Jeremy H Smith

Bees That Swarm

2011-05-17T15:51:00.000-06:00

After two days of owning my beehive, a third of the hive decided that there wasn't enough room for them in the hive boxes, so they swarmed. When bees swarm, it is one of the most fascinating things to witness. Thousands of bees literally cluster on something, surrounding the queen. In my case, they clustered on a tree branch in my backyard. During a swarm, the bees are relatively docile because they are not protecting honey or brood. My wonderful cousins, Chad and Rob, helped me out with my swarm situation. Since I decided that I wanted to keep the swarm and have a second hive, Rob arranged to pick me up two new hive boxes. Chad came over donning his bee suit. While he held the branch, I used clippers and cut it down. Carrying the swarm, Chad thumped them into a cardboard box. Onlookers, Kyle and Meredith, watched in amazement. The bees that didn't make it into the cardboard box naturally started crawling up the sides. They could smell the queen's pheromones. We put the box under the porch to protect them from a pending storm.

Upon investigation of the existing hive, Chad and I could see several queen cells. The hive was already in the process of growing a new queen. The bees can decide when or if they need a new queen. When that happens, they make a special queen cell and feed the cell royal jelly. This will lead to the development of ovaries for the queen. I will be checking the hive in a few days to see if I can spot a queen. If there is no queen, I'll need to buy one.

The next day, Rob had the new hive boxes. We then put the bees into their new home. They had already started making the cardboard box their new home by making combs dangling from the bottom of the lid. Last night, I checked the hive to make sure the bees where still there, enjoying their new home. To my satisfaction, they were still there. I'll post some pictures/video when I can.

My Beekeeping Experiment

2011-05-11T11:01:00.000-06:00

I have been considering keeping bees since last year. My brother-in-law, as well as my cousins, have been keeping bees and their experiences have been positive. I thought that in order to be a beekeeper, one just buys the hives, buys the bees, patiently waits, then harvest the honey in the fall. This is not quite true. Compared to tending animals, beekeeping is pretty easy, however, it does involve being educated on bees and performing some minor maintenance.

First of all, bees are one of the most amazing creatures. They are so incredibly organized. The more I learn about them, the more I'm fascinated by them.

To keep bees, I learned that you must plan early for keeping bees. You order your bees in the late winter and pick them up in the early spring. I did not know this, so this year, I thought I was out of luck for having bees. Then a neighbor of mine informed me that another neighbor was selling some of his hives. So last night, I bought one hive and placed it in my garden area. The hive came with two deeps full of honey and bees. I will be adding my supers in a day to two to prevent the hive from swarming. If the hive is too crowded, which mine is close, the queen will reduce her egg laying and her ovaries will shrink. Her lighter weight will enable her to fly, which means she is at risk of leaving the hive. The hive will detect her reduced egg laying and start to prepare for a departure, or swarm, to try to find a more suitable place to accommodate their large colony. To prevent this, you must have room for the hive to grow. I will be putting an addition onto the hive so that they will want to stay.

I'm excited about this new hobby and hope to have some great tasting honey to show for it.

What Has Government Done To Our Money? Pt. 2

2011-05-05T14:57:00.000-06:00

Gold has been a hot topic for a few years now. In this post, I'm not arguing for or against gold. I am providing my own insights into what Rothbard says about the commodity.

In part 2, "Money in a Free Society", Rothbard seems to be laying the foundation of his arguments for gold and silver standards. Although he uses gold and silver commodities as examples, he states that whatever commodity the free market chooses to be the "standard" or the value that is backing paper, it doesn't really matter, just so long as the market agrees on the commodity. It could be lead, platinum, or even cigarettes, as was displayed by POW's in WWII. While in prison camps, POW's frequently used cigarettes as a form of currency for exchange of goods.

Rothbard, as well as many other economists, have argued for being on a gold standard as the basis for the monetary supply. It's not because gold contains some sort of mystical powers, or even very many practical or industrial applications. Rather, it's because historically people simply like gold. I would add that they also had confidence that other people liked gold too, which allowed them to exchange it for goods. The person receiving the gold also possessed confidence that other people like gold, therefore they would be able to exchange it as well. The value is not inherent in the commodity itself. The value is based on the perception and confidence that other people will also value it.

In responding to a question posed by Ben Stein regarding gold, Warren Buffett recently said, "You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"

I think there are two perspectives on the metal at play here. Rothbard, and Austrian economists in general, favor a commodity (primarily gold) backed monetary supply. In this quote, and several other when talking about gold, Buffett is referring to gold as an investment. I think both Rothbard and Buffett are closer to agreement than what would appear at face value. Austrians define wealth as the accumulation of assets or capital, not the accumulation of money. Buffett is also talking about the accumulation of wealth via assets. He's saying that gold, sitting in a vault, is not in and of itself, creating value. The perceived value that others have of gold may fluctuate, not because the utility of gold changes, but because the perceived value simply changes. Gold, in and of itself, does not produce wealth. The farmland and Exxons of the world do produce wealth because they inevitably accumulate capital.

That doesn't mean gold is worthless or that one shouldn't invest in it. Like I said before, it simply means that gold doesn't produce wealth.

Is There Hope for Liberty in Our Lifetime? - Jacob H. Huebert - Mises Daily

2011-04-29T15:24:00.000-06:00

Is There Hope for Liberty in Our Lifetime? - Jacob H. Huebert - Mises Daily: "What we can do to advance liberty is to work first and foremost on the one unit of society we're actually capable of improving: ourselves."

"We're living in a time and place that has allowed us to discover libertarianism and Austrian economics. This lets us see the world clearly in a way that few other people who have ever lived have been able to."

"But if you look at the tea party by the numbers, you realize that if liberty's going to be achieved in the United States, it's not going to be brought about by [the tea party]."

What Has Government Done To Our Money? Pt. 1

2011-04-27T16:45:00.000-06:00

What Has Government Done To Our Money? is Murray Rothbard at his finest. In his book, his focus is to eliminate confusion about money, its origins, role it plays in society, and its value. I chose to read this book to deepen my understanding of the Austrian view of money. As more recent comments are made about debt, inflation, gold, etc., I believe that my knowledge of money could be expanded upon.

I want to get to the roots of our economic problems. Ultimately, money is at the center of the conversation. For example, how are we going to pay for our debt and current budget deficit? How can I prepare for higher prices while wages remain constant or do not accelerate at the same velocity as inflation? What can I do to prepare for retirement? What kind of standard of living will my children have when they are adults?

From What Has Government Done To Our Money?:

"From Aristotle to Marx, men have mistakenly believed that an exchange records some sort of equality of value- that if one barrel of fish is exchanged for ten logs, there is some sort of underlying equality between them. Actually, the exchanged was made only because each party valued the two products in different order."

The nature of value is a fundamental concept to understand when learning economics. Economists have wrangled over how value is created for centuries. This argument has literally spurred revolutions and toppled world powers. The Bolshevik revolution in 1917 was egalitarian in nature. It was based on the theory that labor creates value. The belief states that the upper class is propped up by an exploitation of labor in the lower class. Several economists were proponents of the labor theory of value (LTV), but it was Marx who popularized it.

Rothbard's statement above flies directly into the face of labor theory of value. He is making more of an argument for utility theory of value (UTV). The value is only present because bother parties perceive value, therefore they are willing to make and exchange to obtain that value. Rothbard adds, "Exchange is the lifeblood, not only of our economy, but of civilization itself."

He later gets into why bartering stinks and having a common exchange commodity is critical, in this case, money. In bartering, I have a pig, but want a suit. I go to the suit maker and offer my pig as an exchange, but he doesn't want a pig. He wants butter. So I go to the butter maker and offer my pig. He doesn't want the pig either. He was a wheelbarrow. As the guy holding the pig, I may end up exchanging for the suit, or I may not. I may get tired from working so hard to make an exchange for the suit that I give up and decide the suit isn't worth the hassle.

Throughout history, civilizations have overcome this problem by migrating to one or two commodities that everyone can agree with. Government didn't step in and say, "You will now buy everything with shoes." The free market chose it. Historically, the free market chose silver and gold. Now, as the guy owning the pig and wanting a suit, I could sell my pig, receive payment in gold, then take my gold and exchange it for the suit.

Last point, and this is HUGE. Again, my formal university economic studies were primarily Keynesian and classical. I will make efforts to point out great disparities between these two schools of thought and Austrian economics. Austrians view money as just another commodity, just like the computer you're reading this from. It adheres to the exact same economic equilibrium and laws of supply and demand as any other good. Keynesians view money with special rules. It's role is not the same and any other commodity. It's special.

This is huge for a number of reasons. For example, when the government prints more money to pay for its monstrosity, Austrians argue that you are increasing the supply of money, thus decreasing the purchasing power of money, therefore, deficit spending is bad. Keynesians, although recognizing that there could be some validity to Austrians argument, state that it doesn't matter because it will spur demand in the economy, the economy will grow, you'll get higher tax revenue from the increased economy and everything will be fine.

This is a longer post than I planned. I will try to keep them shorter.

My Upcoming Blog Entries

2011-04-27T10:03:00.007-06:00

I"ve heard that a blog is like a shark; it must keep moving in order to survive. If it stops moving, it dies. With that analogy in mind, my blog is dead as a doornail since my last post that I actually published (I started many entries, but they have yet to see the light of day) was November 25th, 2009.

Well, I decided to start blogging again.

I'm planning on blogging about what I'm reading. I mostly focus on economic related material, but I also diversify with some mind candy here and there as well.

Closing thought:

I recently spoke to my friend, Tom. He asked me, "What is the difference between choking and panicking?"

He then explained that choking is a form of digression when you are under stress. For example, if you are golfing, choking would be if you started reverting back to old, bad habits. Panicking is when you over-think something while under stress. He's a rock climber and related this difference back to climbing. His answer to solved both issues is to focus on your breathing. By focusing on your breathing, you naturally relax, reduce your stress, prevent your mind from digressing, and allow you to perform better. Thanks Tom! By the way, Tom is one of the nicest people I know. Great guy.

Utah/BYU Rivalry Week

2009-11-25T11:40:00.008-07:00

I love the Utah/BYU rivalry. Even if a championship isn't on the line, the excitement surrounding the game is still fun. I like to read the articles in the local newspapers meant to heat up the conflict. Sometimes, I read the comment boards as well. Wow. Both BYU and Utah fans need some growing up to do. I'm sure some of the posters are simply trolls, but some of the comments are ridiculous.

My number one pet peeve is intellectual dishonesty. Unfortunately, many times we let bias cloud our intellectual honesty and make judgment calls that are not as objective as they should be. To make a blanket statement against one particular fan base is simply ignorant and doesn't deserve a response or conversational engagement. Picking out an incident here or there, then passing judgment for an entire group is simply reckless and demonstrates cognitive laziness. We can go back and forth until we're out of breath with ridiculous stories from both sides of the aisle. For every story of abuse from a Utah fan, there is a competing story from a BYU fan.

I agree that the rivalry appears nastier over the past few years. I think there are a few reasons. First, more is at stake in these games than in times past. Because we're not in an AQ BCS conference, we relinquish ourselves to fight over the remaining Bowls table scraps like dogs. Second, forums and comments boards exist. Now we can bash each other anonymously (cowardly) like never before. Many things people post we would never say in person to each other. Words are powerful. Words can cause harm. Words hurt. The rivalry will continue to get meaner as people show less restraint of their comments.

The best way to help bring the rivalry into a more civil atmosphere is for the football coaches from both Utah and BYU to set an example of how a good civil rivalry should be conducted. They need to appear together more on sports shows and perhaps charity events, showing each other, and their fan bases, that they respect and treat the other with class and dignity. Fans will see this and I hope will think twice before posting vile comments or acting out against a fan from the other school during the games.

Dana White of UFC Can Sometimes Make Sense

2009-10-08T12:51:00.008-06:00

I was reading a Dave Doyle from Yahoo! Sports interview with Dana White, president of UFC. In case you are not familiar with Dana, he's a very aggressive, gutter-mouth leader who says what he thinks, without being politically correct. So for that, I salute him. Sometimes, he takes things a little too far, but overall, you are never left wondering what he's thinking.

When asked about what he would think if one of this two young sons, were to approach him when they're 18 years-old and say that they would like to fight for their professions, he gave a great, insightful answer:

"DW: Here’s the thing: I’m in the business, so it’s not what I would love to see my kids do. But the reality is, every job sucks, every job has ups and downs. My thing with my kids is, I want my kids to do something they absolutely love to do. I swear to God, if my kids, when they’re 18, if they come to me and say, “Dad, I love pumping gas. I love getting up in the morning, I love grabbing the handle, I love the smell of the gas station,” I’d say, “Go for it,” because if you love it that much at 18, he’s probably going to end up owning 25 gas stations by the time he’s 30. Anything you love to do that much, you’re going to be successful at. And at the end of the day, it’s all about being happy.

UFC president Dana White isn’t shy in expressing his opinions.

MMAWeekly.com photo

"I’m lucky to be in the position I’m in right now. I’m doing what I want to do. I tried to go to college, I barely got out of high school. I went to college, and what I saw was all these kids sitting around that were told they had to go to college. Talk to a kid and say, “What’s your major?” (They’ll answer) “My major’s political science right now, but I’m probably going to finance” – they change major [expletive] 17 times because they have no clue what to do. So they walk out with a degree and go, “What am I going to do with this [expletive] thing?” They don’t know what they want. You got all these people who sit in traffic every day and drive to a job where they’re miserable with what they’re doing. For me, it’s all about doing what you love to do and being happy."

Random musings from a random guy

2009-07-02T09:37:00.006-06:00

I saw Transformers last night. It really was like listening to 2 1/2 hours of pieces of metal grinding in a blender. But it was still entertaining once I just turned my brain off and ignored the huge, gaping plot holes... like Transformers can now apparently manipulate rocks and make them fly, and since when did Transformers have off-spring???

My friend made a pass at me during the movie. I dropped some popcorn in my lap and he was all too eager to pick it up for me.

Maybe that rule that if there are seats available (guys who go to movies with other guys must have at least one seat of separation between them) makes more sense to me now.

Facebook Friend Litmus Test: How I determine if I'll accept/reject your friend request. It's that dilemma we all confront now with Facebook; should I accept/reject that friend request? You all know what I'm talking about. You get that request and think, "Ah crap. I never really liked or even knew that person." What do you do? Do you accept just to be nice, or do you reject and be rude. Here's my Facebook Friend Litmus Test: If I were to happen to run into you on the street, would I genuinely be happy to see you and want to say "Hi", or would I pretend like I don't see you or that I don't recognize you because it's been "so long and you look totally different"? If I would say "Hi" = Accept Friend Request, otherwise = Reject Friend Request. I don't mean to be a jerk if I reject, but I don't see the point if I don't like you. By the way, I've only rejected a friend request once.

To think that we humans are somehow excluded from the rest of the biological world in terms of evolution is naive. I have yet to conclude how this reconciles with traditional Christianity and specifically LDS theology.

I often stay up too late. It's because that is the only time during my busy day for me.

I need an outlet. To take a note from the late Randy Pausch, author of The Last Lecture; when receiving the passenger safety instructions before taking off on a flight, we are instructed that in case of the loss of cabin pressure, to secure our own oxygen masks first, then assist those who need help second. The message: we must take care of ourselves individually before we can help others. This does not equate to selfishness, rather, it means that need to make sure our needs are being met, as well as those who are in our care.

I have a hard time maintaining focus on one subject for a long period of time. My mind is such that I will become interested in something, learn as much as I can until my thirst for that knowledge is quenched, then I move onto something else. It's as if my mind will say, "OK, I've learned as much as I feel the need to regarding this subject. What's next?"

To expand on the previous paragraph, this extends to foods as well. I will be content in eating one type of food, or even the exact same food, for a period of time. However, once I'm done eating that food during the period, I'm done eating it and will likely never crave it again.

I question EVERYTHING. I rarely accept anything without questioning it first. This is a strength.

I will stop my day in it's tracks for a beautiful sunset. I feel closest to God when viewing a spectacular sunset more than at any other moment. Second is when I'm in nature, particularly in the desert of Southern Utah.

I've taught my boy to appreciate a sunset. He'll yell out to me in excitement if he sees a sunset out of his window. When my daughter gets older, I'll teach her the same thing. Someday, perhaps they'll feel God in those moments like I do.

Perhaps they will not. They have their own paths in life. My job is help them form, develop and find their individual paths, not force them to follow mine. But it is they who will ultimately choose their destiny.

My mind thinks in chunks, or blocks. I visualize a situation from many different angles because I literally see it as a 3 dimensional object with many sides that I can twist, turn, and manipulate.

I need to drink more water on a daily basis.

The University of Utah Utes Are The National Champions. Period.

2009-01-06T02:22:00.001-07:00

Most people were given exposure to the Utes via the Sugar Bowl. Before that, I would argue that most people who are saying that Utah doesn't deserve to be the national champions haven't seen any of their other games. They all reference the scores of a game here or there, and may even have read a summary or two of the games as well. The problem is that people are making judgment calls on how good/bad the Utes are without seeing them play week in and week out.

Unfortunately, the AP, Coaches, and Harris voters have rarely, if ever, seen the Utes play either (there are a number of articles out there where the voters admit it). I'm not proposing that the voters need to watch every game each week for each team (that is obviously unrealistic). The voters have to vote on perception. Their vote is a subjective action, thus introducing bias. Unfortunately, college football is riddled with subjectivity and bias. To argue that Utah would or would not beat Florida, Oklahoma, (insert any team here), is irrelevant. It is only conjecture. The same applies to one saying that Utah WOULD beat other top 5 teams. Again, it is only conjecture and is irrelevant.

Finally, those who defend the current BCS system and the BCS conferences demonstrate clear patterns of elitism. The day will come, hopefully in my lifetime, that the tomfoolery called the BCS will end. It is a mockery of college football and makes people of usually sound and intelligent minds construct ridiculous arguments for maintaining a system that is egregiously corrupt. In defending the BCS, some say that the regular season is in reality a playoff, since having even one loss can exclude a team from the national championship. Therefore, EVERY game is important. According to that logic (which I've heard many times by BCS proponents BEFORE the Sugar Bowl, I would like to hear their argument now) would need to recognize the Utah Utes and the National Champions. Every game of their season DID count, all 13 of them, all wins, zero losses.

Many people, both Ute fans and not, will recognize the Utes as the National Champions, myself included. The winner between Florida and Oklahoma will merely be an illegitimate, paper, faux champion.

The BCS Bamboozlement

2009-01-06T00:52:00.002-07:00

The unfairness and outcry of this sham of a system called the BCS is gaining momentum. Talk of anti-trust lawsuits and congressional probes is everywhere. The problem is that the BCS is not afraid of lawsuits or congressional probes. I doubt either is go anywhere.

The way to bring the BCS down is through public outcry and letters to conferences commissioners, school presidents, and media outlets. If you go to the BCS's official website (http://www.bcsfootball.org), they have links to newspaper articles that attempt to justify the BCS's existence. They are feeling so insecure and scared right now, they feel like have to post these articles to convince people that they are important to college football.

Granted, the bowl system was an important element in the college football landscape. For the last century, the bowls have had a seat at the dinner table in college football. However, those days are long gone. The bowls have gorged themselves long enough. It is time to excuse them from the table and let the players, universities and athletics programs that worked so hard to build successful programs reap the rewards in the post season. Thank you Sugar Bowl. Thank you Fiesta Bowl. Thank you Vegas Bowl. You have been gracious hosts, but we no longer need you.

And the “BCS”? You rudely sat down at our dinner table. You were not invited. It is time for you to leave. Don’t let the door hit you on the way out.

Lesnar vs. Couture Fight Tonight

2008-11-15T14:58:00.004-07:00

There are only a few fights a year that I get really excited for. Tonight is one of those fights. The 45 year old Randy Couture is fighting a behemoth, Brock Lesnar. Lesnar is a former WWE actor/performer who decided faking it wasn't for him, so he left WWE and started training in MMA. There are many lengthy articles out there describing the two fighters and their match up tonight. Now here's what I think.

Although I want Couture to win very much, I don't think he will. If you take all of Randy's strengths (wrestling, strength, speed), Brock has the same strengths, but only better. Brock is a better wrestler, he's stronger, and he's faster. The advantages that Randy has are better discipline to execute a game plan and his experience.

This is the way I see it going down.

Lenar will dominate every round, taking Randy to the ground at will. He won't knock Randy out or TKO him, but he will lay on top of him and hammer punch him for five rounds. Randy won't be able to submit Brock and will not be able to get to his feet. He'll only be able to lay there at defend those stupid hammer punches for 25 minutes.

It's unfortunate, but I think the roid-laden Lesnar will win this fight, and likely many, many more fights to come.

Another Sleepless Night

2008-11-05T02:58:00.006-07:00

I've been having more sleepless nights recently. This has happened before, typically when times are stressful. Tonight is no different (plus I'm reeling from being sick). I started to write this post at 3am.

Tough times are ahead for many people. Not for me personally though. With my current job, I do not feel that the recession is going to threaten it. As a matter of fact, we're on track for another record year, and next year looks just as bright.

But I have friends who are already hurting. For example, a close friend of mine who owns a housing construction supply business is going under. He fought a long, hard fight, but the market slaughtered him. Lasting as long as he did under these circumstances (new housing construction down 73%) is a testament to his abilities. But ultimately, the demand side beat him.

His story is going to be the tip of the iceberg that we'll see.

Here's what my most recent concern is. On October 31st, we learned that consumer spending had dropped 0.3%. That may seem like a small amount, but since 70% of our economy is driven by consumer spending, it is significant. Understanding how consumer spending affects jobs that you and I hold is critical. Below is a fantastic chart from a book I read recently titled Ahead of the Curve, written by Joseph H. Ellis, a top analyst at Goldman Sachs.

click on the image to see the chart in more detail

Note the box called "Real* consumer spending." The term "Real" simply translates into "adjusted for inflation." The drop in 0.3% consumer spending noted earlier is this box. Notice where in the chain consumer spending fits. It feeds industrial production and services, which feeds capital spending and corporate profits and ultimately jobs. When we see a drop in consumer spending, especially of such magnitude of 0.3%, this will result in job losses.

Also note the box labeled "Individuals' real hourly earnings." This is what feeds consumer spending. As of today, I have not seen the latest government figure of the change in individuals' real hourly earnings. But if the drop in consumer spending is any indicator, I can assume it is going to be down.

This is the kind of data that I have referred to in some of my other posts. As negative data like this, as well as corporate earnings reports, are released, we will again be slapped in the face to the reality of how bad this economic recession is going to be.

Since all the "bailout" news happened, things have been relatively quiet. The TED spread has decreased, which is good. The stock markets, although significantly down, have somewhat stabilized. As a matter of fact, they have rallied a bit. However, this is a suckers rally. The market has further corrections to make. This will happen as more negative economic news comes out.

Some have asked me how I think having Obama as president will affect things. Since he won, I guess it is no longer a hypothetical question. Regarding the economy, he will have a tough job ahead. But by the end of his first term in 2012, we'll have most of this behind us and he will, of course, take credit for fixing it. I know things that he said during his presidential campaign are just "politics", but when he would relentlessly blame George W. Bush for this problem, it tells me that he has no clue as to what caused this problem. Now I'm not a W fan at all, so I'm not defending him. We just can't let people and politicians lay blame on him for this mess. Blame is to be shared by many, many, many people.

On foreign policy, I think Obama will help. On the morality issues, I will continue to disagree with him.

But he's not the reason for my sleepless night.

More Negative Economic News On The Forefront

2008-10-22T18:07:00.002-06:00

In my post titled, Where Does This All End? History In The Making, I mentioned the that even though we might experience temporary stock market rallies, the Dow Jones Industrial Average was likely to continue to slide. The reason I gave was that reports on real wages, consumer spending, corporate spending, manufacturing, and unemployment will be more negative than the market is anticipating (again, stock prices reflect future expectations). The current liquidity crisis has not yet hit our economy in terms of wages, spending, and jobs completely yet. These reports will reflect a ripple effect from the crisis, which is in it's relative infancy. Again, I remain bearish on the economy for at least the next two years.

I do not think we are facing a depression, but this recession will be severe. I think we'll see:

Unemployment hit 10% - 12%
Real wages decrease 3% - 6%
Equities markets dropping another 20% - 30% (DJIA 6000 - 6800)
Home values decrease an additional 10% - 15% on a national average. Local areas will differ.
Food and energy prices should stabilize
Inflation should remain low

Regarding inflation, that was one of my top concerns six months ago. As the Fed kept interest rates down in order to hold off the current liquidity crisis as long as possible, it raised the risk of inflation. However, because of this recession, inflation should stay in check. However, once we begin to emerge from the recession (2-4 years), the inflation risk will be high. I'm concerned that once we get the liquidity crisis behind us, then the recession behind us, we will face high inflation risk that we will have to address.

On a side note, I'm marketing a new toy for the upcoming Christmas season. It's called the Dow Yo-Yo.

On a Lighter Note: Tagged By Kristine Watterson

2008-10-19T21:45:00.002-06:00

I was "tagged" by my cousin, Kristine, to list my "8's" list. In fear of her retribution, I oblige:

8 Favorite TV Shows:

Amazing Race- Mainly because it's one of only a few shows that my wife and I both like
The Ultimate Fighter- She likes this one too
60 Minutes
Any Jazz game
Any Utah Utes or Broncos football game
Frontline
Glenn Beck
I can't think of another. I don't watch much TV

8 Favorite Restaurants:

Katie Smith's Home Cookin'
Bombay House
Royal India
Five Star Thai
Lone Star Taqueria
Caputos
Z Pizzeria
Crown Burger

8 Things That Happened Yesterday:

Woke up next to the love of my life.
Picked up Amelia and Paxton and had Daddy time
Went to work
Had dinner with friends
Watched the BYU game
Held Paxton after he hurt his arm
Tried to watch the recordings of my favorite shows
Got frustrated that my receiver didn't record them
Fell asleep next to the love of my life

8 Things I Look Forward To:

Being home after work everyday to spend time with the hottest wife in the world
Seeing Paxton and Amelia in their Halloween costumes. Paxton is going to be a fireman and Amelia will be cat
Going Trick-Or-Treating with my kids
Seeing my extended family on Thanksgiving
My next woodworking project; not sure what, but still excited
My next read: Traders, Guns and Money
Watching our TV shows with my greatest, most beautiful wife

8 Things I Love About Fall:

The fall colors, of course
Perfect temperatures during the day
Cool, crisp nights
Knowing that snowboarding is right around the corner
Pumpkins

8 Thinks On My Wish List:

To spend the rest of my life with my beautiful wife
That my children will have strong testimonies
World peace
A new president, anyone better than the current disgrace (come January 2009, my wish will be granted)
Church to only be 2 hours, and optional
Travel and see the world: Thailand, Europe, Australia, New Zealand, India, Japan, Israel
My basement to be finished

Where Does This All End? History In The Making

2008-10-13T22:45:00.009-06:00

Apparently I didn't get the memo that our politicians on Capitol Hill changed their professions from Congressmen and women to comedians. I didn't know that when you are elected to go to Washington, a prerequisite is that you take a "How to be a clown 101" class. They are the biggest bunch of jokers I've seen! The way they are experimenting with the economy is making things worse, not better. Their tinkering isn't working. But there is hope. Hank Paulsen is finally listening to the right people who actually care about the economy, not just covering their own skin. He's making some good moves.

First, the stock market is not the daily thermometer of our economy. If the market is up one day, or down another (or seven straight days), it doesn't necessarily mean that the economy is up or down that day. The economy is a complex web of people creating, exchanging, and consuming goods and services. It's not what the Dow Jones Industrial Average did during today's session, or the last one (it was down -678.91, by the way). But what the stock market does attempt to do is predict economic future expectations. What concerns me most about the markets is that it demonstrates that people have no confidence in the actions our government is taking to ease the landing of our downward economic landing.

The Troubled Asset Relief Program (or TARP), the $700 billion dollar "bailout" that our government voted in favor of and enacted on Friday, October 3rd has yet to restore any confidence. It was known that the money from that bill would not hit the markets for a few months. Yet the Dow Jones still dropped -157 points that day and -370 points the following Monday. Then Treasury realized, oops, we should have addressed the short-term liquidity problem that corporations are facing (commercial paper, or short-term debt issued by corporations). The TARP did nothing to address this problem. Instead, it just bought up the toxic debt. No wonder the markets didn't respond favorably to the TARP. Investors knew that it wasn't going to fix a lot of the problems.

Then we had a truly historic event. On Wednesday, October 8th, central banks across the globe issued a coordinated rate cut. This level of coordination had never occurred before. How did the markets respond? Again, with -189, or -2% drop on October 8th, followed by -679 (-7.33%) on the 9th, and -128 (-1.5%) on the 10th. Again, this displays a blatant vote of "no confidence" in the government doing anything productive in this crisis.

Then we have today, October 13th. The markets ended up 936.42 points, a huge 11% increase. What caused this turnaround? I think many factors.

One, the markets believe (as do I) that Treasury's announcement to inject capital in the troubled but solvent banks via the purchase of preferred stock will actually help. This idea to simply buy up the toxic mortgages the banks are holding was terrible. That idea was put in the TARP by the banking industry. They liked the idea of someone else (in this case tax payers) holding their crap rather than themselves. It allowed the banks to get rid of their toxic mess without penalty. However, through Treasury's purchase of the preferred stock, Treasury is essentially owning the bank. Something the banks didn't want, but is the right move to make.

Second, the IMF had a conference over the weekend. The plans laid out during the conference is the type of medicine the ailing global economy needs.

Third, according to Warren Buffet, the best time to be greedy is when everyone else is fearful. We had people jumping in to buy stocks that they perceive to be bargains.

Today's gains appear to make up quite a bit of losses, however, I remain bearish on the market and the economy for the next year or so. The liquidity crisis isn't just a week of bad stock market losses. The problems we are experiencing haven't rippled throughout the economy yet. The market may continue to rally, like today (10/13), for a short while since it appears the pendulum swung too far into negative territory. However...

I believe more bad news is coming and more "bailouts" will be needed. We will see real wages decrease, consumer spending decrease, lower corporate spending, lower manufacturing, and higher unemployment. These types of figures haven't been announced, and when the market sees how bad they are, the market will respond by driving stock prices down. How far down will they go and for how long, I do not know. Estimates range from DJIA 5,000 - 8,000 and a recession lasting 2+ years. This is going to hit especially hard on people who were planning on retiring within the next five years. They have seen huge losses in their retirement funds. Many will likely need to continue to work longer, however, employment will be competitive since unemployment rates will be higher. As we work through this crisis, we will all be affected in some way or another. Every segment of the population will feel this, if they haven't already. Like I said before, this crisis is bad.

The $700 Billion Dollar Debacle

2008-10-01T22:29:00.003-06:00

So here we stand, looking over the edge, staring far into a deep precipice. How did we get here? At this point, why does it matter? We're here. Warren Buffet likened the situation to paramedics arriving to the scene of the gruesome accident. They don't go around questioning people how it happened. They provide first-aid to the victim. Police later arrive to figure out the cause. The victim now is our people, our livelihood, our futures. The real test is how our government and American citizens handle this crisis.

Living my daily life, it's hard for me to see the credit crunch as a crisis. I wake up, my lights turn on, I have food in my fridge, I go to work, come home, play with my kids, then start the whole thing over again. My life hasn't changed since the situation apexed recently. The attacks on 9/11 felt like a real crisis. This doesn't. It's hard for nearly all Americans to look at a set of accounting books and say, "Yep! Looks like we've have a crisis on our hands." But that doesn't mean that it's not a crisis. It is, and it's about as serious as it can get.

The problem is that the banks have been losing so much money because of bad (aka "toxic") mortgages, asset ratios that they are required to keep have become out of whack. This has paralyzed them from loaning money to each other, thus freezing credit markets.

So here comes our government to the rescue. Everybody's a capitalist during the good times, but want socialism during the bad. The banks need help. I don't disagree with the government helping out in this situation. It goes against my fundamental belief in free markets, but it appears that it needs to be done. The problem I have is how it is happening.

Where did Treasury come up with the $700 billion dollar figure? Why not $701B or $699B? Was $700B based on looking at the banks finances? Was it through a methodical process? No. According to Forbes, a Treasury spokeswoman stated, "It's not based on any particular data point. We just wanted to choose a really large number?"

All I can do is look down and shake my head. I can choose a large number too. As a matter of fact, a third grader could have said, "How about a google dollars ($1GOOG)?" and it would have been just as good as Treasury's response.

Note to Treasury: Don't ever say that again. And fire your spokeswoman.

What are we getting with our $700B dollars? We're getting those "toxic" mortgages in the form of residential mortgage backed securities (RMBS). Nobody wants these on their books. They are the hot potato that is getting tossed around. With the Economic Emergency Stabilization Act, the American taxpayer ends up being the sucker who takes them off the banks hands. It's rewarding the shareholders and banks. Not only are we getting all these toxic mortgages, we're also getting billions worth of pork barrel spending thrown into the bill as well. We've all heard it: rum factories in Puerto Rico, a children's arrows factory, etc.

Here we are in a serious crisis (and I don't loosely throw the word "crisis" around) and our politicians in Washington are more concerned about pleasing their constituents and getting re-elected than fixing the problem at hand. But because we were desperate to get some sort of "bailout" plan out there, certain individuals (I don't know who, yet), exploited our crisis for their own personal gain. They are the equivalent of the looters you see on T.V. when a city has had a major disaster.

At least something was done. But it was the wrong medicine that our economy needed. There were alternative plans that were presented that could have been better. But in Washington, and politics in general, what matters most is not what is right, but what is popular. Why weren't our best and brightest economists and financiers in Washington, helping to draft the plan? Our politicians put together this bill, but they don't understand what the hell is going on! Hardly anybody does! I certainly don't profess to understand this extremely complicated situation. Only a handful of people do. Why weren't they in Washington? I liken this to the Manhattan Project. Our country focused on one objective; to build a weapon to end a war. We put our best people in the project and it succeeded. Just think of the consequences if we would have had our politicians trying to figure out how to build the world's first atom bomb. Complete failure.

Based on all the piles of information that I've read about this crisis, I feel like I have finally realized the seriousness of the situation we face. When one hears talk about our financial system unraveling, I'm starting to get it. It's bad. Really bad. I hope I'm wrong. I'm not a permabear (always negative of the economic outlook) either. I tend to be a moderate person in my decision making process. I don't think the best or worst predicted outcomes will happen in this economic crisis, rather history will show it to be somewhere in the middle. But even the middle is really bad. The problem is that nobody knows how bad this will be or how long it will last. Estimates range from a one year recession to a ten year depression.

I have to be honest, I am sick right now. Our country, our world, is facing an enormous threat to it's stability. A strong economy equals a strong nation. I fear this economic situation more than I ever feared those dirty terrorists hiding in their caves in the Afghan/Pakistani border.

The largest problem is the freezing of credit. Businesses and individuals will have an increasingly harder time to obtain credit. Without access to credit, our economy can't grow. For businesses, this means they can't take a risk on a new product line or open or build a new factory. They may close divisions of business that are making money yet. New businesses won't be able to get access to loans to get started. All this translates into job losses and a shrinking economy. For the individual, tightening credit might mean you can't get a home loan, a car loan or even a student loan. I don't think everybody will not be able to get loans, but only those with the highest credit scores will qualify.

I think back when I bought my first car. I didn't have a very long credit history, so my credit score was average. In the next couple of years, people who are starting out with their adult lives, like me ten years ago, will likely have hard times getting loans for school, or a car for them to drive to work.

We're going to see high inflation. Energy, food, everything will rise again, while our pay will not. I pulled my investments out of the market completely (stocks, 401k) about six weeks ago. But inflation will soon eat into the cash. It's a double-edged sword. You lose if you leave your money in the market, but you lose if you pull it out. It's going to take very prudent and disciplined investing to get ahead in the next few years.

Inflation will get worse once the cat is let out of the bag that the U.S. isn't that great of an investment anymore. Banks that have loaned us all that money to fund our spending habits may start dumping the dollar, thus flooding the market with dollars and decreasing their value. The only bright spot, if it could be classified as that, in this scenario is that there is nowhere else for the foreign banks to put their money. Sure they could dump the dollar, but for what? There aren't any better alternatives out there right now, including the Euro.

Although all this may seem like simply a loss of wealth, it isn't that simple. I feel like I am leaving my country in worse shape for my children rather than a better country. Generations before us worked hard to build a better country for their children... for me. I feel like this cycle will end with our generation. The burden we are putting upon our children and grandchildren will cripple them. Our debt will hinder them so much that it will be harder for them to get an education, buy a home, support a family, save for retirement, etc. This weighs heavily on me.

Our politicians have let us down. We have let ourselves down. It is time to unite, get rid of the selfish, greedy politicians in Washington and the bogus executives on Wall Street, and build a better future. We're American dammit! We can do anything! We broke away from Britain, saved our country from tearing itself apart in the Civil War, survived the Depression, and defeating fascism and communism. We can beat this economic beast and be a stronger, better country for it. The United States is the greatest nation to ever exist on this earth and we can make it stay that way.

By the way, I'm not running for office. I wanted to end on a positive note.

"The Palin Gamble", The DNC and RNC

2008-09-03T00:38:00.010-06:00

As the McCain campaign announced Sarah Palin as his vice presidential running mate, it surprised everyone. Gov. Palin was on nobody's radar. This is a huge gamble. He knows some of Clinton's supporters are still bitter at Obama for the hostile Democrat primaries. By presenting a woman running mate, he is quite obviously attempting to court these voters. In addition, she has a more conservative track record, therefore, appealing to the conservative Republican base. The gamble paying off depends on how Palin is portrayed.

The coverage of Palin by the media and the Democrats has been disappointing. Because she was basically an unknown, her reputation is a blank canvas that has many parties jockeying for position to paint her the way they would like the world to see her. The one who wins that battle will win the White House.

After the Republican National Convention, when the pollster are out in full force trying to guage the "bounce" (increase of ratings after the RNC), I believe the data will show a positive public reception for the McCain/Palin ticket. Time will tell how much of that bounce wanes.

Speaking of the DNC and the RNC, I watched several hours of both. Once again, Obama is an inspiring and amazing speaker. He has a wonderful gift to stir up energy in his listeners. Whoever writes his speeches deserves a Pulitzer Prize. But it is not only his words, his delivery is impeccable. He pauses at the right moments for thought, stresses the right words for emphasis, and changes his volume to convey the importance of the subject. I was entertained watching him. As a matter of fact, I was left wanting more when his speech concluded. I realized I wanted more because Obama was feeding me lots of cotton candy, but no meat. I had a sugar high listening to him, but that feeling was short lived. There was no substance to sustain me. I was still hungry and still am. Obama talks about "change" but only gives broad generalities. "Change" as in different from everything? Ok, I get that. But what does it really mean?

I used to joke that I was thinking of "drinking Obama's Kool-Aid", which meant I was trying to determine if I was buying what Obama was selling. At this point, I don't buy it. But I can see why others do.

Biden on the other hand just looks like an old dude there to babysit the young Obama, although Obama is clearly more intelligent than Biden.

Regarding the RNC, Thompson gave a "Who is McCain?" speech that was a home run. There was real substance in his words. I learned a lot about McCain and tried to forget what a jerk he was to Mitt Romney, the candidate I wanted to see win the Republican nomination. Thompson described McCain's stint in the Hanoi Hilton prison camp. It was sobering to listen to the horrific conditions he endured. The thought crossed my mind that Thompson was exploiting that time of McCain's life for political purposes, which he was, but I still feel it is relevant to the discussion of digging deep into the character of McCain.

Lieberman said good things, but sounds so whiny it was hard for me to focus on what he was saying. Plus, he looks like the Joker from Batman with that perma-grin on his face. I was waiting for Lieberman to make some disparaging remark about the Republicans, have Newt Gingrich grab a spot light and give the "Bat Signal" on the movie screen back drop, then see McCain/Palin dressed as Batman/Batwoman swoop in from the ceiling and seize the pesky Joker from the podium.

McCain Obama, Obama McCain???

2008-08-27T20:18:00.003-06:00

In previous presidential elections, I must admit that I had a hard time deciding who to vote for. I can't say that I've ever really supported a candidate, rather, I've voted for who I thought would do the least worst job. Kind of like choosing between the lessor of two evils. As a matter of fact, in the 2004 election, I voted for my wife as a write-in candidate. I think she would have done a better job than either Bush or Kerry. This current presidential race between McCain and Obama is not any different. I'm not enamored with either of them.

If I were to pick a candidate that I like, I would no doubt vote for Obama. While watching one of his speeches, it really made me excited, even giving me goose bumps. No matter what you think of Obama, he is an amazing orator.

McCain, on the other hand, I don't like. He's a hot-headed bully that measures the success of his speeches if more than 10% of his audience isn't asleep by the time he's finished talking. If McCain and Obama were in high school together, McCain would be the football player picking on the feeble Obama.

That said, the presidential race is not a popularity contest.

At this point, I think McCain is the lessor of two evils. Even though I don't like him, I tend to lean more towards his stances on issues than I do with Obama's. I consider myself more of an independent moderate, not being affiliated with any party. Although McCain is a Republican, in my view, he is closer to being a moderate than Obama. Obama was ranked as the #1 most liberal senator in Congress for 2007. Biden was #3. Obama is so far left, he's even alienated lifetime Democrats with his stances. If I were to put my opinion of McCain and Obama on a line chart, it would look like this:

We'll see how the rest of this election pans out, but as of now, I would vote for McCain, reluctantly.

Blog Intentions

2008-08-26T21:00:00.000-06:00

Some have criticized, well, actually only one person has criticized (a-hem, Kristine) my blog entries. Yes, I can see how one may find my blog entries boring, snoozers, etc. However, the intention of my blog is multifaceted. On the surface, it may not fit the mold for what some, sorry, one may define as a blog, but if you break it down, I think you'll find that the fundamental reasons why we blog are similar.

First, I want a record, available for all read, about my thoughts regarding the current challenges faced by our country and economic system. Most importantly, I want my children to be able to reference what their dad thought during the historical events that they will read about in their history books. I know that this could be accomplished through a journal, but I want to share my thoughts with my peers as well. A journal sitting on a shelf would make that difficult. I would love to know exactly what my parents thought and felt when Kennedy was assassinated, Armstrong landed on the moon, Nixon was impeached, American hostages held by Iran, and so on. Of course, I can ask them about it now, but getting a glimpse into their emotions during those times, as the events unfolded would be of great value to me.

Second, many of my friends ask me about my opinion on economic matters. This is a way to relate my thoughts.

Third, I love economics. Blogging is an outlet for me. It is an opportunity for me to brain-dump.

That said, I concede that creating more posts about my family life would be more entertaining for my family and friends. Consider it noted.

History of the Debt/Mortgage Crisis Part II

2008-07-21T22:41:00.003-06:00

Please read "Part I" of this post.

To summarize the last post, there was a lot of money (trillions of dollars) that needed a home. The Fed kept interest rates low because of the flood of low cost goods produced with cheap labor from China flooded the marketplace, which made U.S. treasuries unattractive to investors. Where's all that money going to find a home with a good return on investment?

The money managers of these trillions of dollars found a home for their investment dollars in residential mortgages. The following is how they were able to invest in mortgages held by the average American family. When you purchased a mortgage, the bank you purchased it from, who traditionally used to hold the mortgage themselves, would sell your mortgage to large investment companies, most prominently Fannie Mae, Freddie Mac, Countrywide, Morgan Stanley, and formerly Bear Stearns, to name a few. These companies would then take sometimes hundreds of mortgages and create a Residential Mortgage Back Security (RMBS). An RMBS is a securitization method where a pool of residential mortgages are packaged together to create a new security that can be bought and sold. These large banks would then pool together a bunch of the RMBS’s that they bought, create tranches out of them (slice them up in order to spread risk), then pool the tranches together and call it a Collateralized Debt Obligation, or CDO. It is the CDO’s that the investors eventually purchased. The idea behind all these pools and tranches was to spread the risk by pooling high risk mortgages with low risk mortgages.

So, to get this straight, we’ve taken individual mortgages, pooled them together (RMBS), sold them, sliced them up (tranched), put the slices into different pools (CDO's), then sold those pools to investors. So if an individual were to follow the paper trail of their own mortgage, it can be technically owned by hundreds of investors who each own a small portion. So even though you mail your mortgage check to Citibank, Countrywide, U.S. Bank, etc., the money from that mortgage funnels up the chain to pay the potentially hundreds of investors who own the CDO's.

But before the investors could actually purchase the CDO’s, the CDO had to be rated and insured by a bond rating agency, like Moody’s and Standard & Poors. These guys tell the investor how safe an investment is. Because historical data showed mortgages to be safe, the bond agencies gave many of these CDO’s high ratings. They were considered safe because the data showed that home prices always go up and foreclosure rates were low (people will usually do whatever they can to pay their mortgage).

The global investors loved CDO’s. Here they had a highly rated investment with a stable return.

But it didn't stop there. Because the CDO's were highly rated, the investors could borrow against their existing CDO's to buy more CDO's.

Because the appetite for CDO’s was so high, banks and mortgage brokers needed mortgages to fuel the CDO’s. Remember, the mortgage was the starting point for this whole chain. It was the match that lit the fire. Since the banks and brokers would later sell the mortgage up the chain, they really didn’t care whether or not the person taking out the mortgage was going to make the monthly payments. To get people to buy mortgages, they started doing whatever they could to get people in their door. They progressively became more relaxed with their lending standards, until there were essentially no standards. They started promoted “Stated Income, Stated Assets” loans. You just had to state how much you made and your assets. Then came “No Income, Stated Assets” loans. You don’t have to say how much you make, just state your assets. Until eventually, “No Income, No Assets” or NINA loans cropped up. You didn’t even have to say how much you made, or even if you had any assets. You just had to show up and say you wanted x amount of dollars, and more times than not, you could have gotten it. There were even times when people were essentially "paid" to buy a home and take out a mortgage. For example, they would buy a home for $300,000 with no money down, then immediately get it reappraised for more that they purchased it for, like $330,000, then they would cash out the difference. Usually, all this would be orchestrated by their mortgage broker. I'm not disparaging all mortgage brokers, most of which I'm sure were honest, but there were some cases of shady practices with certain individuals.

Now let talk about where the computer data models come in.

There's massive amounts of mortgage data that computer models analyze trying to figure out risk. The data that these models were looking at said that CDO's backed by tranches of RMBS's were safe because, like mentioned before, people historically pay their mortgages. As the loose lending standards (i.e. NINA's) continued over the years, the computer models were still giving the green light on investing in the CDO's, so money continued to pour into these investments. But there was a problem. The data the computer models was looking at was wrong. What was happening was that in order for people to make payments on loans they never could afford, even on their introductory low interest adjustable rate mortgages (sometimes as low at 2% APR), they were taking out equity or borrowing money from their homes to make their payments. Again, it was assumed by everybody that home prices will always go up. Borrowing money from their homes to make payments on their homes is the same as using their homes as credit cards. This behavior was double-bad. First, because you are borrowing from the value of your home, your loan amount goes up, which means your payment amounts go up too. Second, at some point, you no longer have equity in your home to tap into to make your payments, so if you don't have the money for your payment, you default on your loan. While people were borrowing from their homes to make their mortgage payments, the data was showing low foreclosure rates. This is where the data was wrong. It didn't know that people were financing their spending habits and making house payments with the equity from their homes. This was just delaying the inevitable of foreclosure. Time to pay the piper.

Then the big investment houses started noticing that people were defaulting on their very first loan. The homeowners were behind the day they signed their mortgage papers. This is when the house of cards toppled. It was October 2006.

Remember that assumption that home prices always go up. Well, it turns out, they don't. As the increase of foreclosures started to spread, it began driving down the prices of other homes. In addition, since the jig was up, lending standards tightened. No longer could someone with only a pulse get a $500,000 loan. In addition, people got scared. Nobody wants to buy a home that will be worth less tomorrow that it's worth today. All this added up to less buyers on the market, more homes than buyers, and tighter lending standards. All these forces still continue to drive home prices down.

The same markets that saw astronomical increases in home prices have also been the same ones having the larger decreases in home prices. All markets have suffered though.

Where are we now and why should you care beyond seeing a decrease in the value of your home?

In 2007, many leading economists thought we would bottom out in Q4 2008. Now they are singing a different tune and projecting maybe Q4 2009 and possibly into 2010 before we start to see the home market recover. However, because we are in a global economy now, we don't always have good information about the intricacies of foreign markets. The reason home values play such a large role in our economy is because so much of our individual net worth is tied up in our homes. As home prices go down, people have less net worth. They also have less spending power. It is a psychological effect as well. Even though the equity in my home isn't liquid (meaning I can't easily translate my equity into cash, which is 100% liquid), the fact that it is worth less make me feel like I have less money. The less money I feel like I have, the less I'm going to spend. In addition, many people finance small business prospects through the equity in their homes. Less equity means less small businesses starting and growing, which means less jobs (about half of all jobs in the private sector are in small businesses).

The banks have been burned so much from this crisis, they are holding onto their cash with increasingly tighter and tighter hands. Since banks are the financial arteries of our country, if those credit lines are restricted, that means less money flowing through our economy, which means less jobs and a shrinking economy. It has become harder for businesses to borrow money to start/grow their business. I am personally finding this to be true since I've recently been poking around banks to see if I can get a loan for a small business prospect. One institution literally told me, "We won't do that loan anymore." Hopefully, I can find someone who will, especially since I've been working on this for over six months. I'd hate to throw that time and effort down the drain.

With the recent news of the Fannie Mae/Freddie Mac crisis, which is a direct result of the mortgage/debt crisis, it could have a potentially devastating effect to our economy. More on that one later.

History of the Debt/Mortgage Crisis Part I

2008-07-15T21:42:00.001-06:00

Whether it has been through increased adjustable mortgage payments, decreased value of our homes, or having a tougher time getting a home mortgage loan, we all have felt the effects of the current debt/mortgage crisis. What happened and how did we get here?

There are many players in this scenario, like the Fed, small and large banks, individual mortgage holders, speculators, mortgage brokers, and computer data models.

Here's the run down...

This all started with a large increase in the worldwide supply of money. The worldwide supply of money sitting in savings and retirement accounts, pension funds, central banks, etc. went from around 35 trillion in 2000 to over 70 trillion in 2006. This was mainly due to developing countries dramatically increasing production, thus producing more wealth. Think China.

Desiring a stable, low-risk return on investment, traditionally the managers of the money sitting the above mentioned accounts and institutions buy treasuries and other highly rated bonds. These investments are called "money good" because they are considered to be as safe as having cash, but instead of not providing a return, like cash, treasuries and highly rated bonds do provide a return.

The yield on treasuries is affected, both directly and indirectly, by decisions made by the Federal Open Market Committee (FOMC), or simply, the Fed. When the Fed sets interest rates low, the yield on treasuries is low, and vice versa. Between 2003 and 2006, the interest rates were historically very low. Why were they so low?

Normally, when the Fed sets interest rates low, economic prosperity grows, however, so does the risk of inflation. With higher interest rates, the economy slows and inflation comes down. To see this in action, in the late 1970's, early 80's, inflation was climbing very high. In 1979, Jimmy Carter appointed Paul Volker as Chairman of the FOMC. Early in the Reagan years, Volker hiked interest rates so high that it controlled inflation going from 13.5% in 1981 to 3.5% in 1983. Of course, it also caused unemployment to skyrocket to 10%, but since inflation was under control, Volkers hikes were beneficial to the long-term health of the economy.

Having said all that, in the early to mid 2000's, we had historically low interest and low inflation rates. Where these rates normally have an inverse relationship, they were now parallel. The main reason is because of China. During this time, the world saw a large force of low wage Chinese labor enter the global marketplace. This allowed goods to be produced cheaper, which kept prices down, thus keeping inflation down as well. Since inflationary pressures were low, there was no reason for the Fed to raise the interest rate.

Many people have blamed the then current Chairman of the Fed, Alan Greenspan, for the crisis simply because he kept the rate low for as long as he did. (It should be noted that the rate set by the Fed is done so by a board, not one individual. But the chairman is the face and mouthpiece for the FOMC, so that's why we focus on him.) It may be true that the low rates helped contribute to the debt crisis, but that was never Greenspan's intention. To understand his actions, one must understand the FOMC's purpose, which is to help "promote national economic goals." One of the greatest threats to a national economy is high inflation. Once again, since inflation was low, the FOMC had no reason to hike up interest rates.

Now, back to the debt/mortgage crisis...

With interest rates already at 1% (a 45 year low), on July 15th, 2003, Greenspan said something that sent waves through the central banking world and rocked the foundation of all the people managing those trillions of dollars mentioned at the beginning of this post. In the semi-annual state of the economy speech he gave to Congress, he said, "The FOMC stands ready to maintain a highly accommodative stance of policy for as long as it takes to achieve a satisfactory economic performance." Translated from Fed-speak into English: interest rates are going to stay low for a long time, so if you want a better return on your investment, don’t buy treasuries and go someplace else. He wasn’t purposefully trying to ward off the investors away from treasuries, but because inflation was under control, the Fed wanted to keep the economic engine going full steam ahead.

All those trillions of dollars mentioned earlier needed a home that maximized a return on investment while being “money good”, and the Fed made it clear that U.S. treasuries weren’t the place to get a very high return.

Next up… Where’s all that money going to find a home with a good return on investment?

Interesting things about my wife

2008-06-25T22:44:00.000-06:00

When she cries, which is rare in and of itself, tears never fall down her cheeks. Her eyes only well up with tears.
She's one of the most selfless people I know, always putting others ahead of herself.
Dancing for her is not an option in her life, but a requirement.
Her attractiveness level is waaaay beyond my own. The theory that people marry someone near their own attractive level is blown out of the water with us.
She puts up with me and all my "crazy" ideas, which for some reason, I never seem to be short of.
She is like Wolverine from X-Men. She has an unbelievablely short recovery time for any trauma. Like when she had a C-section, she was doing yoga like 20 minutes later.
She loves action movies and loves watching football.
I pity the fool that would ever try to attack her. She may be skinny, but she could knock out Tyson.
She loves to camp, doesn't mind getting dirty and smelling like campfire smoke.
Her ability to remember numbers is remarkable. Someone can rattle off their phone number only once and she'll remember it months down the road.
She eats more than me, but never gains any weight. I eat one hot dog and gain 11 lbs.
She's a more spiritual person than me, which is a good thing for me. I'm riding her coat tails all the way to the Pearly Gates. Yeehaw!
She loves to watch the Ellen Degeneres show and summarize it to me everyday when I get home from work. I pretend to care... uh, I mean... wow, that's so interesting, sweetheart.

The Price of Oil Will Continue to Rise- Part II

2008-06-13T17:27:00.001-06:00

If you haven't already, please read Part I of this entry that I posted earlier.

As I stated in my previous post, there are many reasons why the price of oil continues to rise: supply constraints coupled with rising demand, the flood of money that is being invested in oil futures contracts, and speculation from investors. Like I mentioned in the beginning of Part I of this topic, I believe money flowed from dot com tech companies, which created a bubble until it collapsed, to the housing market, which created a bubble until it collapsed, to now a growing bubble in the world supply of U.S. dollars. I do not believe we have a commodities market (oil, metals, food, etc.) bubble, rather, the increase in price of commodities is merely a result of our ever increasing money supply.

What's been happening is that investors are looking at the commodities market as a safe haven from inflation (increased supply of U.S. dollars). The reason is because the Federal Reserve has been forced to lower interest rates, and keep them there, because of the mortgage problem. If they raised rates, then we would've faced a greater potential of financial collapse because of the mortgage crisis (i.e. larger rate of foreclosures as people on variable rate mortgages could not afford their payments). When the Fed lowers interest rates, it makes borrowing money cheaper. The cheaper that money is to borrow, the easier it is for businesses to start and grow. Lower interest rates are the fuel that creates businesses.

As businesses grow, workers labor, and products are exchanged. This in turn "creates" more supply of dollars (i.e. money supply) available in the economy. The same Law of Demand applies to dollars as it does with other products. The more dollars there are out in the marketplace, the less they are worth, thus we get inflation. In addition, with a growing economy, there tends to be more jobs than workers. Businesses must compete for workers. This allows workers to demand larger wages, which businesses simply pass onto the consumer through higher prices, thus applying more inflationary pressure.

The way to combat inflation is to raise interest rates. As the rates rise, this slows the economy down, less jobs are created, and workers have less power to increase wages, so the inverse occurs. The money supply decreases, thus raising demand and the value of the dollar.

To summarize, as rates go down, the economy grows faster, jobs are created, but the risk of inflation increases as the money supply grows. As rates go up, the economy slows down, or stagnates, jobs creation is restricted, but the risk of inflation decreases as the money supply shrinks. There are exceptions to this. There have been situations where the economy has stagnated, but inflation has also been present. This is called stagflation and is a double-whammy; slow growth and a devalued dollar. Yikes!

So now are in a conundrum. We can't leave interest rates low because of inflation/devaluation of the U.S. dollar. But we can't raise interest rates very much because it could cause a huge financial crisis with more mortgages being foreclosed on. So, the Fed has decided to pick between the lessor of two evils and keep the rates low, thus increasing our exposure to inflation. The Fed had hoped that other central banks, most notably the European Union, would have followed suit by continuing their low interest rates, but they did not. They have increased their interest rates. This widened the disparity between the U.S. dollar and other foreign currencies, thus reducing the U.S. dollars value.

Investors know this. They know that the pressure for inflation will continue to rise. As the dollar becomes less valuable because of a larger money supply, investors move their money into commodities, which rise in value as the dollar decreases in value. This because the money supply is increasing faster than the rate in which commodities are entering the marketplace. In the case of oil, this effect is magnified because the price of OPEC oil is pegged to the U.S. dollar, otherwise known as a petrodollar.

Side note Alert!
There are exceptions to the petrodollar as not all oil producing countries peg oil to the U.S. dollar. However, OPEC does. Some OPEC countries, like Iran and Venezuela, have threatened to change pegging oil from the U.S. dollar to the Euro, or other currencies. Saddam Hussein threatened to do this, which I believe was a large part of the U.S. invasion of Iraq. If OPEC were to do move off the petrodollar, then international banks would start dumping all the surplus of U.S. dollars they are currently holding since they are no longer needed to trade in oil. Once again, if U.S. dollars were to flood the marketplace, the value of the it would be seriously devalued (i.e. massive inflation). This would be devastating to our economy. But since all countries, including OPEC countries, are part of a global economy, with the individual U.S. economy being the largest, moving away from petrodollars and annihilating the U.S. economy could cause a worldwide depression, and nobody wants that. This is why it is critical that the U.S. remains allies with the most influential OPEC member, Saudi Arabia. They have the power to make our break our economy. (To read more, check out this wikipedia article titled Petrodollar warfare.) However, if the U.S. dollar continues to slide down, OPEC may be forced to stop using petrodollars in favor of an alternative petrocurrency because they would be losing too much money.

To put it into OPEC's perspective, say you sell a car to your friend for a bunch of IOU's. These IOU's are an agreement that says your friend promises to do yard work at your house. You put the IOU's in a safe deposit box for future use. Later, you have another car that he wants, so you do the same thing; he gives you "yard work" IOU's and you give him another car. But let's say your friend is buying more and more cars from you (you have lots of cars), and even starts buying cars from your neighbors, once again, all paid for with "yard work" IOU's. Pretty soon, the value of those IOU's you're holding begin to be worth less and less. The reason is because your friend can only mow so many lawns and if his time is now divided up between fulfilling your IOU's as well as everybody else's IOU's, there is less time available for him to mow the lawn of everybody who is holding one of his IOU's. At some point, you are going to have to decide to start exchanging your IOU's, even if they are worth less than was they were originally.

In this example, the "you" is OPEC, the car is oil, your friend is the U.S. and the IOU's are U.S. dollars.

To tie this all back into the price of a barrel of oil, the best chance we have of the price going down is to increase the value of the U.S. dollar. How do we do this? One is by raising interest rates... smartly. This will reduce the money supply, increase the demand for U.S. dollars, and raise it's value. We must be prudent in doing this because as of the writing today, 13 June 2008, the European Union is indicating a raise in their interest rate. This will further strengthen their currency and weaken the dollar. The Fed has hinted that rate increases will begin likely in 2009. When the Fed does this, investors should feel more confident in the U.S. dollar, and they will likely start to reduce their commodities holdings, thus, lowering the cost of oil per barrel. But once again, since the Fed will most likely not raise rates until 2009, I don't see the cost of oil going down until then.

The good news is that barring a major catastrophe, I don't see oil going much up more than it is already. That means $3.85 - $4.25 per gallon of gasoline should remain steady for the foreseeable future. I hate to call that "good news", but it is good news relative to $5.00 per gallon.

Now, we still have the supply constraints mentioned in Part I to deal with, so the cost of oil will not go down to previous levels, probably ever. The days of $1 to even $3 per gallon are over. I would like to say that we will soon be off oil for our energy entirely. The reality is that this just isn't so. But, as has been said, necessity is mother of invention.

The Price of Oil Will Continue to Rise- Part I

2008-06-11T17:51:00.001-06:00

When is the bleeding going to stop?

When it comes to the price of gasoline, we are all feeling the pain at pump. I wish I could say I think that the price of gasoline is going to come down. Unfortunately, there are no indicators for a price reduction, only indicators for a price increase. There are many reasons for this. I believe the increase can be broken down into three major factors. One is that global demand is increasing, while supplies remain flat. Second, I believe we have gone from a .com bubble to a housing bubble to a money supply bubble. Third, commodities speculation by investors. But first, I'll address the supply/demand issue.

According to the U.S. Energy Information Administration, the latest figures (April 2008) show that the price of gasoline is broken down as follows:

73% - Crude Oil

11% - Taxes

10% - Refining

6% - Distribution & Marketing

The largest factor in the price of gasoline is crude oil. No surprise there.

The Law of Demand describes the price equilibrium between supply and demand. As demand goes up and/or supply stays constant or decreases, prices go up. The inverse is true as well. As demand goes down and/or supply goes up, prices go down.

U.S. domestic demand for oil has been dropping recently, yet the price for gasoline has increased. This would appear to be contrary to the Law of Demand. The reason is that international demand has increased, outpacing our domestic demand decrease. In other words, demand on a global scale has increased, even though demand in the U.S. has decreased, so that the global net demand is up. What international players are demanding more oil and how can their populations afford to pay for it at such outrageous prices?

The two largest increases in demand have come from China and India. They are making the transition of working towards first world, fully developed countries and need lots of energy to do it. The populations of these countries can afford energy because their governments have put price ceilings on the cost of gasoline, which is basically the same as a gas subsidy, to keep consumer gasoline prices low. The governments are paying the difference between how much gasoline truly costs and how much their populations are paying for it. So right now, the rising middle classes in these countries can afford gasoline to accommodate their appetite for goods (mainly cars) that being in the middle class offers. The downside to this is that these governments are paying a lot to subsidize gasoline. Currently, there is pressure to relieve the gasoline price ceilings in these countries, most notably India.

I believe their increase in demand has been an unintended consequence of globalization and the U.S. consumer push to drive production costs lower by outsourcing manufacturing and services to these countries. Call it the Wal-Mart effect, if you will. In other words, by all of our individual choices to buy products for less money, it forced companies like Wal-Mart to find ways to lower costs to be competitive and make a profit. Outsourcing the manufacturing processes to China where labor is cheaper created more jobs, which has driven wages up (once again, Law of Demand being applied to labor. As the demand for labor increases, wages go up). As the wages for the laborers increased, so has their purchasing power. They can now start to afford cars, homes, heating, air conditioning, etc. All of these things demand energy. My position is that the Wal-Mart effect has been a good thing, but I'll discuss it at some future time.

There is no doubt that overall demand has increased, however, the rate of increase in the price of oil has far outpaced the rate of increase in demand. The reason is because of the supply side of the equation. Although demand has increased, supplies have not. Forecasts on the supply of oil show it to remain steady or even decrease. So as demand increases and supply remains flat, or even decreases, you see a rise in the price. I believe this has had a larger affect on the rising price of oil than the global increase in demand.

There are many pressures on the supply of oil that will keep it flat, or drive it down. First, we have political instability in the Middle East and Venezuela. (The good thing regarding Venezuela is that the type of crude oil they pump, heavy sour, is difficult to refine and the U.S. is currently the only country with the refining capabilities to process this type of oil. So Chavez can threaten all he wants, but he only has one customer for his oil, which is the U.S.) Mexico is having serious problems producing as much oil as they use to be able to do. The reason is that they did not invest in their oil infrastructure the past decade, which would have enabled them to use new technologies to maximize their output. In addition, there is much speculation if we are to the right-side of the bell curve of the Peak Oil theory, which predicts that the world oil production will peak, then start a long downhill slide until eventually, there is no crude oil at all.

In summary, individuals in the U.S. choosing to use less gas, thus reducing demand, is good, but our reduction in demand has been more than offset by increases in demand from developing countries, namely China and India. These economies are red hot, growing at very high rates. There is no indication they they are going to slow down. That said, more importantly, the supply of oil has remained constant, even decreased.

Part II, explaining my second reason oil will remain costly, to come shortly.

MMA Is a Great Sport

2008-06-04T18:43:00.003-06:00

I confess. I'm a mixed martial arts junkie. I watch every MMA event that I can; every episode of The Ultimate Figher, UFC Unleashed, UFC Wired, HDFights, WEC, IFL, Inside MMA, etc.

As a former practitioner of Brazilian Jiu-Jitsu and Muay Thai, watching an MMA fight equates to watching a chess match (except with a lot more action). Like a chess match, you have an opening sequence, a middle game, then the checkmate/knock out. Each move you make is deliberate, taking years of training to master, and is a battle of the wits with your opponent. The same applies to MMA. Many matches come down to a battle of the minds.

I've heard quite a bit of criticism about MMA with some say that it is a barbaric sport, comparing it to the now infamous term by John McCain as "human cockfighting." Granted, in the early days, it probably was as McCain described. But the sport has evolved and rules are now in place to protect the fighters. By equating MMA as barbaric is the same as simplifying soccer by saying that it is just a bunch of guys chasing a ball. Obviously, if you've played soccer and have an understanding of the sport, you appreciate the strategy and dynamics of the game, thus enhancing your viewership. The same applies to higher levels of MMA. Once you understand the sport and what the fighters are trying to do, you appreciate the physical and COGNITIVE aspect of the sport.

To be a competitive MMA fighter, you have to be really, really good. I think what I learned most during my training was how quickly I could get my butt kicked by someone who has some good training. These MMA fighters spend incredible amounts of time fine tuning their techniques.

I also greatly appreciate the conditioning aspect of the fighters. During my Muay Thai training for example, I could only go about 2 three minute rounds of heavy sparring before I completely ran out of gas. These guys that go 3 five minutes rounds, or even 5 five minutes rounds is simply amazing.

Now, for my personal rant, the EliteXC fights that were broadcast on CBS on May 31st were pathetic. I actually liked EliteXC because they apparently pay their fighters better (which is my main gripe about UFC since they do not pay their fighters a fair share). However, I was embarrassed to call myself an MMA fan after the EliteXC/CBS broadcast. There was really only two good fights, but one was stopped prematurely to an inadvertent eye poke. The other was the ladies fight. The remaining production was a disgrace. The whole show reeked of the WWE with all the fireworks, scantily clad girl dancers, and the overall antics the fighters did during their introductions. There was one introduction of a second rate (or even third rate) fighter named Baroni. He came in with a rhinestone robe, sunglasses, and a woman on each arm. He took off his robe, which displayed his t-shirt that he had on underneath. At this point, the two women started clawing at him tearing his shirt off like animals, while they provokingly looked into the camera. It was terrible and offensive. Fortunately, he got his ass kicked in his fight.

Then there was the whole Kimbo Slice thing. He was the main event for the show. Now, I don't have anything against Kimbo personally. As a matter of fact, I respect that he's trying to ride this gravy train as much as he is. But EliteXC trying to build him up as an "elite" fighter is ridiculous. Sure, Kimbo is a good brawler, but not a good MMA fighter. Yes, he could pummel me with just his pinkie, but packaging him up into something he is not and selling him to the consumer as a "top" fighter is fraud. There is even talk that the fight was fixed so that Kimbo would win. I don't know if I buy that. The risk/reward for such a move is way to high for EliteXC to take. If it was somehow discovered that it was fixed, EliteXC would be such a heap of trouble, especially by CBS. I would imagine a lawsuit would ensue. EliteXC didn't have to fix it because they just paired Kimbo against a guy that they knew he would beat.

What disappointed me most was that many newcomers to MMA, or people just flipping the channels and stopping on this event, were exposed to the cheap antics EliteXC and CBS displayed. But regardless if you are a newcomer, casual, or die hard MMA fan, it was a sad night for all of us.

Where did the money for the tax rebate come from?

2008-05-29T17:46:00.005-06:00

Where did the money from the tax rebate come from?

Obvoiusly from the government, but where did the government get the money? Well, we can't say with exact precision. That said, what we do know is this:

The government has essentially a personal checking account, like you and me. While we fund our checking accounts through our paychecks, investments, mommy and daddy, etc., the government has basically two sources of income to fund their checking account. The first one is from you and me: taxes. The second is the goverment's own personal credit card: the Treasury. The Treasury issues security notes and bonds, or simply referred to as treasuries. They come in different flavors, T-Bills, T-Notes, T-Bonds, TIPS, etc., with different maturity dates and yields. Because treasuries are backed by the full faith and trust of the United States government, investors purchase them as a safe investment. The government says to the investor buying the securities, "Buy this note, which states that I promise to pay you back at some future point in time. In exchange for buying this note, you will receive a higher amount than what you paid for it. And the way I know that I can pay you back is because I have an economy 300 million people strong that work more hours per year per person than any other country. They promise to pay you back." Teasuries are the government's form of a credit card.

If John Q. American-Citizen wants to pay for something, and he doesn't have enough money in his checking account to pay for it, he either increases the actual amount of money in his account by increasing his paycheck, or he borrows money (credit). If the government needs more money, they ask for a pay raise (raising taxes), or they borrow money by selling more treasuries (credit). And who are the investors that buy treasuries? They are pension fund managers, foreign governments, and individuals.

It should be noted that the government does not "create" money. Yes, they create the paper currency in our pockets, but they do not "create" the actual value behind the money. How value is created is a whole other topic that has been debated since the days of Adam Smith (Utility Theory of Value vs. Labor Theory of Value). But suffice it to say, governments have been overthrown and blood spilled over this debate.

Now, back to our question, where did the money for the tax rebate come from? It came from the governments checking account, but the blend of dollars from taxes and dollars from treasuries is uncertain. We are not entirely borrowing the money for the rebate, but we're not entirely paying for it with taxes either. We're somewhere in between. So when you hear people say that we are borrowing money from China to pay for the tax rebate, it's only a partial truth. Yes, we are selling treasuries and yes, foreign governments are buying them, but the tax rebate does not exclusively come from this situation.

Why I Disagree With The 2008 Tax Rebates

2008-05-27T22:30:00.012-06:00

Woohoo! The government is "giving" me some money!

While that may sound good on the surface (I am the first to admit that I appreciate having some extra money. Who wouldn't like that?), but does the tax rebate really help our economy stave off the effects of the "r" word (recession), or worse, the "d" word (depression)? I believe that we could have taken that $106B (yes, that is a capital letter "B" for billion) and used it more wisely. The rebate was more of a political tool to give people the warm fuzzies about the economy rather than truly helping the economy. As an economist, I am always looking at efficiencies and how to maximize them. The money for the rebate did not maximize the efficiency that it had the potential to do, and here is why.

First, here is a breakdown of how people plan on spending their rebate:

40% - Retail ($42.2B)
27% - Debt ($28.1B)
19% - Save ($20.1B)
5% - Medical Bills ($4.9B)
3% - Invest ($3.4B)
7% - Other ($6.9B)

33% of Americans are saying that they plan on paying down their debt and medical bills. This amounts to approximately $33B. What kind of debt are they likely to pay down? Most likely high interest rate consumer credit card debt. Americans using the rebate to reduce their credit card debt means people will spend their money on items that they have already purchased. These are goods and services that our economy has already benefited from. I do not propose that this bad. Reducing consumer debt is always a good thing. Rather, I'm saying that money from the rebate will go towards payments on goods that have already been consumed. Since the exchange of the goods has occurred in the past, we will not see the economic stimulus as desired.

It is worthy to note the credit card companies have reported a large increase of credit card use for food and gas.

Recent surveys find that 40% Americans plan on spending their rebates on retail merchandise. Currently about 8% of consumer spending is on products imported from China, but the imports are disproportionately represented in many categories like toys (80%), shoes (85%), and clothing (40%). These are goods that I like to call Wal-Goods (non-durable goods, foreign made, with a lifespand of less than 3 years). By using data from above, I estimate that China's economy will end up receiving about $1.9B from our rebate, which increases the trade deficit we currently have with China.

The money that went to the rebates would have been better spent on domestic infrastructure projects and tax credits for businesses.

Domestic Infrastructure
I understand that this has a somewhat Keynesian tone to it, but I believe there would have been many benefits by investing a portion of the tax rebate in our domestic infrastruture. By building better, larger highways, power plants, reducing emissions and greenhouse gases, more efficient sea ports, and upgrading our telecommunication lines and power grid, we would have reduced economic friction and improved our overall efficiencies. This would have resulted in lower transaction costs, lower prices for consumers, and more profits for business owners. Of course, I'm not talking about pork-barrell spending with our state representatives on Capitol Hill collaborating with their private sector buddies and giving them special favors. Rather, I'm referring to a targetted "sniper" approach for each project that would provide the most gain in the economy, not a "shotgun" approach where some congressman says, "We're building more highways because my fishing buddy owns a national construction company and he's a swell guy. Plus, he gave me a box of Cuban cigars for Valentines Day."

Back to the domestic infrastructure, for example, if a city had a poor highway system, then better highways would equate to reduced time to ship goods, more overall goods shipped, and less gas usage.

If an area has plenty of power using modernized power plants that work efficiently, then it costs less to consumer power to produce goods.

By reducing emissions and greenhouse gases, we improve the standard of living for our population and reduce medical costs associated to polluted air.

Building more efficient sea ports would allow us to load and unload freighters more quickly.

And upgrading our telecommunication and power grid would allow more redundancy and less likelihood of downtime.

The other added benefit of building out our infrastructure is jobs for American workers. I'm not necessarily a protectionist, but with unemployment figures rising, domestic jobs like these would have helped alleviate some that pressure. In addition, by providing tax credits for businesses, it would have created more jobs, which would have further reduced the rising unemployment figures and stimulated the economy.

Tax Credits for Businesses
Tax credits for businesses would have allowed existing business owners the ability to grow their business and given prospective business owners better incentives to successfully start businesses. Tax credits don't necessarily mean that the business owner is paying less personal income taxes. Rather, tax credits mean the business is has more access to capital to buy more equipment, buildings, and personnel.

For example, by providing an accelerate depreciation schedule on newly purchased assets allows the business owner to have a shorter return on investment (ROI) time frame on that asset, which incentivizes the owner to purchase the asset in the first place. The purchase of the asset stimulates the economy, plus the asset itself should provide efficiencies for the business, allowing it to be more competitive, thus reducing prices for the consumer. This is based on the assumption that a business will purchase an asset because reduces the total cost of ownership (TCO) and improves efficiencies.

Next post... where did the money for the tax rebates come from?

My Interest in Economics

2008-04-24T10:43:00.021-06:00

I graduated with a BS in Economics in 2002 from the University of Utah. I chose this area of study after one specific class that I attended, Sports Economics. It was a fascinating subject. We discussed professional teams, their players, the owners, stadiums, contracts, agents, etc. Anything that dealt with the economics of a sports team, we discussed it. For example, why do sports teams have suites in their stadiums/arenas? Why do team owners also typically own the broadcast TV and radio stations of their team? Why some teams are never going to win any sort of title, and why their owners want to keep it that way? After this class, I decided the economics was the major for me.

Strangely enough, my dad's least favorite classes when he was working on his MBA were the economics classes. He's told me many times how much he disliked these classes and how he thought the subject material was garbage. Perhaps his complete and utter distaste of the subject is what first intrigued me.

During my studies, another incident gave me more interest in economics. I was flipping channels on the TV and happened to come across a Frontline episode on PBS titled Commanding Heights: Battle for the World Economy. My attention was immediately caught, and remained so for the entire 6 hour duration of the show. Commanding Heights discusses the history and implications of a global economy. I even downloaded the transcript from the show and bought the book. Watching this show was like putting a puzzle together in my mind. It pieced together so many ideas and concepts that I had learned about into a picture that suddenly made sense.

In my economics program, I typically had average grades in my quantitative classes. To be honest, it just bored me. But I loved my qualitative classes, especially History of Economic Doctrine. To dig deep into the theories of how value is created intrigued me since it had been question that I explicitly pondered since I was a teenager.

My love for economics didn't stop when I graduated. I analyze everything from an economic perspective and continue to this day to absorb as much as I can on the subject through books, articles, and documentaries. Some favorites are Greenspan's book, Age of Turbulence, the Pulitzer Prize winning book on oil titled The Prize, a good conspiracy theory book (if you like that sort of thing, which I normally don't but it's still entertaining) called Confessions of an Economic Hitman, F.A. Hayek's The Road To Serfdom, and Commanding Heights. I find the most interest these days in globalization and macroeconomics. My thoughts in these areas will find their way into future posts.

Small Notebooks

2008-04-21T17:39:00.008-06:00

I purchased a small 3x5 notebook today that I'm looking at right now. It has a plastic front cover with pastel colored squares on it. Yes, I said pastel colored squares. It was either that or pink hearts. I think I made the right call, but you can be the judge.

The reason I bought it was because I saw it in a Curb Your Enthusiasm episode, and it seemed to make sense. So with all my many thoughts and ideas, they have a new home. As the ideas come, I'm writing them down.

My first entry... buy a small notebook. Status: Check that one off!
My second entry... think of something to stop making Capt'n Crunch turn the roof of my mouth into hamburger. Status: still working on this one, but purchased wax and kevlar for experiments.
My third entry... the kevlar was a bad idea. Taking a break from my Capt'n Crunch quest while I heal.

There you have it. I think I should hire a zombie to protect my notebook.

With all the great ideas that are going to be in it, it's going to be pure gold, pure gold... Hopefully, my zombie won't eat it. He's a vegetarian.

Jer