Wednesday, August 31, 2011
Long before I knew anything about municipal bonds, the Fed or the capital markets, I was interested in world history. For some reason, I was curious about the past. When I was only 8 or 9 years old, I would ask my father questions about the history of humankind. Perhaps some of my interest may have been sparked by the adventure movies I would see on Saturday afternoons at the Forest Theater. By June 1950, the United States was involved in a war on the Korean peninsula. I knew from the bubble gum cards that I bought and LIFE magazine's photographs that the United States was not the only country fighting against the North Koreans and the Chinese. I didn't understand why it was not called World War III as so many other countries were helping us battle the enemy. Years later, I was stationed in Korea and had the opportunity to see where we were fighting and learn more about what became known as the Korean War or Korean Conflict.
But today, 45 years later, from the time I left Korea, American history and the facts of American history are under attack. I am not talking about the interpretation of the facts. Simple things like dates and places are being misrepresented on the national stage. But, why? When a historian assembles facts such as dates, locations and documents, both primary and secondary sources of information, and then gives an interpretation to those facts, there is room for more than one interpretation. Each historian may weigh the facts differently, but at least they will, in the case of American history, agree on dates and places.
The recent trend on the national political stage with regards to misrepresenting the essential facts of American history, I find very troublesome. To make such claims as the Founding Fathers worked tirelessly to end slavery in the United States is just plain wrong. But why would some one say such a thing on the National stage? If lies can be told about the reasons behind the Civil War that was fought in the United States in the mid 19th century, what other lies can be told to the American people?
I am very concerned about the attacks on historical truths as I am very concerned about the attacks on science, the scientific method and scientists. Countries that have rounded up their intellectuals to silence them, or have quietly executed them, has never spoken well for the liberty and freedom of their people. These attacks against hard facts, primary sources of history and science and scientists can have no good ending, in my opinion.
Have we Americans been so dumbed down that we don't care about these attacks? I wish I knew where this was headed.
Saturday, August 27, 2011
Before I tore my tendon in my left leg, I planted sunflower seeds that I saved from two years ago. I did not water them much this year; however, they managed to get enough moisture from the summer rains. I also did not tie them back so they would not fall over the driveway. Last week I had to cut them down, but I saved 2 sunflowers and brought them into the house and stuck them in a vase. The following day I took their picture. I like this composition of color and I am likely to do something with it. Perhaps another sunflower painting to remember my summer of 2011.
Everyone have a safe and nice weekend. And, hopefully Donald Trumps' hair can cause hurricane Irene to turn out to sea and not hit the east coast.
Tuesday, August 23, 2011
I am old enough to remember the 1973 oil embargo pretty well. At that time, the Congress and President Nixon could have sat down together and worked out a plan whereby the United States would reduce its dependency on foreign oil by a small percent each year, with the final objective to be free totally of importing oil, or, for imports to be of such a small percent of the oil used in the United States that oil could never again be used as a weapon against our domestic economy. Unfortunately, President Nixon had other matters more pressing to deal with, such as the Watergate investigation, the Vietnam war and fighting all of his enemies imagined and real in the press. Nixon resigns the presidency in August 1974, and President Ford pardons former President Nixon and seals his fate of any chances of wining in 1976. President Carter came to office just as the inflation of the 1970s was just heating up and the American consumer was caught in a period of falling stock prices and rising costs. While President Carter was prepared to work on the issue of oil imports, the majority of the people were not. And so it has gone on like this for the last 38 years!
Oil is so dominate to the running of our economy that any movement in the price of a barrel of oil directly effects our domestic economy. Everything and everyone is transported by oil and the fuels that are derived from its production. There is not a segment of our society that is not dependent on oil. And, because the money we all spend on gasoline and diesel wind up leaving the country because the majority of the oil we use is imported, the amount of money in circulation is reduced more efficiently than any tax imposed on the American consumer. Money leaving our domestic economy removes purchasing power that otherwise would have been available for the purchase of goods and services. Add to this fact that many goods are produced overseas and are imported, only takes more money out of our economy.
Our domestic economy is tied to the price of a barrel of oil, and until that connection can be broken, our domestic economy will remain a hostage of imported oil.
Monday, August 22, 2011
Understanding what makes our economy run is really not very difficult, and you don't have to have a PhD in economics to understand that the cost of energy is a huge factor for millions of consumers. The shift upwards in the cost of fuel derived from petroleum, such as gasoline, diesel and jet fuel, acts in the same way as a tax increase that takes purchasing power away from the consumer. Bring down the cost of all energy will lead to a greater demand by consumers for goods and services and thus necessitate hiring by corporations and small businesses to meet the increased demand.
There is a balance that must be struck between drilling and the destruction of the environment. We need to drill more here within the boundaries of the United States because purchasing huge quantities of oil for foreign countries is bleeding our economy of much needed purchasing power as well.
While our politicians talk about jobs, jobs jobs, the truth is that jobs come from demand and demand comes from consumers with money in their pockets to spend. As I said, what makes our economy run is not very difficult to understand. Demand and money are the two main ingredients.
Saturday, August 20, 2011
These four acrylic paintings are on paper envelopes that I once received monthly investment reports from a rather small money management firm in NYC. The texture of the paper is what I liked and while the envelopes were made from black paper, I was determined to figure out a way to use them. At first, I would spread a thin coat of white acrylic paint across the backs of the envelopes and then draw on them with a ballpoint pen and pencil. Finally, I asked myself why don't I just buy some acrylic paints and just paint what I want right on them. I still like to cover the envelope with some color ground and then draw before painting. The top piece is AMERICAN PIE, then LEVEL PLAYING FIELD, the third piece is a postage stamp made in China, as even our postage stamps are no longer being printed in the USA (this is not true as we still print our own postage stamps), and the fourth envelope is a pattern of hex shaped tiles with no political content, just a simple design and having fun. I hope you enjoy my artwork and have a nice safe weekend.
Thursday, August 18, 2011
What if I told you that the recession is being caused by a lack of purchasing power? Would you ask what does purchasing power have to do with a recession? If people are placing more money into the operation of their vehicles, then how can the consumer maintain previous levels of demand for goods and services if incomes have remained stagnant? There are only so many months that the consumer can continue to spend discretionary income on goods and services, and the high price of gasoline, and still not drive his personal finances into the ground. How much debt can we bare?
Now to compare the debt of a country like the United States to the budget of a family of four is just plain stupid. Governments during periods of recession or depression can borrow and put people to work building infrastructure. This places cash money into the economy and creates demand for goods and services. This concept should not be too hard to grasp. The history of the United States includes periods where the Federal Government put people to work by building and replacing worn out infrastructure. The only thing stopping the country from doing this today is politics. The economics of this enterprise is sound. What remains is the political fight to destroy the first black president, and try to turn him out of office in the 2012 elections. This may happen, but his replacement will be looking at a recession or depression and the economics will not have changed. The only difference between doing it now or in 2013 is that more people will have suffered needlessly and more people will fall from the ranks of the middle class. Is it worth hurting so many people and making so many children suffer to defeat one black president? The good people of America will have to ask themselves that question.
Wednesday, August 17, 2011
Did I hear someone using the Federal Reserve Bank Chairman's name in vain? Oh, that was that Texas Governor Rick Perry, talking about what they would do to the Fed Chairman, Ben S. Bernanke if he printed more money. You all know it is important to get the history right even if it is recent history we are talking about. Just for the record, Ben S. Bernanke, the current Chairman of the Federal Reserve Bank in Washington, D.C. was appointed by President George W. Bush. This all occurred during the Bush presidency as Bernanke replaced Alan Greenspan as Fed Chairman. One more thing, Ben S. Bernanke is a Republican and a former economics professor that specialized in studying the Great Depression and how the Federal Reserve's monetary policy prolonged the depression. Bernanke is known to have written about this period, and hopefully has avoided making the same mistakes that were made in the 1930s.
What does the Federal Reserve Bank do? Well, if you will take a look at your paper money, you will see that at the top of our paper money are the words FEDERAL RESERVE NOTE. That's right, the Federal Reserve Bank issues our money. Now besides printing paper money for circulation, the Fed regulates banking through setting MONETARY POLICY. Monetary Policy works like this:
The Fed traditionally had 3 levers to influence interest rates and thus influence economic activity. Interest rates are thrown into the internal rate of rate formula by corporations, and businesses decide whether projects will fly at a given rate of interest if the money is borrowed from a commercial bank. And, if interest rates are low, economic activity will build and that leads to a higher velocity of money which makes the economy go round.
But, if the economy is moving too fast, the Fed can try to slow the economy by doing one, two or three things. First, the Fed can influence the amount of money in the banking system by buying or selling U.S. Government notes and bonds in the open market. These trades are called Open Market Operations, and if the Fed sells Treasuries, they take money out of the banking system. Second, the Fed can change the Fed Funds rate of interest. Fed Funds are what banks purchase from the Fed at the Fed window. If the Fed wants to slow the economy down, the Fed can raise the Fed Funds rate. The third lever is the reserve requirement and that too the Fed can raise and lower depending upon whether the Fed wants to slow down, or, try and speed up economic activity.
Now why would a Governor from Texas want to get ugly with a Republican Fed Chairman appointed by a Republican President? The only answer I can come up with is that this Republican Governor from Texas doesn't understand central banking or how monetary policy works to help grow the economy and speed up economic activity. Perhaps, some where along the line, someone can explain to him what monetary policy is and how it works.
Stay tuned, it has to get better.
Sunday, August 14, 2011
Saturday, August 13, 2011
Some liberals probably did not watch the Republican Presidential candidates' debate the other night on FOX TV from Iowa; however, I tuned in and watched the whole thing. The dumbing down of America is almost complete as all we need is a Republican President that would turn down a 10:1 ratio of budget cuts to tax increases! As if the word compromise had been removed from the English language!
The men and one woman that were on stage the other night in the debate are not dumb people, but they know how dumb the electorate has become. The only question left to ask is: are there more idiots out there voting Republican in 2012 than voting Democrat? The Democrats have shown an unwillingness to fight for what they believe, and that then leads to the question: what do Democrats believe in?
Every one of these 8 presidential candidates raised their hand when one of the questioners asked who would not support a 10:1 ratio of budget cuts to tax increases if they were president. When this country gets to gridlock politically, I think we are finished as a Super Power.
What this means is that the science of economics has been thrown out the window, and the flat earth people now rule the country! At this point, those Republicans, Democrats and independents with financial resources that are liquid and a brain and education will pick up and leave the country. There are several countries where English is spoken as either the primary or secondary language, and many who will leave are smart enough to learn another language. The United States will be left to the religious right that denies the role that science and logic plays in the formation of civilization. A new Dark Age will be upon this land.
Wednesday, August 10, 2011
Link for new George W. Bush t-shirts for sale on eBay.
The art work was inspired from the article in the August 2011 issue of VANITY FAIR magazine titled The Kingdom and The Towers. The idea for the t-shirt came from the comments and photographs contained in the article. Most will not connect the dots, but for those that do, they will understand the graphics.
Take a look and if you like it pass the link along.
Artwork by F.D. Zigler copyright 2011.
Tuesday, August 9, 2011
Last night I watched Blazing Saddles on TV. The film was made in 1974, and if you have never seen it, I recommend you take the time and watch this movie. The basic story is that a black sheriff, Cleavon Little, is appointed by a corrupt politician and becomes his adversary as he successfully protects the town that the corrupt politician is attempting to destroy. This is Mel Brooks at his best. Cleavon White does a tremendous job with his role as sheriff as he was a great talent.
Perhaps it is time for Mel Brooks to update the story. The sheriff's great great grandson becomes President and tries to save the economy of the country, but he encounters corrupt politicians that are hell bent on destroying the country before they would give the black president a fair chance.
Where are you Mel Brooks when we need you?
Monday, August 8, 2011
With so many people in a panic as a result of the S&P downgrade of U.S. Treasuries obligations to a double-A plus, I feel I should make a few comments.
Short term the United States is worthy of a triple-A credit rating, but long term, the way Congress failed to act by not raising revenues (taxes) while only cutting spending was deplorable. When politics get so acrimonious that the long term economic viability of the country is put into question, then the credit rating agencies are right to slap the USA with a downgrade, in my opinion.
A Little Economics.
The velocity of money and its relationship to economic growth can be connected by more than just dots. If the velocity of money within the United States slows down, then economic growth will slow with it. If people hold on their money and don't spend it out of fear of the future, economic activity dries up and velocity of money, in theory, could almost go to zero. Given the high unemployment number, the number of workers out of work, the smart economic thing to do is for the central government to take this opportunity to replace and repair and build new infrastructure. This infusion of money into the economy will lead to higher levels of employment and higher levels of employment will result in a higher velocity of money. In other words, money will change hands as people will create a greater demand for goods and services. This economic activity will also result in more tax revenues at the city, state and central government levels. This is pure economics. This is not politics.
The refusal of the Republican Party to do what is in the best interest of the country at a time of difficult economic times is, in my opinion inexcusable. But, enough people have to realize this before a change in direction can occur.
There is a lot of talk about how important it is to create jobs. Jobs are created when governments at the city, state and federal levels put people to work. The additional demand for goods and services from the private sector will result in a higher velocity of money and will take this country in the direction of full employment.
It is that simple!!!
Saturday, August 6, 2011
Since I have been sidelined with my torn tendon, I decide to do the Bush 43 Stamp after viewing the photographs in the VANITY FAIR issue of August 2011, and reading the article titled The Kingdom and The Towers. I bought a frame for Bush 43 from Suder's Art Store that was a standard 16" by 20" this past week. I was able to buy a nice wood frame that I liked and worked for the colors in this painting. But, I was still reluctant to give up on the idea of entering The Altarpiece even though with the 2 doors it is too big in square feet by the rules of the show. If I took the 2 doors off, the case of The Altarpiece would be just under the 9 square feet limit. I am thinking about going ahead and rigging the case to be hung on the wall without the doors, and entering it with the Bush 43 Stamp. They might both be rejected, but that is the chance you take when you enter a juried art show. Although I have had my artwork rejected several times, I nevertheless, don't like it when my work is rejected. I am now working on a new painting. It is going to be a postage stamp and self portrait. But, that is another story for another time.
Credit ratings issued by the credit rating agencies have an interesting history for me. I remember when I was first introduced to the whole credit rating system over 40 years ago. My first experience with credit ratings was in the municipal bond arena. Back then there was just the two big credit rating agencies that mattered, Moody's and Standard & Poor's (S&P). Moody's was considered the better rating for municipal debt and S&P was considered the better judge of corporate debt. There were also some smaller bond dealers that gave their own credit rating on municipal debt that they underwrote. I remember reading these credit rating reports and how one of the items mentioned was the percentage of white people and the percentage of black people that lived in the municipality under review. Later when I became a municipal bond investment officer with the trust department of one of the banks in Cincinnati, I would read credit rating reports on the debt offerings coming to market for the coming week. In reading about the debt coverage of the Puerto Rico Highway Authority bonds, I discovered that they had over 6 times coverage on their outstanding debt. One would think that 6 times coverage would certainly call for a rating higher than a single-A rating. To say that race played a role in determining credit worthiness of a debt issuer, in my opinion, is an understatement.
The downgrade by S&P for me and I am sure many others is suspect. The first question that comes to mind is: How influential were Republican Party operatives in pushing S&P to this conclusion? Credit ratings do not exist in a vacuum. There is always a lot of discussion, and, who was driving that discussion? Were people inside S&P pushing for this downgrade, or, was this downgrade politically motivated from outside the agency?
S&P has a history of being behind the curve on changing their credit ratings as well as giving higher credit ratings than deserved in the case of the mortgage-backed bond ratings which they so charitably gave triple-A. As the investment bankers would shop a rating from the credit rating agencies, the rating agencies knew where the growth in earnings was coming from in their business.
Yes, this downgrade will hurt the credit of the United States and our whole economy. It will mean higher interest rates for everyone. Lenders will jump on this like white on rice, and see it as an opportunity to raise their earnings too. Savers on the other hand should most likely see the interest rates on savings accounts, money market funds and certificate of deposits go higher. But, higher rates may discourage investments where the internal rate of return will not warrant the risks associated with new construction. That is a downside for our whole economy as well as the world's economy too.
This is not the end. The Congress could take action to raise revenues and that would certainly put us facing the right direction. Debt is rated not only by the issuer's ability to pay, which in the case of the United States is not in question, but also the willingness to pay, and here is the rub. Congress is viewed by their recent theatrics as not graciously willing to meet our fiscal obligations. Attitude plays a role in how we are viewed around the world also.
Thursday, August 4, 2011
The economy of the United States can be fixed, and it can be done probably without firing a single shot.
My Economic Plan.
Inform Saudi Arabia that they will start pumping more oil. They will continue to pump oil until the price of a barrel of oil is below $50 a barrel. Then with the planet awash in oil, the price of gasoline, diesel and jet fuel will go down. It will no longer cost $70 to buy 20 gallons of gas. The "savings" that millions of motorists will have will go to buy goods and services. This will create a demand for more products and services.
The second part of My Economic Plan is to talk with China about spending money in the United States to educate our children. This money is needed to hire teachers, buy school supplies and fill up our universities.
I do not expect American consumers to stop buying cheaper Chinese made goods, but I do expect China to take an interest in keeping our demand so their economy does not go into the tank.
So, in review, My Economic Plan has 2 Parts: Part One is to tell Saudi Arabia to pump more oil and flood the world markets with oil or else we will pump the oil for them, and then the U.S. Government will keep the proceeds. Saudi Arabia should be happy to accept this generous offer, and it should only be made once.
Part Two is to ask the Chinese Government to invest in the education of America's children. Their education is future demand for Chinese made products. This is a better investment in the future than buying U.S. Treasury debt certificates.
Within a few months the U.S. economy will come around, and as our economy improves, so will the economies of the rest of the world.
Wednesday, August 3, 2011
You know, you don't have to be a trained economist or win a Nobel Prize in Economics to understand supply and demand. To watch and listen to the politicians on both sides of the political spectrum you would think that a few of them would have taken or even remembered something from Econ 101. The Federal Government is a legitimate piece of our domestic economy. In fact, for a very long time, citizens of the United States understood this. Some people now think that the Federal Government has no place in our domestic economy, and that is a piece of fatal and erroneous reasoning. The Federal Government in 2011 has a legitimate role to play in our domestic economy and it is more than just spending for defense.
This country has not kept up with its internal physical maintenance. The more enlightened among us have spoken and written about the need to replace and repair our infrastructure. But, there is in the United States today a movement away from reason and scientific thinking. The country has been dumbed down to the point that this country's decline and defeat will not come from an enemy abroad, but from the enemy within. As the saying goes, "we have met the enemy, and it is us!" Yes, the American people are their own worst enemy. Serious thought and analysis are no longer held in high regard, as craziness with no analysis is the new Einstein. The 1960s, a time of reason, thinking and discovery is no more. The scientists of tomorrow will be leaving our country to travel to lands where science and reason are held in high regard, and foolishness is for entertainment and fun.
The Federal Government has a legitimate role to play in the economic cycle. To deny this is to run a race on one leg of a four legged animal. So much needs to be done, such as the FAA building projects that have been furloughed because Congress has failed to act. By the time the middle class wakes up and discovers that there is no middle class it will be too late. The present day Republican Party is succeeding in returning the United States to the 19th century. The body of knowledge that was produced during the 20th century is being systematically denounced, and we are soon to enter a new Dark Age. Even Dr. Franklin would be spinning in his gave if he knew the direction we are headed.