Economic Decapitation via Cap and Trade

The house is working on “cap and trade”, ready to ram it through by the end of the week. The proponents have written a bill that does not have many teeth in it, until after the CBO cost scoring expires. CBO estimates a low cost in 2020, the costs escalate after that date!

You might think it can be changed if new technology does not lower carbon while providing low cost power before the targets become onerous. You would be wrong, Republicans offered three amendments. The law would be suspended if any of the following happened:

• gasoline cost over $5 per gallon
• electricity prices increased over 10% over 2009 levels
• unemployment rates hit 15%

They all failed. So much for everyone making less than $250,000 Have you noticed it is not called global warming anymore. Now it is climate change. Why? The climate actually cooled the last 18 months! The Wall Street Journal has a good article on Cap and Trade.

Ok, so everything costs more. But you didn't raise taxes?

I invest in oil exploration and production. I ran into another "oily" last night at the grocery store. They have stopped exploration until they are sure Washington is not going to take more taxes. The risk is not worth it if the government wants to be your partner in good times. Less exploration this year means less oil next year! Get ready to pay more at the pump, that is why I have called oil the trade of the year. And probably next year. And maybe the year after that.

Twelve percent of the U.S. population is expected to take a trip of 50 miles or more over the Fourth of July holiday. This is a 1.9% drop from last year, and 12% less than 2007 according to AAA. They cited rising unemployment and sagging incomes for the drop in travel.

I noticed weeds in my drive this morning, and thought I need to get some Roundup this weekend. Monsanto (MON) manufactures Roundup. The company announced a 14% drop in profit for the third quarter. Roundup is used on many row crops to control weeds, Roundup profits are expected to drop by half this year. According to CEO Hugh Grant that accounts for a $1 billion drop in gross profit. Shares are down almost 5% in the last two days.

Here is a statistic that should make the socialists hearts skip a beat. Business Week reports that people with assets between $1 million and $30 million fell by 14.9% The recession has reduced the total wealth of the world’s millionaires by 19.5% to $32.8 trillion. Wow, if our government took all the personal wealth over $1 million in the world, they could pay for all the bailouts, and Social Security/Medicare could go on for a few more years. Do we need to know anymore? What do you think taxes and inflation are going to do?

California's State Controller is preparing to issue IOU’s to pay the state’s debt starting July 1. The state legislature failed to pass an $11 billion bill that would cut state services.

The state’s treasurer will tap a reserve fund to pay interest on “economic recovery sales tax bonds”. These bonds were approved in 2004 in the midst of another fiscal crisis. A state sales tax secures them, but receipts are down. Reuters has the latest update on the California budget crisis.

For some long-term perspective, today's chart illustrates the Dow adjusted for inflation since 1925. There are several points of interest. For one, when adjusted for inflation, the bear market that concluded in the early 1980s was almost as severe as the one that concluded in the early 1930s. Also, the inflation-adjusted Dow is now less than double where it was at its 1929 peak and trades a mere 30% above its 1966 peak – not that spectacular of a performance considering the time frames involved. It is also interesting to note that the Dow is up 30.7% from its March 9, 2009 low, which is actually slightly more than what the inflation-adjusted Dow gained from its 1966 peak to today.

Disclosure: No position

Comments

[Neil459:]

But the sheeple are at one with their spirit, calm and reserved knowing that they cast the right vote for "Change and Hope" as peasants have no aspirations.

Jun 26 09:26 AM

[whidbey:]

The future is going to be different we know that. But if we don't like it?

The reversal of current policies will take years, if possible at all. Untangling regulation is very time consuming. The mandate to the Democrat party to rule carries with it the obligation to do little or no harm. We will know too late the harm done and have little strength left to attempt to recover.

Jun 26 09:39 AM

[Paul in Texas:]

If you want real change, if you want to start fixing the problems, change the people in government. Actually look at the way your Congressmen have voted. If they voted contrary to your wishes/values, vote for someone else in the next election. I will do my part. I will vote against every politician I can who voted for the TARP and stimulus bills. I will try to find those with more understanding of the economy and who have a committment to the Constitution as written and as the Founding Fathers interpreted it and vote for them.

Jun 26 09:53 AM

[Dana H.:]

"Economic Decapitation via Cap and Trade"

An excellent and accurate title.

As for some people's pipe dream that green energy will bail us out, see here: www.aynrand.org/site/N...

Jun 26 10:53 AM

[user396040:]

This means that the inflation adjusted Dow was at levels in March equal to its 1966 peak. Of course, to be fair you have to compare inflation adjusted equity returns with inflation adjusted returns on bonds, money market funds, etc.

Jun 26 12:44 PM

[ariesl:]

I wish S A would stick to publishing info about investing instead of blathering political rhetoric.

What good will it do if people make more money now or in the next few years, if their children's and grandchildren's lives are a disaster because of our generation's greed, ignorance, and short- sightedness!

Jun 26 02:50 PM

[ariesl:]

Excuse me Whidbey, but didn't the GOP also have an obligation to "do little or no harm" to the economy, the environment, and and the millions of people who are now finacially ruined because of the policicies of 2000 - 2006?

It is common knowlege that the economic of crisis of 2008 really began with the unleashing of Wall Street banker's unlimited greed and dishonesty; all made possible by "untangling regulations" that had previosly held them in check.

Jun 26 03:03 PM

[jim collins:]

This guys a Randite, keep that in mind as yuo read the article.

Jun 26 05:14 PM

[sether:]

Hey John Dalt (Galt?) you write and dress like a clown.
Are you one of those Ayn Rand Scientologists - er - Libertarians? Your article is about as lucid and useful as Atlas Shrugged, but thankfully less verbose.
Libertarianism is actually just Infantilism. Has anyone else noticed this?

Jun 26 09:53 PM

[ebworthen:]

Politics is the distraction.

Politics is the decoy so they can shoot you.

Environmental regulations, litigious society to support our Lawyer upper class, and the collusion of government and corporations to rape the middle class have made the U.S. unable to compete globally and collapsed our ability to produce anything other than debt and a sheepish bleating citizenry.

"Cap and trade" money will go to GE and other corporations (wait, doesn't GE run NBS, MSNBC, CNBC? Hmmm.....). We will be taxed to pay for corporate profits and improvements that the utility companies should be building in over the years with profits. Less than 10% of the stimulus money is going to infrastructure. Why? Because they are going to tax the pants off of us to pay for infrastructure! Baaaah!

There are a few politicians here and there who are looking out for constituents, however, the majority are professional equivocators whose goal is to stay in power as long as possible and pass the sceptre and the gravy on to their family and to hell with the Constitution and the country.

Wake up people.

Jun 27 11:37 AM

[CLH:]

Cap and trade is a disaster which sucks the blood of everyone to solve a problem that does not exist.

Jun 27 11:59 AM

[Jimbo:]

Yes folks, the Republican party is also culpable for our present predicament. Its nice to see them wake up and propose those three amendments and those three proposals may be powerful in the future. Actually, if you look at who got "sweetheart" mortgages from Countrywide as well as campaign contributions from Countrywide, et al, you begin to see a pattern how big money center financial institutions have penetrated both parties and the Courts, White House, and Congress. This dry rot will go on until the public rises up and strikes it down. And please don't protest that SA has no business dealing with politics. Politics and economics are inextricably intertwined. Follow the money and you will see the legislation.

Jun 27 05:51 PM

[shootpar2001:]

Yes, regs. that were changed in 1999 (Glass-Stegall).
Changed by whom; Clinton; on the advice of Rubin, who then went on to ruin Citibank.
Also regs. for Fannie and Freddie that the Dems. resisted changing.
It seems 'common knowledge' is not knowlege at all.



On Jun 26 03:03 PM ariesl wrote:

> Excuse me Whidbey, but didn't the GOP also have an obligation to
> "do little or no harm" to the economy, the environment, and and the
> millions of people who are now finacially ruined because of the policicies
> of 2000 - 2006?
>
> It is common knowlege that the economic of crisis of 2008 really
> began with the unleashing of Wall Street banker's unlimited greed
> and dishonesty; all made possible by "untangling regulations" that
> had previosly held them in check.

Jun 27 08:19 PM

[charst46:]

My question is, when Cap and Trade was first introduced by Bush I, it was celebrated by many as the free market antidote to LIberal big government interference. Now, it is hailed as an example of liberal Free Market interference. To me it sounds like an 2009 repeat of 1929 James Walker campaign against La Guardia which Democrat Walker won by painting Repubican La Guardia as a socialist........

Jun 27 08:31 PM

[Danny Newton:]

I am wondering how the BEA will handle Cap and Trade in their data collection. Disposable Income is suppose to be gross income minus taxes. If even the CBO version of the truth is experienced there will be no drop in disposable income even though things will cost more. I see that Florida Power & Light is already asking for a 31% increse in electricity rates, before Cap and Trade got out of the House.

I think CBO passed on trying to guess the impact of this bill except for the few things that they were absolutly sure. The Heritage version of the costs has the same problem. Both claim to be able to calculate the incalcuable. The CBO leaves out all of the potential benefits associated with Global Warming. I guess the CBO did not want to get into the discussion of how to monetize something that may or may not happen.

I don't think this is ever going to be silly until someone sues the US for tampering with the climate and expects the US to pay repairations.

Jun 28 07:56 PM

[FreeMarketMule:]

If Cap and Trade is passed, hopefully it is not, but if it is then we should start looking at emerging markets. Why? Companies like Microsoft have already stated that if taxes are raised ie. (Cap and Trade) they will move to outsource. I am going to start researching which countries are most likely to benifit from the outsourcing of America that will happen if the legislation is passed in the Senate. Why would any corporation do their manufacturing in a country that would levy such a high tax on them. After all, manufacturing is the nuts and bolts of every successful economy. I think there will be good growth opprotunnities for other markets due to over taxation that will make it immpossible for business to compete in the US.

Jul 03 01:02 PM