Sourth Carolina Court Says: Take the money or else

South Carolina’s supreme court ordered Gov. Mark Sanford to take $700 million in federal stimulus money.

Apparently, the legislature in SC had planned on receiving the stimulus money from the federal government and had built it into their budget. The governor's position was that if the state was going to accept federal stimulus money that it should go towards state debt. The federal government and the state legislature disagreed.

So there you have it. They are forcing spending during a time when cuts should be being made and states should be living within their means. It’s true that there is an economic mess out there, but financial prudence is the key to resolving this mess. It doesn’t just apply to individuals. The federal government and the legislature is just trying to force spending that should have never been occurring. What kind of sense does that make?

It’s really too bad that the feds and state legislators have bullied this governed into forced spending. His attitude of trying to heal the injury rather than just slap a bandaid on a broken leg takes a lot of courage and it makes a lot of sense.

I hope that there are other state leaders out there that have the same courage to say that enough is enough.

Free Market Distortion

Is it just me, or does anyone else feel like America might as well not even pretend to have free markets? 

As an American I would like to know how all of these bailouts are going to be funded. It starts with the “poor” banks, and now Freddie and Fannie, and congress is even looking at helping out the automakers.

I have an honest question.  Why are any of these groups entitled to a bailout, while the rest of us just have to “live with conditions”.  I haven’t bought a ford, chrystler, or GM in the past 10 years because, they don’t make good products.  They make overpriced, cheaply made, products. If they want to have a better market share, perhaps they would aim for more quality.  This could be a whole can of worms because, maybe this has to do with these big businesses having to bow down to unions and support benefits that they can’t afford.  This does not mean, it’s not their faults, this means that they have forgotten how to do business.  I don’t want to bail them out, I’d rather see them go out of business and have an efficient business take it’s place.  That is how the system works.  Throwing money into the hole down to an expert money flusher..is just a way to burn money, it won’t save an economy.  It will just make the economy think it’s being saved until it’s too late to be helped.

This same situation goes for the banks.  The Government is worried about economic contraction because of a lack of credit.  Perhaps if the powers that be had controlled illegal immigration, not flooded the market with dollars, and paid more attention to foreign policy, the problem would not even exist. 

Before throwing my family’s money in to save the “elitist”, I would really like to see all of these blockheads pay attention to the real problems and solve them.  If they did that, a rounding effect would be created and things would stabilize.  I feel like we are in the land of Oz and the powers that be are saying “pay no attention to that man behind the curtain!”.

The banks that ignored risk, need to go. That will allow the market to balance. If the automakers don’t have good business sense, they need to go, and be replaced.  If Fannie and Freddie took a bunch of mortgages that were backed by nothing, well their mistake, goodbye. 

Perhaps you would argue, but wait, if that happens, mortgage rates would be 15 percent!  My response would be, home prices will come back down to earth, people won’t borrow money that they can’t afford to pay back, and we would have a shot at being financially healthy. 

It is time for things to change. This “we can bail them out” mentality has to go. It is not getting us anywhere! There is only so fast that you can go dumping out buckets of water, when the boat is half sunk!

Forex World Moves to About.com

Just a note.  If you wonder why I haven’t been posting, it is because I have been developing content for about.com.  This blog will continue to be about fundamental news, but until further notice, all publishing will be done on about.com. 

To get the new feed go here: http://forextrading.about.com/b/

Everyone Catches on to Inflation

Apparently, the world is catching on to the inflation problem that has been coming about for the past 2 years.  The Fed is finally starting to speak about inflation pressures and about hiking rates to curb inflation, with a bit of denial about the effects of almost a year of rate cuts, including a short term of very rapid and deep rate cuts. 

The G8, discussed the threat to global growth that inflation is representing.  This means you can expect a coordinated action from central banks to fight on inflation.  You might recall that the G8 made reference to the falling dollar around 4 months ago or so, and look what happened shortly thereafter. 

This is a clear hint that you can expect aggressive holds for countries that have neutral or high interest rates and you can expect rate rising campaigns for countries that currently have low rates. 

Inflation is a problem that is now going to have to be addressed by all the major countries as food and energy prices are now out of control.  While you can blame some of that on speculation, you can also put a share of the blame on the Fed letting the dollar go into the toilet while they “defended the banks”.  The rest of the world is catching on now, that as the value of the dollar was pounded, the problems of the United States were exported around the world as things that are normally priced in dollars exploded in cost. 

I don’t think that the Fed will be able to continue to drive the dollar into the ground while defending lending institutions that made unsound lending decisions.  The manipulation of the free market is going to be greatly interfeared with now that the rest of the world is awake to the fact that they are paying the price for the stupidity of US Banks.

I honestly think the Fed is wising up not because they want to, but because they have to.  There is a great risk to the stability of the USD if the Fed continues to turn its back on the USD and sacrafices it as the first choice by tinkering with rates to solve problems.  If our rates are really only decided based on economic data that is contained in reports, couldn’t we replace them with a super computer that adjusted rates frequently as data came in?  Wouldn’t that idea support a truly free market, as rates would only be set at the appropriate level for current economic data.  The machine would be able to adjust in real time as data came in.  Just a thought. 

I hope that we are heading back into a phase where the Fed does its untimate job of protecting the value of the US currency at all cost.  I do believe the days of the US Dollar being the reserve currency of the world are coming to an end.  However, that doesn’t mean that it should be thrown away (in favor of the Amero).  Hopefully, we can see some of our American purchasing power return and at least a HINT of free markets.  If not, there is always Canada!

Bernanke: Inflation could be a problem

Now that all the damage has been done.  Bernanke is starting to talk about inflation. 

The key points are:

– More thought needed on the Feds approach to asset bubbles
– Dollar has had a modest impact on commodity prices
– There is little indication of 70s style wage-price spiral
– Inflation expectations are a ‘significant concern’ for the fed

Comment: It is just a little on the late side to start talking about it now.  The Fed knows better than anyone else that once inflation is in, it is very tough to shake it out.  While I respect the fact that the Fed was eager to act in the face of crisis, it seems like they would have been more forward thinking about the implications of their actions.  The dollar took a major hit as they were transmitting a message of panic and insecurity, and drastic rate cuts with no end in sight.  It’s great that he wants to now telegraph the signal for no further rate cuts, but it is a little late isn’t it?

After all this time, Bernanke is going to think about defending the dollar?  The mistake in not defending the dollar from being sold to no end, by being more firm about rates, is going to be costly over the medium term.  We will now be waiting to see if the commodity bubbles deflate and to see if energy is ever going to come back down to earth.  While I am not blaming Bernanke for all the problems out there, he certainly had the power to promote more stability.  I have been somewhat disappointed in the Fed and its seesaw movement of rates, and drastic measures taken after the fact because of a lack of forward thinking. 

The subprime thing was obviously going to be a disaster and there should have been more oversight being pushed into those markets far earlier.  Since there wasn’t, why would our federal monetary system aim to bail out a bunch of lenders that shouldn’t be trusted to tie their shoes without supervision?  To the same token, why would we write legislation and put together public “stimulus packages” to comfort homeowners that bought houses that they couldn’t afford?  Why would we spend billions of dollars to keep them in that house that they can’t afford?  You really have to wonder if ANYONE in the goverment ever took an economics class!

The markets are designed to balance out these inefficiencies.  When the time came for the balance to be returned, the fed tipped the scales by giving banks a sweetheart deal of borrowing at ultra low rates and continuing to lend at the same rates.  So basically, those of us that made sound financial decisions, should be getting a break right now, but instead, we are footing the bill for the “dumb money”.

I honestly hope that the Fed takes a step back and gets LESS involved with holding the hands of banks.  It really isn’t fair for the rest of us.

Where Have I Been?

Some of my readers might be thinking that I dropped off the face of the earth lately.  I have been so busy, it has been hard to get a post in edgewise. 

To boot the markets have been interesting lately, but not exciting. 

For anyone interested in knowing where I have been, I will tell you.  I have been hired by the New York Times to write about forex trading on About.com. 

I will continue to write here and on Forexhound.com, but will now also be writing on about.com.  The content there will mostly be forex tutorials and the like.  There wil be blogs, but they will be more tightly related to forex than many of my economic post that I like to make here.

Since I am still in the process of organizing my information on about.com and putting the site together.  I would like to invite any that is interested to join my forex forum over there.  I have not had a chance to write many post, but I would love to build a community of great thinkers that love forex trading and the currency markets.

And that’s it!  I have been busy getting things organized, but it’s back to the grindstone for me now.  I am back in the zone and ready to pick the pace back up and write again!

Magic PPI Numbers

Last week the PPI numbers came out for April 2008 for the US.  The overall PPI was +0.2 percent which was lower than expectations of +0.4 percent.  However, the core number was higher than expectations with +0.4 percent vs +0.2 percent expected.

The number was digested by the market as confusing.  The report showed no change in the price of food and a decrease in the price of energy.  My question is…

What planet do these numbers come from?  Any business person that I have spoken with has brought up the same concerns.  Slowing income and higher energy prices.  How is the government showing us that they see energy prices dropping while the price of oil is pushing past $130 and threatening to go higher?  They must be getting a much better deal than the rest of us.  The US Department of Labor needs a new slogan for the PPI Report.  “PPI, it’s magically delicious” (and not grounded in reality by a long shot).