The Political Junkies
UPDATED: NOV 8, 2007
INTO THE ABYSS?
Bush’s newest ally, newly elected President Nocolas Sarkozy, addresses Congress with this dire message:
French President Nicolas Sarkozy told a joint session of the U.S. Congress the Bush administration must stem the dollar's plunge or risk triggering a trade war.
``The dollar cannot remain `someone else's problem,''' Sarkozy said today on Capitol Hill. ``If we are not careful, monetary disarray could morph into economic war. We would all be its victims.''
Sarkozy's complaints that the U.S. currency's drop against the euro is undermining European competitiveness struck a discordant note in a summit intended to demonstrate an improving U.S.-French relationship. His comments came as the euro surged to a record high against the dollar. The currency touched $1.4731 today, a 65 percent gain since the end of 2001.
In truth, Bush has taken no action throughout his Presidency to support the US Dollar. America is now on the verge of major financial distress as the US Dollar continues its unabated fall:
the dollar swooned amid speculation that China will seek to diversify some of its foreign currency stockpiles beyond the greenback and General Motors Corp. further dampened sentiment by posting a record loss tied to an accounting adjustment.
Oil hit a record, rising above $98 per barrel before retreating, and gold pushed higher, moves exacerbated by an anemic dollar.
The fear with a huge drop like Wednesday's is whether it is part not just of a correction, which is a 10 percent pullback in stock prices, but that it could be the beginning of a bear market. With the huge volatility that has swept Wall Street since the summer, and triple-digit moves in the Dow becoming commonplace, no one can be sure.
Because the US Dollar is worth less, oil prices rise to offset the loss in value to the US Dollar. This is what the future may hold:
Oil prices are up 42 percent since August. Their seemingly relentless climb does raise the question of how high energy prices will go. If crude does keep going up, it might be some time until consumers see relief at the pump. Some analysts predict prices could rise as high as $3.50 to $4 a gallon next summer.
The Energy Information Administration predicts gas prices will remain above $2.90 a gallon for the rest of the year and will set a new record national average of $3.235 a gallon by May. In May 2007, prices peaked at $3.227 a gallon as refiners, faced with a series of unexpected outages, struggled to produce enough gas to meet demand.
Meanwhile, estimates of where oil is headed from here range from $50 a barrel to $120.
Some people assume that Bush is simply over his head or has advisors who are not up to the task. The naked truth is that Bush’s “do nothing” approach is his policy; the markets will simply work themselves out as they should. It is unrestrained capitalism.
The only question is who many American families will be financially ruined.
OVERRIDE
Congress will override Bush’s veto of a water projects bill this week. Bush, who did not veto one spending bill while Republicans controlled Congress, is now trying to rediscover his cost cutting credentials. As a policy formulation, Bush is trapped into vetoing domestic spending bills while requesting ever growing billions of dollars for his occupation of Iraq.
The US House voted to override the veto by an overwhelming margin: 361 to override, 54 to sustain Bush’s veto. Every House Democrat voted to override:
OVERRIDE SUSTAIN NOT VOTING
DEMOCRATS 223 0 9
REPUBLICANS
138 54 8
The Senate will vote to override this week and the water projects bill will become law.
In vetoing the bill, Bush obviously understood that his veto would not stand. Look for Bush to use the override to “pin the tail on the Donkey.” Republican strategists will tout that spending in Washington is out of control and that Bush tried to stem the tide of spending with his veto, but a “runaway” Democratic controlled Congress is responsible for the fiscal irresponsibility in Washington. The two views below; that of Senator Patty Murray of Washington and Bush outline the parameters of the public debate that will ensue:
“The president is appealing to a very small conservative base of people, his last few friends in the country, to say, ‘I am conservative,’” said Senator Patty Murray of Washington, a Democrat involved in mapping the party’s spending strategy. “But the problem is, he is playing with American lives while he sends his message to his friends.”
In increasingly caustic terms, Mr. Bush has assailed Democratic leaders for their push for more money and as being too slow in getting the required spending bills to the White House.
“Considering how eager they are to spend your money, it’s shocking it’s taken so long to do so,” Mr. Bush told grocery goods manufacturers last week.
While Bush knew that his veto would be overridden, burnishing his credentials as a fiscal conservative; Congressional Republicans voted to override to demonstrate their “independence” from a highly unpopular President.
Is it a strategy that will work?
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UPDATED: NOV 4, 2007
REPUBLICAN “ECONOMIC CHICKENS”
The “economic chickens” of Republican economic policy continue to come home to roost.
First, oil prices are above $90.00 a barrel and briefly crossed above $96.00 late in the week. While temporary fluctuations in supply and demand effect short term prices, there are larger forces at work.
First, as growth in the US economy slows and the housing market continues to stall, the Federal Reserve cuts interest rates to stimulate the economy against the downturn. But, cutting interest rates makes the US Dollar, which has already reached new lows against most major currencies around the world, even less valuable. The economic consequence is quite simple. Oil, which is largely traded in US DOLLARS, rises in price to offset the falling value of the US DOLLAR. An Associated Press article makes the point:
The Federal Reserve's move to cut interest rates by a quarter point also supported prices. Interest rate cuts generally support oil prices because they tend to send the dollar downward; the dollar is already at multiple-decade lows against major currencies.
Oil futures have been driven to record levels in recent months partly because they offer a hedge against a weak dollar.
How bad has Republican stewardship of the US DOLLAR been? The answer lies in part in comparing the rising price of oil in Europe, where oil is bought with Euros, and the US:
[At] the beginning of 2002[,] oil was $15.89 a barrel and 17.96 (in euros). Oil has since risen 3.5 times in terms of euros and 5.8 in dollar terms in less than 6 years. The difference clearly shows the depreciation of the dollar.
The impact of the Republican war and occupation of Iraq cannot be underestimated. Geoffrey Wheatcroft, Guardian Unlimited, cogently observes:
Finally there is what has sometimes been dismissed as a conspiracy theory: that it was really a war for oil. This idea looks a little less cranky now that Alan Greenspan, the former head of the Federal Reserve Board, has acknowledged "what everyone knows: the Iraq war is largely about oil". But here again, there was no need to await his verdict. After all, the most powerful man in British politics had told us the same thing even before the war began. "The greatest thing to come out of this for the world economy," said Rupert Murdoch, "would be $20 a barrel for oil."
And so, on top of the whole list of false predictions and collapsed justifications, we have this final absurdity. As both Greenspan and Murdoch have very likely noticed, the price of oil hit a record $96 a barrel yesterday, and is still going up.
As oil prices rise, gasoline prices at the pump are following and will continue to rise if the price of oil continues at its present levels:
Gas prices increased in direct response to higher oil prices, said AAA spokeswoman Nicole Niemi. The average cost for regular unleaded gasoline across the nation Thursday was $2.91 a gallon, higher than the $2.79 average one month ago.
Every 1 cent rise in gasoline prices takes 1 Billion Dollars out of the economy. Bush’s own Treasury Secretary, John Snow, labels the rising cost of energy as a tax:
``Energy is one of those things that is holding back global growth,'' Treasury Secretary John Snow [has] said . . . . ``It acts as a tax on everyone because you have less disposable income available.'' – Bloomberg
Second, the meltdown of the US housing market is proving a far larger problem than most economists expected.
The Federal Reserve pumped $41 billion into the U.S. financial system Thursday, the largest cash infusion since September 2001, to help companies get through a credit crunch.
The action came one day after Fed Chairman Ben Bernanke and all but one of his central bank colleagues voted to slice a key interest rate. It was the second time in six weeks that policymakers acted to protect the economy from the effects of the housing downturn and credit troubles.
The convergent impact of the housing market, credit crunch and rising oil prices is taking its toll on the US economy:
The growth in consumer spending slowed to a crawl in September as shoppers, worried about a deepening housing downturn, stayed away from the malls.
A different gauge of manufacturing activity slipped close to recession levels last month.
The latest economic data is likely signaling that a sharp slowdown is under way over the next two quarters as the housing slump, this summer's severe credit crunch and now rising energy prices take a toll on economic growth, analysts said.
The Commerce Department reported Thursday that consumer spending rose by 0.3 percent in September, the smallest rise in three months and lower than the 0.4 percent increase analysts expected. The 0.4 percent gain in incomes was in line with expectations.
In another report, the Institute for Supply Management, an Arizona-based trade group, said its manufacturing index dipped to 50.9 in October. That was the weakest level since March and the fourth consecutive month that manufacturing has slowed.
The September reading had been 52 and analysts had expected a slightly stronger 51.8 for October. Any reading lower than 50 indicates that the manufacturing portion of the economy is in recession.
Americans can change this course by electing Democrats in 2008.
WHERE DIPLOMATS FEAR TO TREAD
How does one gauge the current situation in Iraq? Perhaps the best barometer is the response of American diplomatic corps:
Hundreds of US diplomats have protested against a government move to force them to accept postings in war-torn Iraq.
About 300 angry diplomats attended a meeting at the state department, at which one labelled the decision a "potential death sentence".
If too few volunteer, some will be forced to go to Iraq - or risk dismissal, except those exempted for medical or personal hardship reasons.
Iraq postings have previously been filled on a voluntary basis.
But, the recalcitrance of American diplomats may be overshadowed by the US Military’s decline in recruitment:
The Army began its recruiting year Oct. 1 with fewer signed up for basic training than in any year since it became an all-volunteer service in 1973, a top general said Wednesday.
Gen. William S. Wallace, whose duties as commander of Army Training and Doctrine Command include management of recruiting, told reporters at the Pentagon that the historic dip will make it harder to achieve the full-year recruiting goal - after just barely reaching it in the year ended Sept. 30.
Achieving the Army's recruiting goals - a challenge in the best of times - is not only more difficult now but also of more consequence. That is because the Army has decided that it must grow its active-duty force by several thousand soldiers a year in order to relieve strain on war-weary troops.
Wallace said he expects to reach the goal of 80,000 recruits, with extra effort by his recruiters.
What Gen. Wallace did not say is that the US Military is lowering its standards (emphasis added) for induction to meet its goals:
The U.S. Army met its recruiting goals for the last year but enlisted thousands of new soldiers with criminal records and fewer who have earned high school diplomas, according to figures released Wednesday.
The spike of new enlistees given "character" waivers for fiscal 2007 continues a steady upward trend in the number of recruits with past arrests and convictions allowed into the Army since the start of the war in Iraq.
More than 11 percent of the Army recruits needed waivers for problems with the law -- up from 7.9 percent the previous year and more than double the percentage in 2003, the year the U.S. invaded Iraq. Maj. Gen. Thomas Bostick, commander of the U.S. Army Recruiting Command, stressed that a vast majority, about 87 percent, of those allowed in with waivers had misdemeanors for such offenses as joy riding or violating curfew. Most faced little punishment beyond community service for their actions, Bostick said.
But at the same time, the number of enlistees with felony convictions and arrests in their pasts has increased. In 2003, the Army allowed 459 enlistees with felony arrests and convictions into the service compared to 1,620 this past year. The startling figures come at a time when the Army is trying to grow amid persistent questions about how the armed forces can increase force size during a time of war without significantly lowering the quality of recruits.
The response of American diplomats and the strain to maintain standards in the military are clear indications that Americans of all stripes simply do not support Bush’s war and occupation of Iraq.
Last Update: 11/11/2007