Quotations Between December 7-17, 2009
To Accompany the December 17, 2009 edition of Tidbits
Bob Jensen at Trinity University
U.S. Debt/Deficit Clock --- http://www.usdebtclock.org/
Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm
Video: President Obama lectures China on
The Best One Yet from Saturday Night Live --- http://www.youtube.com/watch?v=yZorJZ5ixOo
Peter Schiff (another Jensen Hero): "The U.S. economy is not recovering.
All we're doing is spending stimulus money"
"The Future of Gold, the Dollar, and More," by Jennifer Schonberger Motley Fool, December 11, 2009 ---
The dollar has had a huge effect on the stock market's moves this year. As the dollar has depreciated, many stocks have climbed higher; the logic is that a weaker dollar will boost the bottom lines of companies such as McDonald's (NYSE: MCD), Aflac (NYSE: AFL), and Coca-Cola (NYSE: KO), all of which derive a substantial portion of their revenues from abroad. The depreciating dollar has also boosted commodity prices and associated commodity stocks such as Freeport-McMoRan (NYSE: FCX) or Newmont Mining (NYSE: NEM), serving to lift the market.
As we approach 2010, what is the future of the dollar, and what are the implications for the asset prices that move inversely to it? What does it all mean when it comes to rebalancing the global economy and our economic relationship with China?
For some insight on all this, I spoke with the man who had the foresight to call the financial meltdown in 2006: Peter Schiff, president and chief global strategist of Euro Pacific Capital and author of the newly updated book Crash Proof 2.0.
Schiff believes the dollar is on a long-term downward trajectory, and that it could collapse if the government continues its current policies. That has implications for the stock market and gold, which he thinks could go to $5,000 an ounce.
Here's an edited transcript of our conversation:
Jennifer Schonberger: You've been bearish on the dollar for some time. Do you still stand by your bearish call for the greenback?
Peter Schiff: Yes. I think the dollar is going to fall for years. It's not going to fall every day, or every week. There are going to be periods of time where the dollar rallies -- that's how markets work. Like a bull market climbs a wall of worry, a bear market follows a slope of hope. And there's always going to be hope that the dollar is going to recover, based on "maybe the Fed will raise interest rates," "maybe the U.S. economy will improve." But none of that is going to help the dollar. I think the dollar's fate has been sealed by the policies being pursued by the government and the Federal Reserve, and unfortunately it's a grim fate.
Schonberger: If the dollar does remain weak, as you expect, what are the implications in terms of rebalancing the global economy?
Schiff: Part of rebalancing the global economy is going to necessitate a lower dollar. The reason the global economy is so out of balance is because the dollar is artificially strong. It's been propped up by foreign central banks, and this enables Americans to import products they really can't afford. So if we want the global imbalances to be solved, it's going to require a lower dollar -- and that's what's going to happen. The longer foreign central banks artificially prop up the dollar, enabling Americans to keep spending borrowed money, the worse the global imbalances are going to get.
Schonberger: You recently wrote, "While [China's] peg [to the U.S. dollar] certainly is responsible for much of the world's problems, its abandonment would cause severe hardship in the United States." Why?
Schiff: It would cause hardship in the U.S., but it's something that we have to deal with sooner rather than later. By propping up the U.S. dollar and by carrying U.S.-dollar-denominated debt -- U.S. Treasuries, mortgage-backed securities -- the Chinese have kept interest rates and consumer prices artificially low. Americans have been able to benefit from that in the short run because their mortgages, car payments, and credit card payments are lower. They can go to stores like Wal-Mart (NYSE: WMT) and get those everyday low prices. But those prices aren't because of Wal-Mart, they're because of China.
When the Chinese government removes all those subsidies, there's going to be an immediate benefit to the Chinese people, because they're suddenly going to see lower prices and more access to capital. In America, we're going to have the rug pulled out from under us ...
Schonberger: The dollar is central to the relationships of other assets' prices. There is an inverse relationship between the dollar and equities. Do you expect that linkage (between the dollar and equities) to continue into next year?
Schiff: Remember, there's an inverse relationship between the dollar and the price of everything, because as the dollar loses value, you need more dollars to buy anything. That's true for an ounce of gold, a barrel of oil, a bushel of wheat, or shares of stock. So you're always going to see prices rising as the dollar is falling. That's what's happening now.
Now at some point, inflation could be so problematic that it drives interest rates up substantially, and as inflation gets bigger and bigger, the prices that tend to react more quickly will be things like food and energy. So if U.S. corporations suddenly see the cost of their long-term debt or short-term debt jump up and their customers don't have any money to buy their products because they're spending all their money on food, then ultimately you could see falling stock prices as the dollar is falling.
Schonberger: Speaking of relationships, you expect gold to go to $5,000 an ounce, correct?
Schiff: Yeah. It could go higher than that, but I think $5,000 is a reasonable expectation of where gold is headed over the course of the next several years, based on monetary and fiscal policy that is in place. Now if the government were to reverse course -- if they suddenly brought the budget into surplus, and if the Fed aggressively raised interest rates back up to a reasonable level, say 5%, 6%, or 7%, not just a quarter-point every few months -- then gold would probably not get to $5,000.
But I don't think they're going to do that. Based on what the Fed is saying and doing, they're going to keep interest rates at practically nothing for as far as the eye can see. The U.S. economy is not recovering. All we're doing is spending stimulus money. The minute you take away the stimulus, all the GDP growth, all the jobs that are associated with that stimulus spending, will vanish. So they can't take the stimulus away without destroying the phony recovery. So if interest rates are going to stay low and they're going to keep printing money, the only thing that's going to happen is the dollar is going to fall until it all of a sudden collapses ...
Schonberger: So then you're actually calling for a collapse in the dollar relatively soon?
Schiff: Relatively soon, yes. Maybe not tomorrow, but I think it will happen soon. I think it will happen before Barack Obama leaves office even if he's only a one-termer. The first initial collapse in the dollar will be about a 50%, 60%, or 70% decline in dollar value. That collapse will usher in the new leg -- the much more severe leg of our economic downturn. Not only will we have a financial crisis, but we'll also have a currency and economic crisis.
Hopefully that will be the tough medicine, the shock that finally causes Congress and the Fed to abandon its current policy and start doing the right thing. If it doesn't -- if they respond to that big drop in the dollar by creating more inflation, and if they fail to raise interest rates aggressively and withdraw liquidity -- then they will turn the dollar into confetti. Then we will have hyperinflation. If we go down that road, gold prices aren't just going to $5,000, they'll go to $50,000, or $500,000. I hope that cooler heads will prevail before we go down that road, but from this point that's still a possibility if we don't change policies.
I never give investment advice, including when to buy inflation hedges like gold. There are many speculators in these markets, and the current prices reflect the factoring in of possible hyperinflation. There will probably one day be hyperinflation of the U.S. dollar, but nobody, and I mean nobody, can time the beginning of such a disaster. Between now ant then many speculators may lose their life fortunes and dreams. Unless you've wisely hedged instead of nakedly speculating, you are taking a huge risk with the family fortune. Peter Schiff shrewdly predicted the subprime mortgage collapse of the stock market, but he did not achieve great fortune because he did not time the collapse at all accurately. He thought it would happen later than it actually imploded. In speculative investing, timing and luck are everything. Wise investors hedge their bets knowing full well that predicting timing is mostly luck. Lady Luck is a very fickle woman.
"Even Without TARP, Banks Are Still Heavily Subsidized," by John
Carney, Business Insider, December 14, 2009 ---
Despite the massive repayments of TARP money coming from our biggest banks, the financial system is still very much dependent on the rescue operations of the government.
Perhaps the best illustration of this is the massive balance sheet of the Federal Reserve, which has inflated by purchases of $1.058 Trillion of mortgage backed securities.
The Atlanta Fed's most recent financial highlights point out that in the last two months, the average weekly amount of MBS purchased has averaged $17 billion. That's a significant slowdown from a prior average of $23.4 billion per week. And last week the Fed purchased only $16 billion.
Still, cumulative numbers matter. Prior to this year, the Federal Reserve had never purchased mortgage backed securities. Now the Fed owns more than 15 percent of the market in agency backed mortgage securities, Fannie Mae and Freddie Mac combined own roughly 17 percent of the market, while commercial banks own around 20 percent.
We don't know exactly what the Fed has been buying or the prices it has been paying, of course. We have no idea who the sellers are, either. But it is fair to say that until this program ends--if it ends on schedule, that will be in early 2010--the financial sector is still heavily subsidized by the central bank.
But here's what we do know. Banks are still being propped up on both ends by the Fed. They have access to dirt cheap money and then they can sell the mortgage loans they make with that money right back to the Fed.
Bob Jensen's threads on the bailout mess ---
"Get Real on Health Costs: Obama's plan won't cut spending," by
Robert J. Samuelson, Newsweek Magazine, December 21, 2009, Page 36 ---
We are now witnessing a determined counterattack by the Obama administration and its political allies on the matter of health costs. Many critics (including me) have argued that Obama's "reform" agenda wouldn't control rapidly rising health spending and might speed it up. The logic is simple. People with insurance use more health services than those without. If the government insures 30 million or more Americans, health spending will rise. The best policy: control spending first, then expand coverage.
But the Obama administration insists it can insure most of the uninsured and tackle runaway health spending simultaneously. There's so much waste in today's health-care system that both goals can be pursued together, Peter Orszag, head of the Office of Management and Budget, has said.
Two new reports by liberal advocacy groups echo that claim. The first, from the Center on Budget and Policy Priorities, contends that lower Medicare reimbursement rates to hospitals and other providers can pay for about half of the $900 billion or so government cost over a decade of expanded health benefits. Critics (again, including me) have said that Congress would put the Medicare cuts in today and might repeal some or all of them in the future. Nonsense, says the study. Congress has allowed many past reductions in Medicare reimbursements to take effect.
Even more upbeat is a report from the Center for American Progress (CAP) Action Fund and the Commonwealth Fund arguing that savings from the bills' cost-cutting provisions have been underestimated. Some measures would push hospitals to reduce readmission rates; "bundled payments" between doctors and hospitals for some illnesses would encourage coordinated care; taxes on gold-plated insurance plans would deter overspending. Health costs would be lower than expected: Medicare "savings" would total $576 billion over a decade (about $200 billion more than estimated by the Congressional Budget Office, which mostly counted lower reimbursement rates); the federal deficit would drop up to $459 billion over a decade; and health-care "savings" for typical families would total about $2,500 by 2019.
Who's right? Let's start with the numbers. Unfortunately, the word "savings" is used misleadingly. It doesn't mean (as is usual) actual reductions; it signifies smaller future increases. There's a big difference. In 2009, national health spending will total an estimated $2.5 trillion, or 17.7 percent of the gross domestic product. By 2019, it's projected to rise to $4.67 trillion under present policies, or 22.1 percent of GDP. With CAP's "savings," it rises a little less sharply to $4.49 trillion, or 21.3 percent of GDP, according to Harvard economist David Cutler, a coauthor of the study. Similarly, family health-insurance premiums rise from 19 percent of median family income in 2009 to 25 percent in 2019 under present policies and 23 percent with CAP's "savings."
The point is simple: even with highly optimistic assumptions, health spending remains out of control. It absorbs more of government, business, and family budgets. Higher health spending would put pressure on future budget deficits, already projected to total about $9 trillion over the next decade. If new taxes and Medicare "savings" are real, they could be used exclusively to pay down deficits, not finance new spending.
But many may not be real. Writing in The Wall Street Journal, Dr. Jeffrey Flier, dean of Harvard Medical School, gave the various health bills a "failing grade" and said they wouldn't "control the growth of costs or raise the quality of care." Dr. Delos Cosgrove, head of the Cleveland Clinic, was quoted in NEWSWEEK saying practically the same thing. The chief actuary of the Centers for Medicare & Medicaid Services, a federal agency, doubts the cost-saving provisions touted by CAP would save much money. He's also skeptical that Congress, facing complaints from hospitals and a squeeze on services, would allow all the Medicare reimbursement cuts to take effect.
Health spending might spontaneously slow, but history suggests skepticism. To attack costs first would require admitting that not all good things are possible simultaneously and that the uninsured already receive much medical care. It would require genuine bipartisanship, not just a scramble for a few Republican votes. And it would require stronger measures to dismantle a fee-for-service delivery system that rewards more, not better, care. That would be a difficult but realistic approach; Obama's is wishful thinking.
Robert Samuelson is also the author of The Great Inflation and Its Aftermath: The Past and Future of American Affluenceand Untruth: Why the Conventional Wisdom Is (Almost Always) Wrong.
Bob Jensen's Obamacare threads are at http://www.trinity.edu/rjensen/Health.htm
In the most notorious trial in the history of
science, the Inquisition condemned Galileo in 1633. The aged scientist was
forced to recant his life’s work. The fact that the earth revolves around the
sun threatened the church establishment’s doctrine. Galileo was worse than right
— he was inconvenient. Since his trial, scientists have mythologized him as
their secular saint. How times have changed: With the Climategate scandal, we
now find scientists in the role of inquisitors — suppressing inconvenient facts
and persecuting researchers who challenge the doctrine decreed by the Global
Warming clergy. There are two potentially world-changing issues in play. First,
as President Obama prepares yet another soaring speech, this time for
Copenhagen, we face the complex issue of climate change. The second vexing issue
is: Can we trust our scientists? They’re supposed to be the guardians of truth,
who unlock the secrets of the universe with scrupulous objectivity. Can we
survive scientists who lie to influence policy?
Ralph Peters, "When Scientists Lie," New York Post, December 12, 2009 ---
Frosty the Snowman was a victim of global warming.
"Health Care Shocker: Special Democratic Voting Counties Would Get Protected Medicare Benefits," Brietbart ---
Political success, as reflected in the recent
gubernatorial races appears ever-more staked on the state of the economy.
Official unemployment recently measured 10 percent, though the more-honest gauge
(U-6) shows the nation running unemployment at a Depression-like 17.2 percent.
In response to high unemployment numbers, Barack Obama has said, "I will not
rest until all Americans who want to work can." Yet Mr. Obama's policies belie
his words. In fact, what his administration is doing will ensure massive
unemployment and endless economic stagnation.
Benjamin Weingarten, "Barack Obama Ensures a Long Depression," von Mises Institute, December 11, 2009 ---
Jimmy Carter Blames Christianity for Subrogation of Women
A better alternative to ABC''s new 20/20
"ABC Fired Stossel?," by John Stossel, Townhall, December 9, 2009 ---
People keep forwarding me emails and blog posts saying ABC fired me. Internet forums claim I was fired because I aired a story about the downside of government-controlled health care. This is silly. It's not even logical. No one can broadcast anything on "20/20" without ABC's approval.
The truth is that my departure from ABC was by mutual consent.
I left to go to the Fox News Channel and Fox Business Network because I want more time to report on free markets and economic liberty, the kind of reporting I do in this column. With two 24-hour news channels, Fox has more room for that.
Tomorrow, finally, my new Fox Business show begins! It will air every Thursday at 8 p.m. (and will repeat Fridays at 10 p.m. -- opposite "20/20" -- heh, heh, heh).
My first show will be on the "climate crisis." Or it might be on Ayn Rand's novel "Atlas Shrugged." I've prepared both shows because I can't decide which I should do.
What do you think?
I'm partial to an "Atlas" show because I reread the novel recently and was stunned. It was as if Rand had seen the future. Writing half a century ago, she predicted today's explosion of big government in shockingly accurate detail.
The "Preservation of Livelihood Law." The "Equalization of Opportunity Law." The "Steel Unification Plan."
Don't these sound like laws passed by the current Congress?
All were creations of Rand's villain, Wesley Mouch, the evil bureaucrat who regulates business and eventually drives the productive people out of business. Who is today's Wesley Mouch? Barney Frank? Chris Dodd. Tim Geithner? I'll ask my TV audience to vote.
"Atlas" is still a big bestseller today. This year, it reached as high as NO. 15 on Amazon's bestseller list. Pretty amazing.
Clearly there's some magic in "Atlas Shrugged." The Library of Congress once asked readers which books made the biggest difference in their lives. "Atlas" came in second, after the Bible.
Yet elites and the MSM hate Ayn Rand. When "Atlas" first came out, The New York Times wrote that "the book is written out of hate."
Maybe that's why no "Atlas" movie has been made. Angelina Jolie once wanted to play heroine Dagny Taggart, but it never happened. Rand's books still sell millions of copies, yet college "women's studies" courses rarely mention her. One professor says her department head asked, "Why would you study that fascist?"
Continued in article
California is Rationing Admissions: Denying Admissions of California
Citizens in Favor of Both Illegals and Legals from Other States
"U.S. Citizens Reap Unintended Benefit From California's Immigrant-Tuition Law," by Josh Keller, Chronicle of Higher Education, December 6, 2009 --- http://chronicle.com/article/US-Citizens-Reap-Unintended/49327/?sid=wb&utm_source=wb&utm_medium=en
A national battle over state laws that grant cheaper, in-state college tuition to some undocumented immigrants is now centered in California, where the state Supreme Court is expected to begin hearing arguments early next year on whether offering the benefit violates federal law.
The case is drawing close attention from both sides of the immigration debate and from other states that offer similar benefits. If the court throws out the California law, the decision could sway other states to do the same, making it more difficult for undocumented students to afford to go to college.
But the outcome of the case could also have a direct effect on another, unlikely group of students: former Californians.
In a little-known quirk of the state law, thousands of students who receive in-state tuition under the provision are not, in fact, undocumented immigrants. They are legal U.S. residents, who are able to take advantage of the law's broad language to avoid paying higher, out-of-state tuition.
Most of the unintended beneficiaries are students who left California after attending high school there and then return for college, officials say. Those students are able to take advantage of language in the state law that promises in-state tuition to any student who has a diploma from a California high school and attended high school in the state for three years or more. The law was written broadly in an attempt to avoid violating provisions of a federal immigration statute that restricts benefits for undocumented students.
At the University of California and California State University, legal residents who qualify for the tuition benefit appear to outnumber the undocumented immigrants for whom the state law was designed, according to university data and interviews with officials.
Less than 20 percent of the 1,639 recipients of the tuition benefit in the 2006-7 academic year at the University of California were undocumented, according to the system's most recent report. On the Santa Barbara campus, the student records of only three out of 72 recipients showed no sign of documentation, such as a Social Security number, the report said.
The university system would have gained an additional $18.5-million in tuition revenue in 2006-7 from students who were legal residents had they not qualified for the benefit.
The lost revenue comes as all of the state's colleges and universities struggle to meet unprecedented cuts in state support. Last month the University of California raised undergraduate tuition by 32 percent, leading to widespread student protests.
Mix of Students Some of the legal residents who receive the benefit are undergraduates from other states who attended boarding school in California. Others are graduate students who attended high school in California and then moved away. Those students would otherwise be required to pay out-of-state tuition—thousands of dollars higher than the in-state rate—for one year after they came back to the state. After their first year, they would qualify for residency.
"My sense is that these are primarily Asian students," said Elena Macías, special assistant to the president at California State University at Long Beach. "They are students who have graduated from high school here, gone to get their bachelor's degree somewhere else, maybe settled into another state. … Then they come back home."
The unintended effects of the law are not widely known, added Ms. Macías, who trains administrators in immigrant-student issues. "I have never encountered anybody who is aware of the fact that U.S. citizens take advantage of this more than undocumented students," she said.
Recipients' status is not known at the state's 110-campus community-college system, which does not collect detailed data on students who receive the benefit. A total of about 34,000 students qualified for the benefit during the 2008-9 fiscal year, system officials said.
The large number of students who have been able to qualify under the 2001 law, known as AB 540, has surprised even its supporters.
"I don't think anybody thought that the large majority of people benefited would be citizens," said Alfred R. Herrera, assistant vice provost for academic partnerships at the University of California at Los Angeles, who advocated for the state law before it was passed.
Skirting a Lawsuit The topsy-turvy dynamic in California appears to be unique among the 10 states that offer some version of the in-state tuition benefit meant to help undocumented immigrants. The other nine states all require students to live in the state for a period of time, usually a year, immediately leading up to the time they enroll in college, making it difficult to qualify for those who have left the state.
Lawmakers in California omitted the time requirement because they feared it would make the law more susceptible to a legal challenge, Mr. Herrera said. They feared the provision could be interpreted as establishing a test of residency, violating a federal statute that prohibits states from granting a postsecondary-education benefit to illegal immigrants that is denied to legal residents.
Opponents of the law sued anyway, saying the requirement that students attend a California high school itself established a test that violates federal law.
That case, which is being considered by the state Supreme Court, was brought by out-of-state students who said they were unfairly denied the ability to pay in-state tuition. In a state Court of Appeal last year, lawyers for the University of California argued, among other things, that the large numbers of legal residents who receive the tuition exemption were evidence that the law did not discriminate against U.S. citizens.
But in a major victory for opponents of the tuition benefit, the appeals court ruled in September 2008 that the California provision clearly violated federal law. In its opinion, the court took time to rebut the argument that a diversity of recipients in state colleges and universities made the law more legally acceptable, calling it "irrelevant."
Michael Brady, a lawyer for the students who challenged the law, said he did not trust numbers reported by the university that undocumented students were the minority of recipients. But regardless, he argued, "Congress meant to deter the illegals absolutely, and without qualification, from getting the benefit. There is no circumstance under which an illegal alien should receive it."
Supporters of the in-state tuition laws are divided on whether writing the law broadly, in a way that allowed former residents to benefit, was a good idea. Michael A. Olivas, a law professor at the University of Houston and a prominent proponent of such laws, said California lawmakers should have included protections, like those in other states, that prevent out-of-state students from obtaining in-state tuition.
"It's a badly written statute," Mr. Olivas said. But the laws will survive in the courts even with the additional requirement, he continued. "They were dodging a bullet that they didn't need to dodge."
Ms. Macías, the Long Beach administrator, said it was worth granting in-state tuition to all students who spent their high-school years in California, even if the benefit has been widened by accident. "In a way," she said, "what it signifies is that California has made a commitment to its children that if you go to a public high school for three years and graduate, you can go on paying in-state tuition."
The EPA aims to bully Congress and business with its carbon ruling.
EPA Administrator Lisa Jackson said yesterday that her ruling that greenhouses gases are dangerous pollutants would "cement 2009's place in history" as the moment when the U.S. began "seizing the opportunity of clean-energy reform." She's right that this is an historic decision, though not to her or the White House's credit, and "seizing" is the right term. President Obama isn't about to let a trifle like democratic consent impede his climate agenda. With cap and trade blown apart in the Senate, the White House has chosen to impose taxes and regulation across the entire economy under clean-air laws that were written decades ago and were never meant to apply to carbon. With this doomsday machine activated, Mr. Obama hopes to accomplish what persuasion and debate among his own party manifestly cannot.
"An Inconvenient Democracy ," The Wall Street Journal, December 8, 2009 ---
The EPA, with the blessings of that old hippie Rep. Waxman, think it can ignore politics, but reality will soon set in when industry, labor unions, and voters work in concert to come crashing down the Mouse That Roared..
Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm
Return to the Tidbits Archives ---
Bob Jensen's economic crisis messaging http://www.trinity.edu/rjensen/2008Bailout.htm
Bob Jensen's threads --- http://www.trinity.edu/rjensen/threads.htm
Bob Jensen's Home Page --- http://www.trinity.edu/rjensen/