OPEC was Trade Retaliation

China's reaction [Bloomberg] to 35% tariffs by the U.S. on its tires has it investigating dumping and subsidies provided to U.S. automakers and chicken producers. We fired the first shot by applying a clause on China's entry into the WTO in 2001 that had not been previously invoked. The clause was regarding protecting existing industries.

How can you begin trading with a trading partner and not expect an existing industry to be impacted?

Let us not forget where these types of protectionist policies may lead to. Today is the 40th birthday of OPEC [Wikipedia]. OPEC's founding was triggered by protectionist quotas by Eisenhower on Venezuelan and Persian Gulf crude.

Simultaneous Tax and Subsidy

So Obama and the Democrats will consider taxes on soda and sugary drinks. This is ironic because we already have the government doing so much wrong on sugar.

Currently we subsidize sugar growers to the tune of $1,200,000,000 ($1.2B) a year. I wonder if the beneficiaries of this subsidy even number in the thousands? We also have import quotas and tariffs on sugar which limit foreign supplies of sugar to U.S. consumers - reducing supply and raising prices.

It gets worse. We subsidize the growing of corn which, in turn, makes corn syrup a more attractive option to food producers. Wouldn't it be nice if we simplified all of this. Forget the tax, stop the corn and sugar subsidies and remove import quotas. Now isn't life simpler.

The Immortalized Peter Stark

Congressman Peter Stark:

The more debt we owe, the wealthier we are...

This helps explain some of the reason the federal deficit is growing so rapidly.

Watch the entire episode here:

Best Title of the Week

Reggie Middleton's BoomBustBlog.com had this article titled:

California is borrowing money to repay the money it is borrowing which was used to repay some IOUs

Entertaining Roddick Interview

Here is an interview with tennis star Roddick - refreshingly honest and open .

This Week on Mauldin

This week Mr Mauldin has a great piece of work describing some uncomfortable choices that need to be made by both consumers and policy makers. He rightly points out that we cannot borrow our way out of the current problems.

We ran up unfunded pension deficits at many local and state funds, to the tune of several trillion dollars and rising. We have a massive, tens of trillions of dollars, bill coming due for Social Security and Medicare, starting in the next 5-7 years, that makes the current crisis pale in comparison. We now seemingly want to add to this by passing even more spending programs that will only make the hole deeper.

This dovetails nicely with Washington's Blog article about our inability to inflate away debt without destroying the economy - here is one quote from the article:

Instead of taking steps to do this, the government is doing just the opposite. It is proposing to take bad debts onto the public-sector balance sheet, printing new Treasury bonds to give the banks – bonds whose interest charges will have to be paid by taxing labor and industry...

Now consider Keynes fascinating quote on my earlier post.

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.
Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat.

...

I really don't like where this is heading.


Read both
An Uncomfortable Choice by John Mauldin

Why we can't inflate away our debt at Washington's Blog

Keynes is Austrian

From Munger's blog a fascinating Keynes piece:

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.
Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

In the latter stages of the war all the belligerent governments practised, from necessity or incompetence, what a Bolshevist might have done from design. Even now, when the war is over, most of them continue out of weakness the same malpractices. But further, the governments of Europe, being many of them at this moment reckless in their methods as well as weak, seek to direct on to a class known as 'profiteers' the popular indignation against the more obvious consequences of their vicious methods. These 'profiteers' are, broadly speaking, the entrepreneur class of capitalists, that is to say, the active and constructive element in the whole capitalist society, who in a period of rapidly rising prices cannot but get rich quick whether they wish it or desire it or not. If prices are continually rising, every trader who has purchased for stock or owns property and plant inevitably makes profits. By directing hatred against this class, therefore, the European governments are carrying a step further the fatal process which the subtle mind of Lenin had consciously conceived. The profiteers are a consequence and not a cause of rising prices. By combining a popular hatred of the class of entrepreneurs with the blow already given to social security by the violent and arbitrary disturbance of contract and of the established equilibrium of wealth which is the inevitable result of inflation, these governments are fast rendering impossible a continuance of the social and economic order of the nineteenth century. But they have no plan for replacing it.

It is originally Keynes writing in 1919 in The Economic Consequences of the Peace.