacement levels ...

GOOD NEWS.

buckeyeman| 9.22.11 @ 4:37PM

I don't understand your immigration/population stance. The US population was about 140 million during WW II. When I graduated from high school in 1968 it was 200 million. The world seemed just fine back then. There was less congestion, more farmland, and lower use of all natural resources. The absolute very best thing that could happen to the world would be a reduction in overall population (though not by means of war, famine, or pestilence).

We should strive to understand economics in terms of steady state models, not in terms of ever expanding populations supporting the elderly. This is a sure recipe for Ponzi/pyramid scheme delusions. A steady population, steady monetary supply, judicious use of natural resources would still allow for human creativity to improve productivity and life in general. We don't need more people, we need fewer.

JP| 9.22.11 @ 5:08PM

In the realm of pure economics, no nation has prospered with declining populations. If a farmer or businessman knows for certain that demand for his product(s) will go down in one generation, he will not plan for growth; he will plan for decline. In a society where the population is getting older, and where it will begin to decline in absolute numbers there will be less consumers and producers. This is a recipe for deflation (which Japan is just entering. Japan is now losing population). Deflation at the very beginning is a boom for consumers (lower prices) and wage earners (the loss of labor will in the short term drive up wages); but, if it persist, deflation will sap the profits from every business. With falling prices there is no way a business can plan, as its margins will grow ever thinner. Eventually, the business will either have to make different products or close its doors.

I'm afraid we're already seeing the effects of this phenomena in residential and commerical real estate. From 1972-2006 the number of single family houses doubled from 35 to 70 million units. The Baby Boomers (about 76 million of them) drove demand. The real estate and construction boom took off. However, things began to change drastically with the crash of the housing market. But even without the crash, the drop in housing prices would have occured, as there are not enough younger workers with the incomes to buy them. In short, housing inventories are way too high. This is causing havoc with our banks, as most of those homes have mortgages still to be paid. Now some analyst predict that home prices may easily fall below 1990s levels.

Take the housing market and extrapolate it into agriculture, energy, consumer electronics, automobiles. Dwindling populations will not lead to an economic boom. The exact opposite will occur.

axbucxdu| 9.23.11 @ 1:03PM

As you say, demographics is destiny. The question is, what will the demographics be as the U.S. population's average age continues toward life expectancy? Indeed, will there be any demographics? The Great Dieoff will occur, not from environmental degradation, pestilence, or war (fogies don't normally fare well on a battlefield), but from simple old age.

Stormzeye| 9.22.11 @ 5:18PM

The natural effect of a growing economy (as in the former Third World countries like China, Brazil and Turkey) is a large middle class and a lowered fertility rate. The more money a household has, the fewer children they have. Also, urbanized societies as those mentioned above have no need for more than one or two children. The populations will therefore naturally decline. Without immigration our population would also decline. The trick is to get the best educated to emmigrate here and thereby strengthen our economy with those who would add value rather than create more dependency. If it weren't for the immigration "reforms" of 1965 and the Simpson-Mazzolli Bill of 1986 (amnesty pushed by Reagan) our immigration inflow would be more productive of a strong economy and better integration/absorption.

Timothy L. Pennell| 9.22.11 @ 9:21PM

Actually, Ross. I said it was a PYRAMID SCHEME.
Perhaps, next time, you could do me the courtesy of reading the ENTIRE Comment.

Ross Kaminsky | 9.22.11 @ 9:48PM

Please tell me the difference between a Ponzi and a pyramid in your view. In my view you are proposing a distinction without a difference.

Alan Brooks| 9.22.11 @ 6:45PM

Bush is to be held culpable; he was president for eight years; Obama for less than three years.
The truth will emerge that Bush was more concerned with his dynasty than his stewardship.

Five years from now you can judge Bush v Obama qualitatively.

Clint Brooks| 9.23.11 @ 2:31AM

My brother Alan is enraged that obama's scam is falling apert.

John Daniel| 9.22.11 @ 7:14AM

Why don't we start by acknowledging that there is no health in our economy? Everything we use is made overseas, a frightening amount of food is imported, and our PD failure to use domestic energy sources generously funds those who would kill us. But, not to worry. When the end comes we do have the world's largest supply of grief counselors....

Alan Brooks| 9.22.11 @ 6:48PM

white trash eschatology.

Alan Brooks| 9.22.11 @ 6:49PM

John Daniel, positive thinker.

Southern_Comment| 9.22.11 @ 7:27AM

487 Days left until Obama hops his happy tail on a plane and leaves our White House.

Southern_Comment| 9.22.11 @ 7:29AM

for good!

Redstateboy| 9.22.11 @ 10:26AM

Amen.. I still believe the wreckage is repairable but we have GOT to get serious about the challenges we face.. defund, deconstruct, demolish: EPA, HUD, HEW and go to a Flat Tax.

Alan Brooks| 9.22.11 @ 6:53PM

"I still believe the wreckage is repairable but we have GOT to get serious about the challenges we face.. defund, deconstruct, demolish: EPA, HUD, HEW and go to a Flat Tax."

return to the gold standard
return prayer to schools
dig up Reagan's corpse
de-fluoridate water
burn witches

Alan Brooks| 9.22.11 @ 8:51PM

http://rightgrrl.com/carolyn/teletubbies.html

axbucxdu| 9.23.11 @ 1:07PM

That's a pretty good program you got going there, Al. You running too?

Southern_Comment| 9.22.11 @ 8:52PM

And take back the schools, that's one of the biggest and most necessary challenges we face.

tsd| 9.22.11 @ 8:04AM

Any economist with half a brain (not sure if we ever hear from one with half a brain) can tell you we are now in bad shape and we need to start fixing the problem now! If you went to see a doctor with a broken arm and he told you he was going to break your other arm so the first one did not hurt as much.... would you listen??? These guys have a broken financial system and they want to break it some more!!! Are they nuts or are we nuts for letting them. Is it time to impeach? Can we let them be in charge for another year??

Shamus| 9.22.11 @ 11:22AM

Harry Truman requested an economist with only one hand. Economists exist to make weather forecasters feel better.

hardcard| 9.22.11 @ 8:16AM

Moodys downgrades; BOA,Citi, and Wells Fargo. The FED did what?

JohnC| 9.22.11 @ 8:20AM

Looks like Helicopter Ben has run out of bullets to artificially prop up the market.

Not one of the pointy-head economists will tell the American people the real reason why nothing is working to spur our economy or to increase the dire job situation. The elephant in our economic living room is that we make very little in America and manufacturing used to be the backstop to recover from previous recessions. Suicidal Free Trade giveaways to foreign powers, mostly to Communist China, have gutted our manufacturing base and good-paying American jobs -- we are an economic basket case.

It is time for Trump’s import tax on foreign imports and maybe in a few years we will be able to go to Wal-Mart and buy something made in America. This will also help towards our deficit.

Merlin| 9.22.11 @ 9:01AM

I am not an economist, but I think that what you call suicidal free trade would not have been possible if Congress had not borrowed money from China and others. What would the situation look like now if we had zero instead of 16 trillion in debt? Long term, trade imbalances are not possible without borrowed money.

Alan Brooks| 9.22.11 @ 6:59PM

"The elephant in our economic living room is that we make very little in America and manufacturing used to be the backstop to recover from previous recessions."

First you say it is the welfare state; now you say it is the lack of domestic manufacturing. next you will say it Michelle Obama's wardrobe, or the fluoride.
the Illuminati
the Jesuits
JFK was a Papist
Elvis the pelvis' ghost...

Bob K.| 9.22.11 @ 8:25AM

Does this mean that no one can make money off Hedge Funds anymore?

axbucxdu| 9.23.11 @ 1:12PM

You're getting warm. The next thing you know, they (the Hedgers) will have to make money by, gasp, investing in the real economy. But to even appear to defend the Fed does not behoove this poster.

Clint| 9.22.11 @ 8:35AM

The Kennedy Era attempt at Operation Twist was considered a failure .

Shamus| 9.22.11 @ 11:23AM

It's like rearranging the deck chairs on the Titanic.

JohnC| 9.22.11 @ 9:37AM

Borrowing money from China was also a huge mistake – a communist country now owns us. Both are wrong –economic globalism run amok.

No manufacturing should be allowed to be outsourced to foreign powers --The Founders would be aghast at these sellout trade agreements. Giving U.S. factories to China is not even trade, which is really a movement of goods.

To make matters even worse, GE (zero income tax paid) and GM are sending taxpayer green factories and jobs to China. To quote Donald: #We are the laughing stock of the world#.

Clint| 9.22.11 @ 9:38AM

One Of The Pillars Of Doctor Ron Paul's Campaign Is To Audit The Fed. Doctor Ron Paul Is The Only Candidate Who Will Make Auditing The Fed A Priority.

In Febuary 2009, In A Speech Given To Tea Party Members, Doctor Ron Paul Said:

"I Will Audit The Fed".

The Tea Party Rebellion Escalates.

Carpe Diem

Mike Hawk| 9.22.11 @ 3:45PM

Maybe that is what he needs Dennis the Menace Kookcinich for.

Israel Firster| 9.22.11 @ 9:45AM

I Like To Pretend I'm Clint & Post Under His Name.

Doctor Right| 9.22.11 @ 9:50AM

Really? Wow!!

I must give you props, then! It must be very hard to get into Clint's empty head and "do" stupid, but you've managed to do it well!

KUDOS, I-F!!!

Israel Firster| 9.22.11 @ 10:00AM

Thanks.

Israel First.

Clint| 9.22.11 @ 10:19AM

Israel And Their Amen Lobby Control Our Government And Our Banks. Doctor Ron Paul Will Stop This.

The Tea Party Rebellion Escalates.

Carpe Diem

Clint| 9.22.11 @ 10:33AM

Anyone got a vinyl repair kit? My Ron Paul love doll has sprung a leak.

R Santorum| 9.22.11 @ 3:47PM

If it's a blow up doll, fill it with hot air first.

Alan Brooks| 9.22.11 @ 10:41AM

I'm both an Obama Firster & Israel Firster.

Israel Firster| 9.22.11 @ 10:44AM

hee,hee.

I did three pretend Clint posts and nobody can stop me.

Doctor Right| 9.22.11 @ 11:07AM

Then you must REALLY be on Clint's s***-list.

He likes Obama more than he likes Jews. All the Paul-bots do...

Clint| 9.22.11 @ 11:22AM

You're A Serial Slandering Liar, Doctor Reich.

You're Afraid Of The Tea Party & Our Tea Party Co-Favorite Dr.Ron Paul.

Doctor Right| 9.22.11 @ 12:37PM

Really?

Which part is a lie, Clint?

Clint| 9.22.11 @ 1:17PM

All of it, Ricky Perry Algore Cheerleader, Dr.Reich.

Doctor Right| 9.22.11 @ 1:43PM

Such as?

Dan| 9.22.11 @ 2:13PM

Dr. Right
If you are a real doctor how do you find so much time to waste here trading the same insults every day with Clint. What's the name of your malpractice insurance company.

Doctor Right| 9.22.11 @ 2:17PM

There are ALL kinds of Doctors.

I'm a plastic surgeon. I do a few boob jobs, a nip and tuck here and there, and the rest of the day is mine.

Besides, I don't have surgery scheduled everyday.

And...sparring with Clint takes no time at all.

Clint| 9.22.11 @ 4:41PM

You're Neither A Doctor, Nor Right.

You're A Trash Talkin' Shuck & Jive Joisey Wigger, Dr.Reich.

Redstateboy| 9.22.11 @ 11:52AM

Hey Brooks.... I've often wondered.. How do Liberals such as yourself come to a site like TAS, chock full of writers citing statisics, irrefutible facts and data demonstrating the absurdity and incompetence bordering on criminality of Das Messiah and still you're a supporter of his?? You are either mentally disordered or such a fawning, brain-dead syncophant that you couldn't spot a fact if it hit you in the nose.. so..... which is it?

Doctor Right| 9.22.11 @ 1:44PM

...Or...

He's a member of a constituency group that belongs to the grievance-society, so he benefits from Liberals in power...

Redstateboy| 9.22.11 @ 3:03PM

thank you Dr. for that Prescription..

skip| 9.22.11 @ 6:09PM

Gadzooks.

Maybe you are the anointed one who will cease the rising of the oceans and heal the planet.

It would appear you shut the retarded one up. If you can do that...

Ross Kaminsky | 9.22.11 @ 9:46AM

To JohnC:

Your tirades against trade are economic nonsense. If the government got close to implementing the policies you're suggesting you support, you would see today's stock market look like a walk in the park.

Free trade is an absolutely necessary part of a thriving economy.

Furthermore, America's share of worldwide manufacturing has been quite stable for decades. It's just that we've moved from low-value products to high-value products, which is what you should want to happen.

It is true that we have lost manufacturing employment, but that's not the right measure. After all, we have far far fewer farm workers than we used to but produce more food than ever because of increases in productivity due to technology. The same applies across almost all aspects of the economy and is to be welcomed.

Finally, a trade "deficit" is not the destructive thing that a budget deficit is. Yes, the Chinese get US dollars, but they have to do something with them, either now or later, by spending/investing them in the US, or by selling them to people who want to spend/invest in the US.

The idea that the current situation gives China substantial leverage over the US is also paranoid fantasy.

axbucxdu| 9.23.11 @ 1:30PM

Ross, I disagree. Free trade is a laudable goal, but a necessary prerequisite for it must be monetary reform. Check out PPP vs. Official exchange figures for China. Unhinged fiat money has been a disaster. A system with more discipline would both curtail our gov's ability to borrow, and at the same time relieve foreign central banks from defending their domestic currencies against the current flood of FRNs. Take Lew Lehrman's word for it if you find fault with mine.

JohnC| 9.22.11 @ 9:52AM

We wil have to agree to disagree. Free Trade is not free -- race to the bottom.

Ross Kaminsky | 9.22.11 @ 10:07AM

John, it's a race to the top, not the bottom. It's lucky for us that we can get China to manufacture low value-added items.

Remember, the same shift in mfg was going on when unemployment was very very low. What's happening now is not due to free trade.

Doctor Right| 9.22.11 @ 10:25AM

Ross,

Don't bother; this board is chock full of protectionists, isolationists, "non-interventionists" and other disaffected wack-jobs...

...And they all LOVE Ron Paul.

FYI, did anyone else hear that Ron Paul said he'd put Dennis Kucinich(!!!) in his cabinet if elected President???

Here's the link:

http://thehill.com/blogs/blog-.....is-cabinet

Drunken Sailor.| 9.22.11 @ 10:36AM

Why yes, I did hear that. I guess Ron Paul is looking for a window seat on that UFO that Dennis saw.

Talk about the foolish leading the clueless.

Clint| 9.22.11 @ 11:01AM

Not only Are These Ricky Perry Algore Cheerleaders attempting to hijack another article with their agenda and are an argument against themselves, but they are diverting attention from The Fed's bleak economic assessment & bottom of the barrel "Operation Twist".
As a result,The Market is down, with The Dow down 3338 points today.

P.S. Ricky Perry Algore Cheerleaders:
"Paul spokesmen Jesse Benton later said the remark was a joke, and said Kucinich is too ideologically different from Paul to be a candidate for a Cabinet spot.

"Ron works with Dennis on some coalition issues, and respects him as a thinker, but was joking and would not consider him for Cabinet position. He made clear he did not want to name Cabinet officials," Benton said."

Clint| 9.22.11 @ 11:03AM

typo

338 points

Drunken Sailor| 9.22.11 @ 12:48PM

That my clueless friend is called damage control. Paul shot off his mouth, his PR guys went into Panic mode, freaked out, and then posted the retraction. Obama and Joe Biden do it all the time.

Clint| 9.22.11 @ 1:14PM

Damage Control This, Ricky Perry Algore Cheerleader, Drunk.

" Republican frontrunner Rick Perry has put his economic record as Texas governor at the heart of his presidential nomination campaign, but a report has painted a stark picture of rising unemployment and spiralling poverty in the state.

The policy paper, published by the Austin-based non-partisan Center for Public Policy Priorities, said poverty in Texas was currently higher than the rest of the US and was growing faster.

The paper said poverty rates in Texas had jumped from 17.3% in 2009 to 18.4% in 2010, and compared them to figures for the US of 14.3% in 2009, rising to 15.1% in 2010. That suggests there are currently around 4.6m Texans living in poverty, which is currently defined as an income of $22,113 a year for a family of four."

The Tea Party Rebellion Is Here.

Clint| 9.22.11 @ 1:28PM

"9/21/2011

Former Massachusetts Gov. Mitt Romney has surged among Republican voters in New Hampshire, and Rick Perry is a distant fourth, according to a Suffolk University/7NEWS (WHDH TV) poll of likely voters in New Hampshire’s GOP presidential primary.

Romney has opened up a 27-point lead over his nearest rival in New Hampshire, and pundits may have to rethink predictions of a two-man GOP race between Romney and Perry.
Front-runners gaining on pack

Romney (41 percent) gained 5 points since June, followed by Ron Paul (14 percent), and Jon Huntsman (10 percent). Huntsman and Paul gained 6 percent each since the last poll."

Doctor Right| 9.22.11 @ 1:50PM

WOW!!!

So Romney leads in New Hampshire, huh?

Well, that's 4 Electoral College votes for Romney!!

Rick Perry must be TERRIFIED!! He only has 36 with Texas!

...The panic in the Ronnie RINO Paul campaign has set-in after the Kucinich gaffe...

Clint...You're scared of Rick Perry (and probably somewhat attracted to him, as well...)

Clint| 9.22.11 @ 4:43PM

More Fag Talk From The Joisey Fag, Dr.Reich.

Doctor Right| 9.22.11 @ 1:54PM

Hey, Clint-wit!

Here's a GREAT poll for you, and it was actually released TODAY, as opposed to the ancient polls you robo-post:

http://www.tallahassee.com/art.....dyssey=tab|topnews|text|frontpage

And it's in FLORIDA!!!!

BEST PART???

"Perry’s strength is likely to grow among tea-party activists and conservative Republicans now supporting other candidates."

The Tea Party Rebellion is...Wherever Clint Ain't!!!

Clint| 9.22.11 @ 4:59PM

Doubts :
"Jerry Polinard, a political science professor at the University of Texas-Pan American, said Paul is "very attractive" to a party shifting rightward.

"Right now, they see Paul as a pure conservative, but they think Perry might be both ideologically pure and electable," he said. "Perry can't be the most right-wing candidate in the race. That's Ron Paul. But all Perry has to say is that he's the most right-wing candidate who can beat Obama."

Answered:
"Associated Press-GfK poll: Ron Paul the most favorable GOP candidate

A new national poll of the general population has revealed that top tier candidate Ron Paul is the most favorable choice in the Republican Presidential nomination race.

Ron Paul 37% favorable vs 36% unfavorable = +1
Mitt Romney 39% favorable vs 41% unfavorable = -2
Rick Perry 33% favorable vs 36% unfavorable = -3
Michele Bachmann 35% favorable vs 43% unfavorable = -8"

The Tea Party Rebellion Is Here.

Drunken Sailor| 9.22.11 @ 1:47PM

Have you been living undera rock waiting for your Geico commercial break? The poverty EVERYWHERE is higher in 2010.

And this link says Tx is listed as # 6 on the fastest growth chart.
http://247wallst.com/2011/06/08/america’s-fastest-and-slowest-growing-state-economies/4/

Your site even states the following:
Of the nearly 1 million unemployed Texans in 2010, more than one in three—approximately 336,000 Texans—were unemployed 6 months or longer. In fact, the 2010 unemployment and poverty rates are at 15-year highs. The unemployment rate has continued to climb into 2011 to 8.4 percent (July 2011), marking 23 consecutive months that Texas' unemployment rate has exceeded 8%. This ties the modern-day stretch set in the wake of the 1980s oil and real estate bust

Like I said Poverty has increased everywhere and Tx still has a lower than national average of unemployment. Since Texas is big in energy production you don't think the Obama's team strangling energy production has anything to do with that do you

But I will give you credit for finally doing research on more than just the RON Paul fansites.

Clint| 9.22.11 @ 4:48PM

Do Your Homework Ricky Perry Algore Cheerleader, Drunk.

" However, the CPPP has pointed out, despite the large numbers of jobs created in Texas, unemployment in the state is now on the rise and has been for almost two years. Though still lower than national levels, Texas unemployment is at 8.2% for 2010, an increase from 7.6% in 2009. It is now at 8.4% for July 2011, marking 23 consecutive months of increases.

Critics also point out that many of the jobs created in Texas are low wage, and not guaranteed to lift people out of poverty. Texas's percentage of low wage jobs far outpaces the national rate for the US. and also that of neighbouring states like Arkansas, Oklahoma and Louisiana."

The Tea Party Rebellion Is Here.

kurt| 9.22.11 @ 10:48AM

If wanting a decent living wage and to not be directly in competition with third world despot nations that pay their workers as little as $1 a day, then yes I am a proud WACKO!!! To me, if you are in favor of making easy money off people working in these slave labor sweat shops and impoverishing the american worker at the same time, you are lower than dirt! I would call myself a proud America firster or nationalist!

Ross Kaminsky | 9.22.11 @ 10:57AM

Kurt,

I'm for America first, too, which is why I am for free trade. Let the other guys make the low-profit stuff while we make the high-profit stuff. That's been the trend for twenty years...and it's still the trend now.

The reason you hear the unions saying that we're losing our manufacturing is because they are losing membership.

I'm not saying it's a totally pretty picture. But what's going on is normal and is not to be feared.

Here's a decent discussion:
http://articles.boston.com/201.....ss-decline

aware| 9.22.11 @ 12:32PM

"Let the other guys make the low-profit stuff while we make the high-profit stuff.".......like solar panels, for example? http://www.dailyfinance.com/20.....facturing/

Maybe auto production? http://www.nationmaster.com/gr.....production

I can go on with computers to space launch vehicles, but this site labels a post as spam if I include too many links. We did come up with the infamous CDS's and derivatives, which did look like "high profit stuff" till it turned out to be what it always was, a turd in the punch bowl. And we are still puking punch. Pushing paper piles around is so much easier and befitting smart people like us, huh.

Now we have corporations spending more on lobbying government than research and development. We turn out more lawyers than engineers. The middle class is being systematically destroyed. Where do you think the new tenants in the increased poverty class come from? The rich? And you say nothing to fear?

You are right, it has been the trend for 20 years. And to hide the effects we have fooled ourselves with paper "wealth" and debt at every level. Not to mention expanded "entitlements" so it doesn't hurt as much. There is an end to this and it isn't "prosperity". This late it should be obvious but some people do need a brick wall to fall on them. A wall built by illegal immigrants let in to further drive down wages on the working poor.

Doctor Right| 9.22.11 @ 10:59AM

kurt,

you need a lesson in Economics 101.

First, unless you want to live in a country that's completely isolated (like North Korea) from the rest of the world, then you HAVE to recognize that the current economic system is GLOBAL.

SECOND...Millions of Americans, myself included, make a living from foreign countries (French, in my case) who do business INSIDE The USA. Would you prefer that those companies folded-up their tents and went home??

THIRD...We sell billions of dollars of products OVERSEAS. That's how an open market works. In return, we allow other countries to sell their products here.

FOURTH...If you want to restrict the goods or services that other nations provide to use (with tariffs, taxes, etc), then WHO will suffer?? YOU WILL!! Goods and services that you want from other countries will increase in price to cover the cost of the tariffs and taxes. OR...Eventually, the company selling the goods (or the country where they're made) will get annoyed and stop selling or manufacturing here...And WHO would suffer then? YOU would, from loss of job opportunities.

FIFTH...since we have a GLOBAL market, we MUST complete with the GLOBAL cost of labor. That means that the cushy wage and pension deals made to many blue-collar workers MUST be re-evaluated. Otherwise, we're paying too much for labor that we could obtain elsewhere, without sacrificing quality. IF we pay too much for labor, that cost MUST be passed onto consumers. This makes our goods and services less attractive because they're too expensive! NO ONE will buy them. THEN...WHO SUFFERS? YOU do, because eventually the non-competitive factory/company you work for will CLOSE DOWN.

Everything I've described has been happening at a break-neck pace in this country for the last 25 years.

If we're going to restore this country's economy, that means competing GLOBALLY.

There is NO other choice. Sorry.

And "living wage"?? That's part of the problem.

Dan Hirsch| 9.22.11 @ 2:03PM

Doc,

Very nice, but I'd like to add a comment about the cost of labor competition. The cost of labor is a function of wages and productivity. One employee running a hydraulic excavator can easily out dig 50 guys with shovels. So, once you've accounted for the cost of the machine, the guys with shovels probably are more expensive than the machine and its operator. So we do not need to meet third world wage rates, our labor costs just need to be competitive.

But if the machine operator starts talking about more money because he's so productive,the boss needs to ask him if he'll bring his own excavator next week!

And we create a lot of jobs building machines, because it takes a lot more to build an earthmoving machine than 50 shovels.

And another thing, are we really afraid of competing with the other economies of the world? Are we really so fearful that the Chinese are so much smarter and harder working than we are? Man up America. If we really are that afraid, we've already lost.

DTOM

Frekki| 9.22.11 @ 3:12PM

"But if the machine operator starts talking about more money because he's so productive,the boss needs to ask him if he'll bring his own excavator next week!"
And when the boss starts telling the machine operator that Pedro will work for $8 under the table we discover that "American Productivity" doesn't matter. When a third of American Jobs can be shipped to China for a fifth of the cost this country loses.
The real problem is that you cannot have prosperity without cheap energy. Without cheap energy the US is doomed economically, and every other way.

aware| 9.22.11 @ 4:05PM

Absolutely correct. But some don't care if they can get their I-crap cheap.

skip| 9.22.11 @ 6:21PM

Plus, kurt, if you were a liberal worth spit, you would have to concede that a higher standard of living for foreigners because of these jobs will reduce the malice held toward the U.S. reducing the likelihood of war, and will optimally maximize the utilization of scarce finite resources being constantly depleted by benefiting the most people while minimizing inefficiencies and waste. Isn't World Peace, Globalism, World Peace, Environmentalism and World Peace sacred?

Stormzeye| 9.22.11 @ 5:24PM

I agree Ross. We don't need people to slap bumpers onto automobiles as much as we need people to design, repair and maintain the robots that slap bumpers onto automobiles.

aware| 9.23.11 @ 6:15AM

Sorry, but the Japanese lead in robotics. "Globalization" is us standing still,or even going backwards, so others can catch up or pass. It's like when we were selling scrap iron to Japan in the 30s only to get it back in the 40s in the form of bombs. It's affirmative action unilaterally applied.

kurt| 9.22.11 @ 10:02AM

Free trade is all so wonderful, Yeah right!!! The dow is down 360 at opening!

Ross Kaminsky | 9.22.11 @ 10:06AM

Kurt, today's markets have nothing to do with free trade, at least not in the sense that that term is commonly used.

Dan Hirsch| 9.22.11 @ 2:06PM

Hey, Ross - I compliment you on your willingness to climb down here into the trenches and face us mano a mano so that the confused will be less so!

Real American, you are!

DTOM

Ross Kaminsky | 9.22.11 @ 9:50PM

Dan,

Thanks. It's an odd combination of fun, enlightening, and frustrating.

I learn as much as I hope to teach, but sometimes the things I learn about what people believe to be true are a bit depressing.

no hussein 2012| 9.22.11 @ 10:17AM

husseinomics strikes again.

Redstateboy| 9.22.11 @ 11:01AM

no hussein 2012? "husseinomics" like it! but personally... I enjoy Mike Hawk's: "The Oborg collective." My own are.. Hussein the Muslim King (just incites the Liber-uls) and his fawning lemmings?? The Obamabots.

WRTolkas| 9.22.11 @ 11:03AM

The Ship of State needs an Admiral Halsey whilst we have Captain Peter Peachfuzz.

Al Adab| 9.22.11 @ 3:41PM

I thought perhaps we had Captain Queeg. 25th amendment anyone?

Drunken Sailor| 9.22.11 @ 3:47PM

It's about time for a Mutiny.

George S| 9.22.11 @ 11:06AM

The Fed will buy 400 billion in Treasury securities? Where will they get the money? If they sell 400 bn, doesn't that really mean they will seek lenders, i.e., China, forcing a preceding rise in the debt ceiling?

It sounds "sterile", however there will be money circulating and that money will wind up being deposited in checking accounts. What happens when the depositors seek to withdraw the cash and buy, say, gold when the inevitable inflation hits? The Fed would have to print more money to cover the FDIC reserves, wouldn't they? Hello dollar collapse. That's the only place we are headed with this madness.

Ross Kaminsky | 9.22.11 @ 11:24AM

George, as I said, they will get the money to buy Treasuries by selling other (shorter dated) Treasuries.

I think that part of the reason the USD is up so much (and commodities, esp. gold down so much) today is that they did not add to their balance sheet.

George S| 9.22.11 @ 11:31AM

Ross, I thought selling securities means you have to borrow... I didn't think the Fed had any assets to begin with -- they purchased them with the magic of fractional reserves.

Al Adab| 9.22.11 @ 3:39PM

Correct me please if I am wrong but, isn't this something like me paying my Mastercard with my Visa?

Ross Kaminsky | 9.22.11 @ 4:02PM

hi George,

If the Treasury were selling securities, that would be borrowing. The Fed already owns the stuff, as I understand it. It's very clear this is not new borrowing. I am not complimenting the action, obviously, just saying that it by itself does not represent new borrowing or new printing of money.

cicero| 9.22.11 @ 11:23AM

Ross - good article. One thing not mentioned, though. With the yield on the T-bills trending to 1%, due to the buyback, what happens to the actuary calculations of the government pension funds? Historically, they have used a 7% yield factor to bolster their viability. At 1.8%, they are all up side down.

Ross Kaminsky | 9.22.11 @ 11:28AM

Very good point, cicero, sort of an extension (and important one) of the point I made about the impact on fixed-income investors and those near retirement.

Al Adab| 9.22.11 @ 12:44PM

To paraphrase Abe Lincoln, "Obama must love the poor, he created so many of them." The markets are sending us a clear message about the state of the American economy. We would be wise to understand that central planning and control destroys wealth and hinders opportunity. Have we not learned enough lessons to know now that The Left and its ideology should be relegated to that famous historical dustbin?

Al Adab| 9.22.11 @ 12:45PM

Al Adab| 9.22.11 @ 12:57PM

Al Adab| 9.22.11 @ 12:59PM

Al Adab| 9.22.11 @ 1:06PM

Very sorry about all that. The active X is causing me lots of problems.

Drunken Sailor| 9.22.11 @ 2:39PM

And here I thought you were struck with OCD.

Al Adab| 9.22.11 @ 3:36PM

A very embarrasing moment there. Never had OCD because I think the Scotch cures it.

skip| 9.22.11 @ 10:37PM

Good thing you posted such a penetrating statement. Try The Macallan, it doesn't have that heavy peatiness of Laphroig that is probably responsible for the electronic stutter to begin with. I'm a little surprised the 'sotted salt' could even tell the statement was a little repetitious. I mean, wouldn't everything look like that to him? And I bet your initials give him the willies, he just won't admit it.

skip| 9.23.11 @ 11:06PM

I hope you guys know I was just joking.

Okay okay, I'll work on it. Or consider ceasing future attempts if it's that bad.

no name| 9.22.11 @ 11:23AM

Headed for a sad ending as Social Security, so too is the 401-k retirement plan. Plans that looked good and worked good for a time only to be brought down by schemers, liars, thieves and most of all by the money changers. Money changers that have not changed in over 2,000 years, except perhaps to sharpen their talents at deception. If I should decide to put away some money or treasures for a while untill needed, I might say I will bury it. Ohh says a friend someone will have a metal detector and find and steal it. Well says I I will buy a safe and put away my treasures in it. Well says a friend, thieves will come and pack off your safe and treasures. Ok says I, I will anchor the safe in concrete and they can't pack it off, I will put up cameras, install alarms, and sleep in the same room as the safe. But my friend says the thieves always find a way. And do you know the friend is right? No treasure is safe. If a human can hide it, another human can find it. If a human invests it another human can get to it. It doesn't matter if its in Social Security or if its in a 401-K. The money changers are always right there figuring a angle, waiting for a moment......

JohnC| 9.22.11 @ 12:11PM

Outsourcing our vital manufacturing base and banking to foreign powers causes the loss of America’s sovereignty, independence, technical expertise, and ability to make things --we are at the mercy of global events, even lowly Greece. This is the opposite of conservatism. Protectionism (of one’s country) is conservatism.

Now the gambling banksters will be screaming for another TARP. Alas, Wall Street only believes in free markets when the market goes up but wants We-the-People to bail them out when their reckless behavior causes a crash.

kurt| 9.22.11 @ 8:48PM

John,
You are a smart man!!!

Ross Kaminsky | 9.22.11 @ 9:51PM

Protectionism is economic suicide.

Pat| 9.22.11 @ 12:12PM

The Bureau of Engraving and Printing takes some expensive, high rag content paper and prints a number on it and then one of the Federal Reserve branches monetizes it – no one is actually sure what the heck monetize means but it certainly sounds impressive. And this bizarre method of creating currency is probably better than carrying assorted sea shells in your wallet or hauling a bundle of tobacco leaves everywhere you go like Virginians once did in order to buy a new musket. And it’s definitely better than paying for your non-fat latte with beaver pelts – how do you make change for an adult beaver pelt anyway – three baby beaver pelts? But other than enhanced carrying convenience, no one is actually sure how waving a wand over some green paper and loudly exclaiming “I monetize thee” supports our American financial system.

And, recently, many folks would prefer to carry shiny gold rather than dull green paper. But we’re not allowed to pay our taxes with gold coins – although a healthy gold hoard buried under your basement floor years ago would go a long way toward easing Obama’s tax everybody once, tax everybody twice, tax everybody some more proposed legislation. Gold has increased 900% in value over the past few years and, ironically enough, First World governments, who once kicked sand in gold’s face, are now sitting on very heavy piles of vastly appreciated wealth because they are the world’s largest holders of gold.

Fort Knox and the Federal Reserve vaults in Manhattan store immensely valuable piles of gold, watched over and guarded by serious guys carrying automatic weapons. So, America went off the gold standard because it was impractical and turned toward fractional reserve banking. But the market value of our government’s gold has risen like a recently launched Saturn rocket because no one trusts our fractional reserve banking system anymore. Printing green paper and then casting a Harry Potter style “monetizing” spell has suddenly become suspect – what if our government is no longer good for it, what if this magical form of creating wealth out of thin air is merely an illusion we’ve begun to wonder. Gold is real, gold is relatively scarce and gold, for some strange reason, is far more trusted today than our vaunted Federal Reserve system – go figure.

no hussein 2012| 9.22.11 @ 12:27PM

DJIA down 433," hope and change" baby!

Al Adab| 9.22.11 @ 1:04PM

Change is all I have left.

JP| 9.22.11 @ 12:28PM

Where I live both technology and low cost labor sourcing have driven the tool and die trade off the map. Computerized tooling like CNC machines and wire EDMs have alleviated the need for highly skilled die and mold makers. There is still demand for them; but it is much smaller than 15 years ago. The wage of a journeyman toolmaker in 1995 was $25/hour (non-union). Today, it has fallen to about $15/hour. Of course, with such low wages, no one goes into the field anymore.

The capital outlay for this kind of technology isn't small. A new computerized laser cutter costs nearly $800,000. But, then again the savings a computerized laser cutter brings to a business in reduced metal waste is enough to cover a 3 year ROI. Of course, the operator of such a machine will earn perhaps $12/hour. Theoretically, the business would pass this savings on to the customer. What is even more amazing is that it is cheaper for the business owner to outsource the entire metal fabricating operation to China (assuming he has economy of scale). In that case, he becomes nothing more than a parts distributor. In a nutshell that is what has happened.

Whether this arrangement will continue in the future (Chinese workers will not work at low wages forever) is another story.

no hussein 2012| 9.22.11 @ 12:30PM

Meanwhile the wookie wears 42,000 dollar bracelets and the hussein is about to embark on another vacation, all expenses paid, uummm, uummm, uuummm.........

Ron| 9.22.11 @ 12:35PM

Ross,

i am no economist, and nor do I play one on TV...In fact, I did not stay at a Holiday inn either, since I cannot afford a vacation...

Having cleared the air on that, I see one key line that everyone seems to be missing among the comments...The Feds continual borrowing. We are so deep in trouble due to the borrowing to pay the debt we have burying us right now. When I do a budget for my household, we stay within our means. We do not overspend, do not rely on credit, and keep expenditures to the minimum. If something does occur, we reduce spending to cover it.

Everyone in the MSM says that is too simplistic, and that running the Fed is so much more complicated, but it should not be...That is the point.

Thank you for your writings.

Ross Kaminsky | 9.22.11 @ 4:03PM

Ron,

As far as your argument goes, it is on target and not too simplistic.

In fact, I've been thinking of writing a piece talking about how this market turmoil represents a very fundamental thing about the principle and finances of a welfare state.

Best,
Ross

Indiana Alex| 9.22.11 @ 3:36PM

What we see from the Fed is exactly what is wrong with the Obama Administration, and even a lot of the Bush Administration before.

They think they "know" where the market should be, either by how smart they are or through sheer will.

To think that anyone's basis in knowledge is more than the collective knowledge of the two or three billion people that actually participate in the global economy is a tragic failure.

PaulNot| 9.22.11 @ 3:39PM

OK. Fed has been audited.

So nice all nations problems hav been cured. To think, all was needed was to 'audit the Fed'!

Wait, "Dr" Ron Paul has decimated our military and removed the vast majority of our overseas military presence world wide. America is now wide open for anyone to do as they please with us.

How are your foreign language skills as you might need to learn Cantonese very soon. Perhaps "Dr" Paul will send us some pamplets for that one, after all he is so open & possesses such an incredible view on looking forward.

*barf*

Redstateboy| 9.22.11 @ 3:42PM

Hey Dr. Right.. you sound as if you like Perry.. if that's true.. have you ponied up any Green Stamps and contributed to his campaign??
Toss em' a $100 - I did.

Clint| 9.22.11 @ 5:11PM

"Not since 1833 have there been calls to abolish a United States bank. At the time, it was President Andrew Jackson who succeeded in abolishing The Second Bank of the United States. Today it is Congressman Ron Paul of Texas who is calling for an end to the Federal Reserve.

Paul lays out his thesis in his new book, End the Fed, in which he calls for an audit, and then an end to the Federal Reserve."

Dr. Ron Paul Gets It.

no hussein 2012| 9.22.11 @ 6:37PM

paul is a Napoleon syndrome punk.

POST American| 9.23.11 @ 12:06AM

-----------------BOTTOMLESS LINE-------------------

----More speed bumps in the 4 decades
rounding off, Global mafia and RED China
sellout and TREASON OP.

--READY for that HUAC meets NUREMBERG 'get together' yet kiddies?

------AS those sleeper cancer and leukemia
viruses are begining to kick in from those vintage
EUGENIST polio vaccines ---UH-----we wouldn't
waste too much time.

AND BTW -------ANYONE SEEN OPRAH LATELY?