The Great Fisca…

The Great Fiscal Cliff of 2012-2013

By Samuel E Burns

The Great Fiscal Cliff of 2012-2013

Watch out for January 1, 2013 (just 127 days from today) when more than $1.6 trillion will be sucked out of the U.S. economy. The Bush tax cuts will end and the largest tax hikes in history, plus the largest spending cuts Washington has ever seen will take effect on New Years’ Day.

America will stand at the brink of a fiscal cliff so huge the

at it threatens to crush our economy and leave the stock market in smoking ruin. That would cause our already high unemployment rate to explode higher. This will drive millions of Americans into poverty.

The International Monetary Fund, the U.S. Congressional Budget Office, the Federal Reserve, the U.S. Department of Defense, JP Morgan Chase, Bank of America, and Goldman Sachs, plus armies of U.S. senators and congresspeople in both major parties and many leading economists all unanimously agree that this crisis could destroy what’s left of the economic recovery. Another Great Depression would likely result.

Our hopelessly deadlocked Congress has failed to develop a plan to avert the crisis. Even if they delay some of the spending cuts and tax hikes, there is a potential problem looming that may make matters worse:

Nearly $1 TRILLION per year in fiscal and monetary stimulus will end. Or will it? Fed Chairman Ben Bernanke has hinted that QE-3 may be on the way. Which means, the presses at the Fed could be printing more money which would devalue our dollar even further.

Although it is true that President Obama is not solely responsible for this mess we find ourselves in, he has failed to reverse or slow this trend. Can we stand 4 more years of this kind of polices, or do we need a change?


  Judge Napol…


Judge Napolitano on the 2012 Election, Obamacare, and The Future of Liberty

“Those of us who really yearn for a return to first principles, the natural law, the Constitution, a government that only has powers that we have consented it may have… are frustrated by the choice between Barack Obama and Mitt Romney,” says Judge Andrew Napolitano, author of the upcoming book Theodore and Woodrow: How Two American Presidents Destroyed Your Constitutional Freedoms, Fox Business contributor, and former host of “Freedom Watch.”
Reason Magazine’s Matt Welch sat down with Napolitano at FreedomFest 2012 and discussed the ramifications of the Supreme Court’s ruling on the individual mandate and whether or not there’s a substantive difference between Barack Obama and Mitt Romney from a libertarian perspective.
Held each July in Las Vegas, FreedomFest is attended by around 2,000 limited-government enthusiasts and libertarians a year. ReasonTV spoke with over two dozen speakers and attendees and will be releasing interviews over the coming weeks. For an ever-growing playlist, go here now:
About 6:30 minutes.


Right to Work a…

Right to Work and Individual Rights

The Right to Work clause came into existence in 1935, embedded in the Taft-Hartely Law.  It means that (a) employees may not be forced to join a union, that (b) employers need not hire only those who agree to join a union, and (c) that employers need not fire employees for failing to join a union or pay union dues.
For over half a century, the clause was ignored.  Union bosses and their political allies forced employers to fire those who did not join a union or pay dues to a union, and they forced employees to join a union as a condition of employment and to pay union dues.
With millions of employees federally forced to join unions and pay dues, unions had massive funds, which would vanish if the Right to Work clause were implemented.  So union bosses lobbied ferociously, bribing and threatening politicians to repeal the Right to Work clause.
But for the same number of years, consistently favoring the Right to Work, the electorate voted out of office those politicians who supported its repeal.
After years of struggle, Idaho — apparently the first state to take action — put the RTW clause on the ballot in 1986.  The electorate voted for it overwhelmingly.  Today, 23 states have enacted Right to Work.
What benefits, if any, accrued to them?

Climate and Dro…

Climate and Drought Lessons from Ancient Egypt

Ancient pollen and charcoal preserved in deeply buried sediments in Egypt’s Nile Delta document the region’s ancient droughts and fires, including a huge drought 4,200 years ago associated with the demise of Egypt’s Old Kingdom, the era known as the pyramid-building time.
“Humans have a long history of having to deal with climate change,” said Christopher Bernhardt, a researcher with the U.S. Geological Survey. “Along with other research, this study geologically reveals that the evolution of societies is sometimes tied to climate variability at all scales – whether decadal or millennial.”
Bernhardt conducted this research as part of his Ph.D. at the University of Pennsylvania, along with Benjamin Horton, an associate professor in Penn’s Department of Earth and Environmental Science.  Jean-Daniel Stanley at the Smithsonian Institution also participated in the study, published in July’s edition of Geology.
“Even the mighty builders of the ancient pyramids more than 4,000 years ago fell victim when they were unable to respond to a changing climate,” said USGS Director Marcia McNutt. “This study illustrates that water availability was the climate-change Achilles Heel then for Egypt, as it may well be now, for a planet topping seven billion thirsty people.”
The researchers used pollen and charcoal preserved in a Nile Delta sediment core dating from 7,000 years ago to the present to help resolve the physical mechanisms underlying critical events in ancient Egyptian history.
They wanted to see if changes in pollen assemblages would reflect ancient Egyptian and Middle East droughts recorded in archaeological and historical records.  The researchers also examined the presence and amount of charcoal because fire frequency often increases during times of drought, and fires are recorded as charcoal in the geological record. The scientists suspected that the proportion of wetland pollen would decline during times of drought and the amount of charcoal would increase.

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Canada ready to…

Canada ready to unveil plan to ease trade of genetically modified foods

Canada is set to unveil to the world its proposal to permit traces of unapproved genetically modified organisms in imported foods, even as government officials admit they don’t trust all countries “equally” when it comes to how they approve use of the organisms.
The federal government’s draft plan for managing the low-level presence of GMOs in food and feed products, to be submitted to the World Trade Organization in September, will undergo more consultations in Canada.
The government’s initial proposal was to permit the presence of GMOs in food up to a maximum level of 0.1 per cent of any batch or lot tested – what it refers to as a “redefinition of zero” because it believes avoiding trace levels of GMOs altogether will become impossible over time.
Feedback from industry, organic producers and food experts during a first round of consultations raised many questions, internal records obtained by Postmedia News using access to information show.
The records also reveal concerns of government officials about how other countries manage their regulatory oversight of GMO crops.

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On Prices, Narr…

On Prices, Narratives, and Market Efficiency

The fourth anniversary of the Lehman bankruptcy has been selected as the release date for a collection of essays edited by Diane Coyle with the provocative title: What’s the Use of Economics? The timing is impeccable and the question legitimate.

The book collects together some very thoughtful responses by Andrew Haldane, John Kay, Wendy Carlin, Alan Kirman, Andrew Lo, Roger Farmer, and a host of other luminaries (the publishers were kind enough to send me an advance copy). There’s enough material there for several posts but I’d like to start with the contribution by John Kay.

This one, as it happens, has been published before; I discussed Mike Woodford’s reaction to it in a previous post. But reading it again I realized that it contains a perspective on market efficiency and price discovery that is concise, penetrating and worthy of some elaboration. Kay doesn’t just provide a critique of the efficient markets hypothesis; he sketches out an alternative approach based on the idea of prices as the “product of a clash between competing narratives” that can form the basis of an entire research agenda.

He begins with a question famously posed by the Queen of England during a visit to the London School of Economics: Why had economists failed to predict the financial crisis? Robert Lucas pointed out in response that the inability to predict a financial crisis was in fact a prediction of economic theory. This is as pure a distillation of the efficient markets hypothesis is one is likely to find, and Kay uses it to evaluate the hypothesis itself:

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A Different App…

A Different Approach to Coping With Drought

Water levels are low in reservoirs all over the parched West, but in many areas, the amount of water being used is no greater than the amount that evaporates, according to Moshe Alamaro, a scientist and inventor affiliated with M.I.T.
So for far less than it costs to build a new reservoir, he said, water managers could get more use out of existing ones by reducing evaporation.
Mr. Alamaro, the founder and chief technical officer of a start-up called MoreAqua, proposes to cover reservoirs with a layer of vegetable oil made from palm and coconut. The covering would be two-millionths of a millimeter thick – about one molecule in thickness, and hence called a monolayer – and two gallons of it would cover a square mile. It would reduce evaporation by up to 75 percent, he said.
The idea is not completely original; the Bureau of Reclamation, part of the Interior Department, tried it in the 1950s and 1960s on Lake Hefner in Oklahoma City using a chemical called hexadecanol. The problem, though, was that the wind blew the skin off the lake. Engineers have also explored its use for controlling hurricanes.
MoreAqua has a more sophisticated approach than simply spreading a layer on the water. It wants to surround a reservoir with dispensers and skimmers so that more of the vegetable oil – which is not quite hexadecanol, although Mr. Alamaro would not disclose its precise composition – can be dispensed as needed.
Almost all of it can be recovered on the downwind side, and through the use of ordinary irrigation equipment, it can be pumped back to the upwind side and released again, he said.
The coating’s coverage is measured by radar devices, possibly on a blimp or drone that would shuttle between reservoirs. A single control room could handle the operation of equipment at many sites.

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Uncertain uncer…

Uncertain uncertainty effects and the fiscal cliff

Recently we’ve come across a few stories making the case that the looming fiscal cliff is already having an impact on the US economy, as companies are reluctant to invest given the possibility of severe fiscal contraction at the start of next year.
We began writing about the fiscal cliff last November (before it had the name, and we certainly weren’t the first). The outcome is still undetermined — and all indications are that it won’t be decided until after the election. It therefore seems reasonable to think that companies are pricing in some probability of a failure by the two parties to arrive at a deal before the end of 2012. Maybe they are.
But this “uncertainty” channel is always difficult to measure, as by necessity it relies both on anecdotal evidence, mainly the word of business executives who have an obvious interest in the outcome of whatever happens to be uncertain. This strikes us as similar to arguments that regulatory uncertainty makes it harder for companies to hire, for which there is little if any evidence.
In other words, worries about the fiscal cliff probably do have some impact, especially on the most vulnerable sectors, but this impact is difficult to quantify with any precision and to untangle from other factors that also influence companies. Obviously it doesn’t help, but we don’t really know how much it hurts.
Anyways, adding to the sceptical case is a short note from Citi analysts, who looked at the planned spending decisions of 700 nonfinancial public companies and found that such retrenchment has yet to begin.

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EPA to approve …

EPA to approve grain sorghum for cleaner ethanol

The federal government is on the verge of approving a grain mainly used as livestock feed to make a cleaner version of ethanol, a decision officials say could give farmers a new moneymaking opportunity, boost the biofuels industry and help the environment.
A plant in western Kansas already is gearing up to take advantage, launching a multimillion-dollar renovation so it can be the first to turn sorghum — a plant similar in appearance to corn — into advanced ethanol. Advanced biofuels result in even less lifetime greenhouse gas production than conventional biofuels, measuring from the time a crop is planted to when the fuel is burned in a vehicle.
The only advanced biofuels in the United States now are sugar cane-based ethanol imported from Brazil and domestic biodiesel, a mixture of petroleum diesel and renewable sources such as soybean oil, said Matt Hartwig, spokesman for the Renewable Fuels Association. Advanced ethanol made from sorghum would give the nation another option as it aims to meet the federal goal of producing 36 billion gallons of renewable fuels per year by 2022.
“We need to continue to expand the base of feedstocks from which we produce biofuel,” Hartwig said. “It’s a good first step.”
Almost all the ethanol produced in the U.S. now is conventional ethanol made from corn starch. Critics of the ethanol industry complain too much corn is going to energy production, resulting in higher food prices for consumers. Corn affects food prices in multiple ways because it’s a widely used ingredient in food manufacturing and it’s used to feed livestock.
More grain sorghum going to fuel production is unlikely to spark the same complaints, because it is not the main ingredient in a number of foods. While it can be used in human food, it’s sold mainly to feed poultry, cattle and other livestock. Sweet sorghum produces edible syrup.

Will Nothing Sl…

Will Nothing Slay the Ethanol Dragon?

Apparently the beast cannot be starved to death. As the drought kills off corn by the stalk, animal feed costs are rising, and this has a big impact on livestock management. It’s causing ranchers to slaughter their animals earlier than usual, increasing the supply temporarily and actually pushing down meat prices.  
Yesterday, President Barack Obama announced a plan for the government to buy $170 million of this meat in order to keep farmers happy by keeping the prices up. This is a terrible idea, as the Washington Examiner explains:
“Prices are low, farmers and ranchers need help, so it makes sense,” Obama explained. “It makes sense for farmers who get to sell more of their product, and it makes sense for taxpayers who will save money because we’re getting food we would have bought anyway at a better price.”
None of this makes sense. In fact, Obama’s move only harms American consumers while protecting a corrupt federal program.
A drought is currently driving down corn production. The shortage of feed is forcing livestock producers to slaughter animals early, putting downward pressure on meat prices in the short run and guaranteeing shortages and higher prices next year. But nature is not the biggest factor in this crisis — the government is. Specifically, the federal government’s ethanol mandate, which requires that 13.2 billion gallons of corn-based ethanol be produced in 2012.

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