Steve Horowitz from The Austrian Economists blog has a simple. short and pithy essay on the causes of the current US recession.

Worth reading and it won’t take you long. A sample:

2. Fannie Mae and Freddie Mac The U.S. government imposed a variety of other institutions and policies that encouraged the lending binge that led to the recession. Fannie and Freddie are not products of “capitalism;” they are organizations created by the U.S. government, which has given them special privileges as well as an implicit taxpayer guarantee. Fannie and Freddie were mandated to purchase a certain percentage of the mortgages that banks originated with the credit created by the Fed, giving mortgage lenders every incentive to keep on making loans, even if the borrowers didn’t meet traditional lending criteria.

The rest

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And here’s a perfect distillation of why. Spend some time and listen to the entire podcast of what happens when a perfectly functioning profitable private transportation system in a large city is privatized to eliminate “greed” and “profit”

Munger on the Political Economy of Public Transportation

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Eddie Bauer Files for Bankruptcy

My entire non-business wardrobe is pretty much Eddie Bauer. I guess I’ll be going naked for a while.

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Interesting article over at Newsweek regarding commodity prices and how historically they trend downwards despite the emergence of new economies. An excerpt:

It’s a view rooted in powerful and real trends, like the growth of China and India, the decline in global reserves (many of the world’s biggest and best oilfields are tapped out), fears over resource nationalization (independent oil firms now control only 20 percent of global reserves) and long-term underinvestment in energy and agriculture, which hampers supply.

Image via Wikipedia

Yet the fact is that the world has faced all these issues before, and for the past 200 years, commodity prices have been trending downwards, thanks to new technologies, greater efficiency in extraction and the substitution of one commodity for another (which explains the high correlation between commodities prices). Bank Credit Analyst, a research firm based in Montreal, has data showing major industrial commodity prices are 75 percent below where they were in the year 1800, after adjusting for inflation. Despite all the worries over “peak oil,” the fact is that the major bear markets in oil have been demand, rather than supply led. And when demand eventually picks up, there’s usually some new alternative (nuclear energy, natural gas, green technologies) waiting to pick up some of the slack. The real price of oil today is now at the same level as in 1976 and, before that, in the 1870s, when oil was first put to mass use in the United States. This long-term price decline is due mainly to the constant discovery of new fields and greater energy efficiency, making nonsense of the idea that the world is rapidly running out of oil. The experience of the 1980s is instructive in the current context as well.

Japan and Europe continued to grow strongly in the 1980s, and yet oil consumption remained essentially flat through that decade as both the regions strived to achieve better fuel efficiency and switched to alternative sources of energy, such as nuclear power. Similarly, 90 percent of the growth in new oil capacity since 2004 has come from biofuels, synthetic oil and natural-gas liquids. As countries get richer, their per capita consumption of commodities declines. It’s a myth, then, that the boom in China and India will inexorably drive up oil and other commodity prices.

The rest: Cheap Oil Forever: Why Prices Will Keep Falling

Via

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“Women aren’t going to stop wearing make-up,” regardless of the economic environment, says Joshua Strauss, portfolio manager of the Appleseed Fund

That and a whole lot of other interesting reasons Why Avon’s Stock Could Double in a Year at SmartMoney.com

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Over at Forbes Managzine Rich Karlgaard has a post outlining 20 reasons for optimism

The top 10:

1. Banks are making money.

2. Housing starts have surged.

3. Money velocity is up.

4. Yield curve is positive.

5. Mark-to-market accounting might get tweaked.

6. Airline traffic is better than expected. I’ve been traveling like a madman lately and can vouch for full planes and busy airports.

7. Hotel occupancy rates for the first two months of 2009 are a record low 58%. That’s getting headlines, but let’s put 58% in perspective. The industry average in all years is 63%. Hardly a meteor-strike disaster. In fact, today I’m in Atlanta, where I will speak at a hotel investor conference. The mood is surprisingly good. The March occupancy numbers have turned up.

8. Retail sales are recovering, too.

9. Copper prices are up. Gary Shilling, the bear’s bear, once told me to look at copper prices as a measure of global industrial activity.

10. Used car prices are firming up.

11-20 are a little weak if you ask me. Also the commenters (so far) are pretty pessimistic.

Via Club For Growth (which has nothing to do with hair loss).

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This is one strange depression. We are all starving and wandering about in the streets wearing rags and looking for scraps of garbage to eat. At the same time we are buying LCD TVs in record numbers!

In spite of the worsening economy, U.S. sales of LCD televisions are already up 20% over January and February of last year (and up 50% in Europe), according to vice chairman and CEO of Samsung Electronics Lee Yoon-woo. The boost is thanks in part to lower prices, which means less revenue for electronics companies. But according to Scott Birnbaum, vice president of the LCD division at Samsung, consumers’ renewed interest in LCD TVs also comes from a confluence of other factors: format, the film experience, and the way their PCs have changed their expectations of their TVs.

read more.

Update -This is interesting:

Consider the technological innovation that has taken wing during past economic rough patches. During the Great Depression, it was radio. Census data show that by 1940, 90% of U.S. households outside the South had radios, up from about half of U.S. households at the beginning of the decade.

Similar patterns emerge from GfK Roper Consulting research. Amid the recession of the early 1990s, ownership of personal computers increased. The percentage of PC-owning households rose to 24% in 1992 from 18% in 1990. Early the following decade, during the tech bust, cell phone usage surged. In 2002 the percentage of households that owned a cell phone jumped to 54% from 35% in 2000.

More on that here

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Not one but rather two quotes both on the Cramer vs The Comedian thingy. I had been meaning to write about this but these two articles sum it up much better than I could.

But rather than attacking just Cramer—who does seem to be an unreliable source of financial information—why not go after Barney Frank who, also in 2003, argued that “these two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis.” As the Washington Post reported, Frank “said the [Bush] administration’s position [on tighter regulation of Fannie and Freddy] is driven by concerns about the financial safety and soundness of the companies ‘to the exclusion of concern about housing.’” To the exclusion of concern about housing. But here is a potential difference: Frank hasn’t attacked Barack Obama’s stimulus plan as “causing the greatest destruction of wealth I have ever seen by a president,” as Cramer recently did.

From:Hit & Run > Defending Jim Cramer - Reason Magazine

AND:

Jim Cramer ran a show on trading. You can say it might have been nice if he’d run a show on financial regulatory theory, but there’s no reason to think that he would be any good it it–the guy’s a trader, not a regulator, not a crack investigator. The skills that make someone a good trader, like a short attention span and an appetite for risk, are not what makes someone good at economic theory or managing regulation. We lost precisely nothing, as a society, when he decided to tout stocks instead of take a dive into public policy.

Individuals, of course, did lose something by following his advice. I’m sure a number of his viewers stuck with Bear and regretted it. On the other hand, I’m sure a number of his viewers sold out of the stock market in October on his advice and saved themselves a bundle. Do you know whether he has cost viewers more than he made them? I tend to suspect he has, but I have no actual data on which to base that conclusion, only a general belief that ordinary investors can’t beat the market and shouldn’t try.

No, neither Jim Cramer nor CNBC created this mess. They focus mostly on stocks, and though people tend to think of the stock markets as synonomous with the financial system, they just haven’t had much to do with the current problems. And thank God, really. I’d rather not hand over the responsibility for the US financial system, or even my retirement account, to a guy who goes on camera to bite the heads off of plastic bulls.

The problem with Jim Cramer is the problem with the Jonas Brothers: what he does simply isn’t much good, for all that people seemingly have a large appetite to consume it. And he encourages people to pursue a destructive activity, trading their own portfolios, when most economic research shows they’d be better off in an index fund.

From: What’s The Matter With Jim Cramer

Hat Tip: Instapundit

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Labour leader Wayne Samuelson on the current economic situation:

“We’ve been pressing this government for the last three years to take a proactive stance on this jobs crisis,” said OFL president Wayne Samuelson. “We haven’t seen anything like this crisis in our generation or the last one. It needs a different response.

What is Wayne’s idea of a different response?

The OFL campaign calls for public spending on infrastructure projects such affordable housing with materials made in Ontario, and increased Employment Insurance and social assistance spending.

Because a union leader has never called for public spending on infrastructure, and increased welfare benefits before. This is like some kind of new age!

Oh and there’s more:

Those demands, and others, will be pressed in a rally set for noon March 21 at the Hamilton Convention Centre.

’cause unions never ever have rallies. Boy these guys sure are different! What’s next rotating strikes? “Alternative” budgets? Or the ever popular call for employed people to work shorter hours so as to share their job with an unemployed person? FYI when they started trotting that one out 15 years ago the recession was already over so when you hear someone spouting that crap be happy - good times are just around the corner!!

source (it’s at the bottom of the article).

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“Marxists claim that Marxism is a science. It is not. It is today little more than a form of mental illness.”

I’ve always maintained that Marxism and socialism are forms of mental illness. This sounds I know somewhat outrageous and over the top however my reasoning for this is that most pschologists will tell you that the degree of someones mental health is often directly related to how much control he or she feels they have over their world. Mentally fit people believe they have the ability to control their lives and their destiny. They don’t blame their problems on everyone else. They take responsibility for their actions and the consequences of those actions.

Marxism/socialism is a system of beliefs that holds the opposite to be true. You have no control over your ability to be successful. If you are poor it is because someone is oppressing you not because you have any control over it. And if you have been born poor then you might as well forget it you are stuck there without any way out because capitalists have taken all your money and exploited you like some,…. some…. hmmm the only metaphor I can think of involves prostitution for some reason.. maybe I’ll come back to that.

At any rate an entire system of political thought that is based on preaching helplessness and despair as opposed to self reliance and control over your own destiny sounds pretty much like mental illness to me.

The quote above is from this interesting (but in need of some editing) piece over at American Thinker What is Marxism?

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One of the more tiresome criticisms of global brands and franchises is that you go to any city and the same stores are selling the exact same stuff and there’s no local flavour blah blah…

Well Mcdonald’s (where I haven’t eaten in about 10 years ) has some local flavour no matter what country you’re in. Check it out

Via Gorilla Mask

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President Obama on February 5th

By now, it’s clear to everyone that we have inherited an economic crisis as deep and dire as any since the days of the Great Depression.

President Obama March 12th:

Confronting misgivings, even in his own party, President Barack Obama mounted a stout defense of his blueprint to overhaul the economy Thursday, declaring the national crisis is “not as bad as we think”…

Via Michelle Malkin:
Laughingstock: President Doom does a 180, cancels fear-mongering

Full article here.

Related: Could Obama Be Just Too Awesome!

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Via Carpe Diem blog. Only four US banks but all four five of Canada’s major banks are on the list. Read it here

Side note: RBC is number 10 but CIBC is way down at 43? Hmmm.

Update: as pointed out by readers who are much better at counting than I am (that’s why I have an accountant) there are FIVE Canadian banks not four. D’ohh!

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The phenomenal Carpe-Diem blog had some very interesting (and disturbing) stats on the current victims of economic downturn a couple of days ago:

78% of the job losses (3.483 million) were jobs held by males, and 22% of the jobs lost (981,000) were jobs held by females (see top chart above). Of the 351,000 decline in February employment (household data), 90% of the job losses were male jobs (315,000), compared to a 37,000 job loss for females (10% of total).

the rest

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Apparently sales of Atlas Shrugged have been increasing concurrently with the increasing government intervention in the economy:

Atlas felt a sense of déjà vu t

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Anyone who has read economic accounts of the causes of the Great Depression can tell you that one of the worst policy decisions was that of governments the world over to raise tariffs in reaction to US Smoot Hawley pact (which was FDR’s equivalent to the current “Buy American” proposals).

The Smoot-Hawley Tariff Act “imposed an effective tax rate of 60% on more than 3,200 products and materials imported into the United States”, quadrupling previous tariff rates.

Although the tariff act was passed after the stock-market crash of 1929, some economic historians consider the political discussion leading up to the passing of the act a factor in causing the crash, the recession that began in late 1929, or both, and its eventual passage a factor in deepening the Great Depression.[11] Unemployment was at 7.8% in 1930 when the Smoot-Hawley tariff was passed, but it jumped to 16.3% in 1931, 24.9% in 1932, and 25.1% in 1933.[12]

I have been saying since last summer that we will be fine as long as we don’t get countries doing idiotic things like raise tariffs. Well guess what…..

Nations Rush to Establish New Barriers to Trade

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Rising Democratic power in Washington is likely to usher in a drive for tighter financial regulation, increased social spending and more labor-friendly policies amid a more challenging climate for business.

Gee ya’ think??

more

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Great news for the US Economy it is not in a recession although people are still hoping and also subtly trying to change basic economic facts:

. The statistic did not meet what economists consider the definition of a recession, which is a contraction of the economy.

Actually a recession properly defined is six straight months (two quarters) of economic contraction . So if the economy contracted for a full quarter and then expanded it wasn’t in a recession. Nor would it be in a recession if it contracted for one month or four months or even five.

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Remember Bisphenol A? Nah that’s so last week. Here’s a new plastic bogeyman for ya: phtalates

Greenpeace now has a new target called phthalates (pronounced thal-ates). These are chemical compounds that make plastics flexible. They are found in everything from hospital equipment such as IV bags and tubes, to children’s toys and shower curtains. They are among the most practical chemical compounds in existence.

Phthalates are the new bogeyman. These chemicals make easy targets since they are hard to understand and difficult to pronounce. Commonly used phthalates, such as diisononyl phthalate (DINP), have been used in everyday products for decades with no evidence of human harm. DINP is the primary plasticizer used in toys. It has been tested by multiple government and independent evaluators, and found to be safe.

Despite this, a political campaign that rejects science is pressuring companies and the public to reject the use of DINP. Retailers such as Wal-Mart and Toys “R” Us are switching to phthalate-free products to avoid public pressure. […]

[…] The hysteria over DINP began in Europe and Israel, both of which instituted bans. Yet earlier this year, Israel realized the error of putting politics before science, and reinstated DINP.

The European Union banned the use of phthalates in toys prior to completion of a comprehensive risk assessment on DINP. That assessment ultimately concluded that the use of DINP in infant toys poses no measurable risk.

The antiphthalate activists are running a campaign of fear to implement their political agenda. They have seen success in California, with a state ban on the use of phthalates in infant products, and are pushing for a national ban. This fear campaign merely distracts the public from real environmental threats.

Source:
Why I Left Greenpeace - WSJ.com

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Last night for some bizarre reason I watched The National (for those not in Canada The National is the nightly news program from the Canadian Broadcasting Corporation which is the state sponsored media in this country).

I haven’t watched the program in years because quite frankly the whole idea of tax dollars being extorted from Canadians to provide a service that is ably provided by the private sector irks me. However I was between hockey games (another service that could also be provided by the private sector) and an abbreivated version of their news came on. So there I sat as Wendy Mesley breathlessly announced the latest news or more properly “the latest thing we could dig up to scare the living shit out of you”.

Tonight the bogey man was something called: Bisphenol A!!!. Apparently one of CBC’s sister agencies Health Canada has decided that Bisphenol A (which is used to make hard plastic bottles - like the kind you use when you are camping) is going to kill us all. They are the first governement body in the world to issue a warning about the product.

The CBC in it’s kindly maternal fashion decided it would be good to have a chemist go visit a worried Mom to see just how much danger her and her child were in. So we were treated to a scene in the mother’s kitchen where an array of plastic containers were spread out. It looked like the same variety of plastic containers that we all have in our houses. Uh-oh I thought is everything on the table poisonous? Or more importantly: “is my wife watching this”? She had wandered out of the room to get ready for bed earlier and I hoped she hadn’t returned. You see my wife is a worry wart of the first order. If any government body or media outlet says something is bad she pretty much believes it and will go into paroxysms of panic (ok not panic but she does make life miserable for me if she gets it in her mind that something is bad - this is why my lawn is full of weeds because she is convinced that the pesticides used to keep that mono-culture alive and thriving caused the cancer that killed our first dog). I snuck a look over my shoulder damn! she was standing right there and it was too late to change the channel.

So I watched with trepidation as Mr. Chemist delivered his verdict to Worried Mom. Turned out most of the plastic containers she (llke all of us) had in her kitchen were safe (or at least free of Bisphenol A|) the only two containers she had that were manufactured using the dreaded killer were two bottles she used to feed her baby with. Oh NO! Her poor precious baby had been poisoned right?

Nope. Mr. Chemist went on to tell her that unless she was filling the bottles with a liquid and storing them for an extended period of time there was no real problem with Bisphenol A leaching into the liquid and killing her toddler.

So I thought why the fuss? Why lead off with this story?

Why indeed. I went to CBC’s web site this morning where their FAQ on Bisphenol A contains some interesting information:

First of all the FAQ says there is a debate “raging” about Bisphenol A and it’s health effects which is interesting considering there was no evidence of a debate on last night’s program. No one was given any air time to counter the CBC’s claims that Bisphenol A is a dangerous product. The only thing presented that countered Health Canada’s claim was a small block of text that appeared as the story ended saying that the American Plastics Institute (or some such industry body - I can’t remember the name) says that Bisphenol A is one of the most tested products out there and has shown no ill effects on humans.

In fact the story mentioned that the only people who are at risk were young children and people with hormone problems (I think pregnant women). And that is not all, the CBC itself said that these people MIGHT be at risk.

This is pretty much in-line with what the FAQ says, check out some of the language:

recent animal studies theorize the chemical may be linked to obesity, infertility and insulin-resistance in rodents.

The U.S. Food and Drug Administration (FDA) has said it does not consider normal exposure to BPA to be a hazard. However, on Apr. 14, 2008, the U.S. National Institutes of Health released a report that concludes that there is some concern that fetuses, infants and children exposed to BPA may be at increased risk for early puberty and prostate and breast cancer.

Animal studies suggest that, once ingested, BPA may imitate estrogen and other hormones, according to the National Institutes of Health.

Lots of mights and mays but not much definitive information there. In fact one of the scientists involved in a study that supposedly links Bisphenol A to health problems isn’t ready to condemn the product:

He cautioned that the study, by researchers at Indiana University and University of California at Berkeley, did not indicate products such as bottled water aren’t safe.

“We have only demonstrated a possible mechanism that explains what people have been speculating about for years.” he said. “It doesn’t mean that your bottled water is any less safe today than it was yesterday. It just means that if it isn’t safe, we might be able to explain why.”

Oh and what does Health Canada say on its website?

Analysis and testing conducted by Health Canada in 2000/2001 on plastic baby feeding bottles and other plastic products showed that the levels of bisphenol A in these products were exceedingly low, and did not present a risk to Canadian children,” it said.

“Health Canada’s investigation also showed that although low amounts of bisphenol A could migrate from the plastic into milk, it would do so only under conditions of extreme use.… These results suggest that plastic products do not pose a health risk if used properly.”

BTW if you haven’t figured it out the bolding above is all mine -not from the original quotes.

So there you have it bisphenol A MIGHT cause some problems in children and infants but no one seems 100% sure.

But just to be on the safe side retailers are panicking:

In December 2007, Vancouver-based Mountain Equipment Co-op became the first major Canadian retailer to pull polycarbonate containers from its store shelves.

Because MEC’s core demographic is infants and pregnant mothers. Yeah I always spot them out rock climbing and participating in other extreme sports. Guess I’ll be ordering my Nalgene bottles via the interweb from now on.

One more thought. The FAQ suggests that parents can allay their fears by substituting the hard plastic baby bottles for something else like (wait for it) glass!! Because we all know a glass bottle in a baby’s hands is much safer than a hard plastic bottle which contains a substance that if liquid is stored in for a long time might leach some of that substance which in turn just might cause health problems for the child down the road. Maybe.

Read the CBC FAQ here and watch the actual program here (might not work after 24 hours). And for historical context go here

OK one last thought. Why not just require products containing bisphenol A to have a small warning label like “danger might be harmful to infants or nursing mothers” like they do with alcohol?

Update: A Plastic Ban for Dummies

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