Old Trader's  Instablog

I'm certainly not alone, here on Seeking Alpha, in criticizing the measures that have been enacted to revive our economy, and the way they're being implemented. Over the months, I've read a great many of the articles written addressing the topic, as well as the comments that follow. One of the things that has struck me, is that every so often, a comment will be posted suggesting that, while the critical comments are long on,... well...criticism, little has been written in the way of concrete proposals that might provide a way forward. The people who've pointed that out are quite correct. Its very easy to sit at a computer and fire off broadsides of criticism; easier still if one is doing it under a pseudonym, without offering some constructive input. In the spirit of providing more than yet another diatribe against this program, or the way that one is being handled, I'd like to throw three specific ideas out that deal with the unemployment situation, arguably the largest single problem currently facing the US economy.

1) Its practically written in stone that SMEs (small/medium enterprises) are the largest drivers of job creation in the US economy. Yet the bulk of the stimulus provided thus far has gone to large and mega-sized firms. I suspect the main reason is that its a lot easier to garner headlines if it can be argued that a given proposal kept an auto plant from shutting down, or prevented further job cuts at a steel maker. The fact that some fraction of that sum might have meant that "Acme Tool and Die" hired 2 more machinists, and "Ajax Plumbing and Heating Supply" hired 3 warehouse workers, another delivery driver, and another clerical worker is NOT going to make the 10 pm network news.

What if the government was to offer either a tax credit, or a withholding waiver for low/middle income hires by SMEs? Keep in mind that the definitions of "small" and "medium" vary widely from industry to industry. A proposal like this could be "fine-tuned", if so desired, to target either specific industries, job classifications, or state/regional areas, or any combination thereof.  I recognize that such a plan, it implemented, would have an adverse effect on government revenues, but the short term pain might well be worth it. I recently ran across an article that mentioned that in Sweden, the "forbearance" of withholding is treated like a loan, in that there's a fixed time limit, as well as a modest interest payment, which would provide another avenue to recoup tax revenue losses, down the road.

2) Keeping in line with the premise that SMEs are a, if not the key, driver of jobs, is a suggestion that the SBA's (Small Business Administration) mandate by expanded. I would like to suggest it would be worthwhile to take a serious look at bringing back the direct loan program. Once upon a time, it was possible to get a direct loan from the SBA, rather than a SBA "guaranteed" loan from a bank. Even then, the preferred format was to go for the guaranteed loan, but there was a process in place for getting money directly from the government. I'm not certain why, but that process was eliminated quite a few years ago. The problem with the guaranteed loan process, is that the paperwork needed to process and administer such a loan is basically the same whether the loan amount is $5000, $15,000, $50, 000, or $150,000, so there's effectively a floor on the amount a lender is willing to lend. If, for whatever reason, the SBA would decide to not reinstitute the direct loan program, perhaps some sort of "processing/servicing fee" could be given to the private lenders to make such loans more attractive to them.
 
3) My final suggestion deals less directly with unemployment, and involves the infrastructure stimulus program that was passed. There's no question that the US is in SERIOUS need of an infrastructure "make-over", and during the debate over the bill, much was made of "shovel ready" projects that would effectively "jumpstart" the economy. Unfortunately, the final bill included "Made in the US" restrictions. Leaving aside the broad macro ramifications of protectionism, there were some more immediately deleterious effects that resulted from that restriction. Back on June 1st, I wrote an article on the possibility of a trade war in which I mentioned the experience of a small Texas town that had a "shovel ready" water/sewage project that was in limbo, because of the "Made In The US" provisions. It seems that the valves needed for this project are ONLY made in Canada. Edward Harrison, a well regarded and prolific contributor to SA made the same point in an article that appeared on Nov. 8th, except in that instance, it was a town in California. I don't know for certain, but wouldn't be surprised if the Canadian company was the same in both cases. After all, how many mfgs. of brass valves suitable for municipal water projects can there be in Canada?

My suggestion, in this regard, is that the bill be amended to include NAFTA members. This would mend fences with both of our neighbors, allow any such projects as mentioned above to proceed, while still making sure the stimulus gets spent close to "home". The thought also crossed my mind that such an amendment might have some small positive effect in stemming illegal immigration, given that the primary reason for such immigration from Mexico is economic. Arguably, any "spill-over" effect south of the border might persuade some potential illegals to stay at home.

I understand that these are broad stroke suggestions, and as they say, "The devil is in the details...". 

The world is much closer to running out of oil than official estimates admit, according to a whistleblower at the International Energy Agency who claims it has been deliberately underplaying a looming shortage for fear of triggering panic buying.

The senior official claims the US has played an influential role in encouraging the watchdog to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves.

The allegations raise serious questions about the accuracy of the organisation' s latest World Energy Outlook on oil demand and supply to be published tomorrow – which is used by the British and many other governments to help guide their wider energy and climate change policies.

 

'There's suspicion the IEA has been influenced by the US' Link to this audio

In particular they question the prediction in the last World Economic Outlook, believed to be repeated again this year, that oil production can be raised from its current level of 83m barrels a day to 105m barrels. External critics have frequently argued that this cannot be substantiated by firm evidence and say the world has already passed its peak in oil production.

Now the "peak oil" theory is gaining support at the heart of the global energy establishment. "The IEA in 2005 was predicting oil supplies could rise as high as 120m barrels a day by 2030 although it was forced to reduce this gradually to 116m and then 105m last year," said the IEA source, who was unwilling to be identified for fear of reprisals inside the industry. "The 120m figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this.

"Many inside the organisation believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further. And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources," he added.

A second senior IEA source, who has now left but was also unwilling to give his name, said a key rule at the organisation was that it was "imperative not to anger the Americans" but the fact was that there was not as much oil in the world as had been admitted. "We have [already] entered the 'peak oil' zone. I think that the situation is really bad," he added.

The IEA acknowledges the importance of its own figures, boasting on its website: "The IEA governments and industry from all across the globe have come to rely on the World Energy Outlook to provide a consistent basis on which they can formulate policies and design business plans."

The British government, among others, always uses the IEA statistics rather than any of its own to argue that there is little threat to long-term oil supplies.

The IEA said tonight that peak oil critics had often wrongly questioned the accuracy of its figures. A spokesman said it was unable to comment ahead of the 2009 report being released tomorrow.

John Hemming, the MP who chairs the all-party parliamentary group on peak oil and gas, said the revelations confirmed his suspicions that the IEA underplayed how quickly the world was running out and this had profound implications for British government energy policy.

 

I'm a member of a yahoo group that follows oil, generally, and the Canadian Oil/Gas Trusts specifically. The above was posted by a member of the group who got it from The Guardian (a UK paper).

I'd been thinking that the current strength in oil was more of a dollar weakness related phenomena, along with signs of growth in emerging markets, rather than a "shortage" on the supply side. According to Reuters, ship brokers ICAP say there's a total of 90.3  million barrels in floating storage....which translates to just over 1 day of total global demand.

A while back, I'd read Simmon's "Twilight In The Desert", and I'd heartily recommend it to anybody who's interested in oil, and hasn't read it, yet.

Sources: The Guardian
                Reuters Business Today

I seem to recall, way back when Bernanke was appointed the head of the Fed, a promise to speak clearly. I well recall the "good old days", when economists, analysts, and various financial pundits would agonize over every word Greenspan uttered...nay...even probably agonized over every punctuation mark in written transcripts of his utterances, in an effort to discern exactly what he meant, and his intentions, as well as his famous (infamous?) remark about if the listener understands him, he's not being obscure enough. Maybe its me, but either Ben isn't speaking clearly enough, or else old habits die hard, and the various scribes of Mammon torture and tease every Fed statement in their efforts to discern what the future may hold.

One thing I will grant Ben, is that he's holding the Fed governors on much looser leashes; allowing them to comment on a fairly regular basis, unlike back when Alan was calling the plays. I'd say that listening to what their thoughts might be would likely be more fruitful, in terms of predicting which way the Fed might be leaning.

But of greater import, is the continuation of "easy money" policy. Even ol' Alan has finally 'fessed up (albeit reluctantly) that he might have been a tad too lenient with the country's purse. I'm not completely certain that "this time is different", in terms of the degree of distress in the economy. After all, the LTCM debacle arguably posed a comparable amount of systemic risk, in terms of large financial firms collapsing like a house of cards on a windy day. Government intervention, while preventing the collapse, ended up coming back to bite us in the butt. It looks like Ben is so wrapped up in studying the Great Depression, he might well be ignoring more recent examples of events and remedies, which might be equally illuminating.

I find myself wondering if, in the near term...like within the next few months, a .25% rate hike wouldn't a timely "shot across the bow", as far as showing everybody that the Fed has no intention allowing wholesale reflation of asset bubbles to occur. And I'd guess it would do more to support the dollar than a month of Sundays worth of Timmy's jawboning about a "strong dollar". I realize that it would, at least initially, knock the props out from under the market, the price of gold, and the price of oil, but I don't think that .25% would do anything to actually delay the arrival of any REAL recovery of our economy.