Reynolds - High Oil Prices Caused Worldwide Recession

Alan Reynolds is one of my most favorite economists. He has written another very good and very important article, It Didn't Start Here, which was published in the New York Post on 9 April 2009.

The recent G-20 meeting in London produced a consensus: The United States started and caused the worldwide recession. The United States should be humbled. Obama agreed. The Finance Minister of Germany, Peer Steinbrueck, said the Anglo-Saxon attitude in America and Great Britain had encouraged risky lending and investment practices due to "an exaggerated fixation on returns."

Reynolds says, "Hey, wait a minute folks, let's look at the data." Examine when industrial production first started declining in some countries. It began to decline in Canada in July 2007, in Italy in August 2007, in France in October 2007, and the Euro area as a whole in November 2007. Japan's production reached a peak in October 2007, though it had a one-month uptick in February 2008. The decline in the U.S. was in February 2008.

In January 2008, the OECD leading indicators were down from a year before by 4.1 points in Ireland, 2.8 points in Japan, 2.6 points in Korea, 2.3 points in Sweden, but only 0.8 points in the U.S. Stock prices are another leading indicator. Stock prices peaked in Japan and in the Euro area four months before they peaked in the U.S. and the U.K. in October 2007!

In the 4th quarter of 2008, real GDP was lower around the world than it had been 1 year before, but it had dropped by much less in the U.S. than almost anywhere else. The list is:

Taiwan, -8.4%
Turkey, -6.2%
Sweden, -4.9%
Japan, -4.3%
Singapore, -4.2%
Denmark, -3.7%
South Korea, -3.4%
Italy, -2.9%
Hong Kong, -2.5%
Great Britain, -2.0%
Germany, -1.7%
Mexico, -1.6%
France, -1.1%
U.S., -0.8%
Canada, -0.7%

So, how did the the failures of U.S. and British banks and financial institutions in September and October of 2008 cause the recession which had started in Japan and in Europe in January 2008?

The housing price boom and the low cost of borrowing in the U.S. and in Britain were problems, but they were also problems in a number of other countries. These problems developed later and many countries which went early into recession, such as Japan, Sweden, and Canada had had no housing booms. Reynolds points out that James Hamilton of the University of California at San Diego showed in 1983 that "all but one of the US recessions since World War Two have been preceded, typically with a lag of around three-fourths of a year, by a dramatic increase in the price of crude petroleum." Reynolds says the years 1946 to 2007 saw 10 dramatic spikes in the price of oil -- each soon followed by a recession. He also notes that in January 2008, he wrote that the US economy was likely to slip into recession due to the high energy costs no matter what the Federal Reserve did with respect to monetary policy.

The logical conclusion from this is that the U.S. was probably doing a whale of a job in diminishing the worldwide recession. Indeed, the dollar value of US imports did not start to fall until August 2008 and our purchases of consumer goods did not fall until September 2008. Strange that so many in the rest of the world are so eager to blame the US for this recession, including the very anti-American Barack Obama! It would be more logical to see the U.S. as the hero in these trying times.

Reynolds points out that Jagadeesh Gokhale, his colleague at the Cato Institute, noted that "the prolonged decline in exurban housing construction that began in early 2006 was a logical response to rising prices of oil and gasoline at that time. So was the equally prolonged decline in sales of gas-guzzling vehicles. And the US/UK financial crises in the fall of 2008 were likewise as much a consequence of recession as the cause: Recessions turn good loans into bad."

So, it would appear that part of the reason that existing home prices were shooting up was because new home building was becoming more expensive and few homes were being built, due to the energy crisis. The energy crisis certainly weakened the U.S. auto industry, which was making all of its profits and most of its income from SUVs, trucks, and large cars. When people were paying more than twice what they had been paying to fill their gas tanks, they became less likely to be able to pay more for home mortgages or to make payments on such new cars as they did buy. The banks came under increased pressure and the many high-risk loans that government had pushed them into became a real liability, albeit one exaggerated by the Sarbanes-Oxley mark-to-market asset evaluation requirement. Another gift from government.

So, what would a rational response be to minimizing such a future spike in energy costs, given that such spikes are the chief cause of recessions? For the U.S., it would be to allow oil and gas drilling in the Eastern Gulf of Mexico, as was approved by George Bush, but then immediately killed by Obama. It would be to open ANWR to drilling. A non-starter with our very foolish Obama. A rational response would be to sell off much of the excessive federal holdings of land in the western US and encourage companies to drill for oil and gas using modern good practices. When OPEC, which did cause the present worldwide recession, spikes prices upward, the US production facilities could run production at full output and hold down the price increases a bit in the U.S. This would help to moderate our future recessions.

What very irrational, shall we say, even insane policy are we following? First, the media and the government are blaming American banks and financial institutions for this recession, while claiming that this means they need to be be managed by our ever-perspicuous government. Second, they are using this to broadly blame Capitalism. Note that OPEC is a cabal of nationalized oil companies, which have nothing to do with Capitalism. Furthermore, Obama and his cut-throat gang are using this crisis as a means to cripple the fossil fuel energy industries in the U.S. One of the reasons the U.S. weathers the oil price spike caused recessions better than many other countries is because we have the world's greatest reserve of coal. We still use it to produce half of our electricity. Without it, we will be even more subject to the whims of OPEC and to the subsequent OPEC-caused recessions.

Do you suppose it is possible that the same impulse that causes Obama to bow to the King of Saudi Arabia, who is an important Islamic leader, is also causing him to make the U.S. itself more subservient to the Islamic Middle East for its energy supplies? Do not argue that Obama is going to replace our fossil fuel use with alternative energy sources. First, if it is done, it will be done by the free market far more than by government or any amount of community organizing and rabble rousing. Second, he is keen on destroying the American fossil fuel industries to the point that he is already doing this with no viable alternative energy replacements in sight. This man is a destroyer, not a creator.

Instead of characterizing this crisis as a financial crisis, let us remember to call it the oil crisis. We must also recognize that while OPEC has been primarily responsible for our post-WWII recessions, we can easily be the cause of future recessions by following policies designed to increase the cost of energy!

Obama - American Rights and Interests Submissive

During the Obama presidential campaign, I pointed out that Obama wanted to make American individual rights and the interests of the United States submissive to the dominant role to be played by the United Nations and by international bodies. The Obama presidency has confirmed my understanding with a good number of dastardly deeds. Among these are:

• Patting rogue terrorist-sponsoring nations Iran, Syria, and North Korea on the head while telling them we should be more understanding of their needs, thus encouraging these bully nations to continue acting badly. Only the believed threat of strong forceful retaliation works to stop bullies.
• Stopping the programs to add components to our missile shield in Poland and the Czech Republic because the Russians are not pleased by our idea of defending ourselves from their Iranian client and from them.
• Agreeing with the G-20 nations to close down tax havens, increase the regulations of financial markets and institutions, and give more foreign aid. The tired, socialist nations of Europe and the Obama-planned similar condition of the United States need to keep the wealthy from moving themselves or their money to zones where they might have fairer treatment. The American financial system will be controlled by 20 nations and their perceived needs, not by the free market or even the free market as modified by American governments elected by the American people.
• Obama has agreed to enter into new nuclear disarmament talks with Russia, now that he and Medvedev are Comrades locked in Socialist Solidarity. Russia must reduce its warheads since it cannot afford to modernize or maintain them in any case. Meanwhile, Russia, China, Iran, Syria, North Korea, Cuba, Venezuela, Nicaragua, and Bolivia have formed an alliance aimed at the United States.
  
• He maintains the United States breaks International Law if it does not get permission from the United Nations to defend itself against the use of force by any other nation. This means, that the U.S. cannot defend itself if China, or Russia, or any of several socialist Western European countries does not desire that we should defend ourselves.
• He is more friendly to enemies of freedom and of the United States than he is to our longer term allies and to countries which more nearly share our ideas of personal liberty. See how he has shunned Great Britain, Israel, India, and the government leadership in Iraq and Afghanistan.
  
• Obama says the U.S. caused the global recession and financial crisis. Actually, banks all over the world had too many high-risk loans. This was not at all just a U.S. problem. Iceland, Great Britain, Germany, Japan, and China have all been hard hit due to their financial over-extensions, along with many other countries.
  
• Obama declares the U.S. arrogant. Taken together with the item above, this would mean the U.S. owes a great deal of service to the rest of the world. Obama loves to serve. No, actually, he loves to tell you and me that we must serve others.

The United States was long blessed with a belief in the principle that the Federal government existed to serve only as the protector of the American individual's life, his liberty, and his pursuit of happiness. The individual was sovereign and the government existed only to serve the sovereign American individuals. It was understood that the only scale of government compatible with the rights of the individual was a minimal, limited government. Our Constitution carefully described the limited powers of the Federal government and further required that the limited actions it was allowed must be carried out in a manner consistent with the general welfare. It was made clear that the general welfare could only be served by a minimalist government so that individuals would be free to manage their own lives. A more empowered government would quickly become tyrannical.

Obama hates this idea. No, it does not make him a bit uneasy. With every fiber and cell of his body and mind, he hates the idea that the government exists only to serve the self-interest of self-managing individuals. He is determined to crush this principle and anyone who stands up for it. In domestic matters, he ignores the Constitution and he gets others to go along with ignoring it by offering them bribes of power, income, and publicity. In all matters with an international component, he enlists the aid of as many other socialist and/or Muslim and/or other dictatorial regimes as he can in order to accomplish this purpose. At all times, he is completely focused on forcing every individual American to become the servant of the government, which is to be controlled by committed socialist elitists such as himself. Only people such as himself are capable of wisely choosing your values for you and only they are intelligent enough to inform you on how you will achieve the values they have chosen for you.

If you do not achieve any values that mean anything to you, that is just too damn bad. After all, they do not choose to recognize your self-chosen values. You are selfish, while they exist to serve. This makes you unworthy and it makes them gods.

Steyn - The G-20 doesn't offer plenty

Mark Steyn has written a fun and insightful commentary in the 6 April 2009 Washington Times. He starts by describing how the Obama administration gave journalists covering the G-20 meeting in London a phone number to listen to Sec. of State Clinton give them a briefing. On calling the number "the gentlemen of the press were greeted by a honey-voiced seductress, presumably not Mrs. Clinton, offering them 'phone sex' and seeking their credit-card number if they 'feel like getting nasty'."

He notes that David Patterson, the NY governor, said that if he had known that his latest tax increase would drive Rush Limbaugh to sell his Manhattan apartment, he would have raised taxes earlier. But, Mayor Michael Bloomberg has recently pointed out that the wealthiest 1% of New York City dwellers pay 50% of the municipal revenue. So, Governor Patterson has very few rich people to drive out before NYC has a government crisis.

Meanwhile the G-20 is seeing to it that the wealthy have no tax havens to turn to. This is because they think this is at the heart of the financial crisis, right? Well, no, they are not really that dumb, but they do think that the non-elite people of all of these countries are dumb enough to be distracted from those realistic steps which the G-20 nations might take.

So, what are the real problems? Steyn notes that Japan, Germany, Italy, and Russia have shrinking populations and that the rate of population shrinkage is going to go up! So, unlike the United States, they can't run up the national debt and stick it to their kids and grandkids, because they don't have any kids and grandkids to stick it to. If New York is running out of rich people, Germany is running out of people, period. The Chinese and other buyers of western debt know that. If you're an investor and you're not tracking gross domestic product (GDP) versus median age in the world's major economies, you're going to lose a lot of money.

If government has a role in this crisis, it ought to be to reverse the combination of unaffordable social programs and deathbed demographics that make a restoration of real GDP growth all but impossible in many European nations.

So, instead, French President Nicholas Sarkozy said the conference gave a once-in-a-lifetime opportunity to give capitalism a "conscience." He means a global regulatory regime to protect France's "sluggish, uncompetitive, protectionist, high-unemployment business environment whose best and brightest abandon the country in ever-greater droves, it obviously makes sense to force the entire planet to submit to the same growth-killing measures that have done wonders for your own economy." The IMF is being set up as the global central bank, with its Special Drawing Rights a kind of global currency.

He observes that too many of the profits in recent years in the United States and Great Britain have been in the financial industries. This is thanks to the government annexing too much wealth through income taxes and small-business regulations and much more. It is now much harder to "improve your lot by working hard, making stuff, selling it."

He concludes that instead of addressing the real problems of excessive government, the G-20 governments are "erecting a global regulatory regime to export their worst mistakes to the entire globe."

As they say on the State Department phone-sex line, it's going to get nasty.

We Americans have to become very aware that Obama's driving ambition is to make the United States after the image of France, Germany, and Italy. At least this is so when he is not dreaming of being Hugo Chavez and making the United States into Venezuela. Obama has very clearly signed on to growing this global regulatory regime and to placing its hob-nailed boot on the neck of every American!