Politicians Can Control the Weather

They at least hope that they can control the weather.

The leaders of the G8 nations (Canada, France, Germany, Italy, Japan, Russia, U.K., and U.S.) are currently meeting in Italy for their annual get together. They released a 40-page declaration today which included the following:

We reaffirm the importance of the work of the Intergovernmental Panel on Climate Change (IPCC) and notably of its Fourth Assessment Report, which constitutes the most comprehensive assessment of the science. We recognise the broad scientific view that the increase in global average temperature above pre-industrial levels ought not to exceed 2°C.

Cool. I wish I could control the weather.

Gordon Brown and Spending

If you are a frequent reader of this blog, you know that Nicole and I like to watch Prime Minister's Questions on CSPAN. If you are not familiar, it's a half hour show where members of Parliament get to pepper the Prime Minister with questions. Lately, I've found it amusing how braggadocios Brown is when it comes to spending.

I found this interchange between Brown and Conservative Party leader, David Cameron, particularly amusing:

Cameron: Will the Prime Minister accept that his own figures show that once the Treasury's own forecast for inflation is considered, that total spending will be cut after 2011?

Brown: No, Mr. Speaker, total spending will continue to rise and it will be at a zero percent rise in 2013-14.

Parliament:

I can't get enough of the laughter. Great stuff.

Gordon Brown is an absolute neo-Keynesian fool. Paul Krugman must be so proud of him. Britain's budget is in worse shape than ours. The deficit is now forecasted to be 12% of GDP (current official estimate in the U.S. is about 9%) and public debt may grow to over 80% of GDP of the coming years. The U.K. does not have the benefit of having its currency as the world's reserve currency either. In other words, printing money is much more dangerous than it is here. Government debt (or the printing of pounds) will only serve to steal potential capital which could be used for investment and stave off long-term fiscal and employment issues.

Brown has also lambasted Cameron and the Conservatives on the basis that they want to cut spending since they believe that unemployment will grow until 2014. He calls them the "party of unemployment" - funny stuff. Ridiculous, of course... but funny. A new report quotes Gordon Brown in advance of the G8 summit saying,

If we do not take the necessary action now to strengthen the world economy and put in place the conditions for sustainable world growth, we will be confronted with avoidable unemployment for years to come.

Now, Brown doesn't state that unemployment will grow until 2014, but he clearly believes that only the government, via massive spending, can take the action to avoid such a calamity. This does sound to me that he does not believe that his own plans for Keynesian stimulus will be enough - he needs coordinated spending efforts from his G8 partners.

Loose Ends... Vol. L

Indiana passed a budget this week and avoided a partial shut down of state operations. I have not been able to find a nice summary of the budget; I'll keep looking. In the meantime, I'd like to offer the data in the table below.

Source: Bureau of Economic Analysis, Sunshine Review, and Stats Indiana

As you can see, government expenditures have been increasing since 2000. The amount of spending as a percentage of state GDP has also been increasing. Not surprisingly, per capita spending has also been on the rise. This data is in nominal dollars and not adjusted for inflation. I'll keep looking for a good summary of what was passed and how it stacks up related to this data.

*****

California did not pass a budget to close the gap. They have effectively run out of money and are issuing IOU's (registered warrants) instead of cutting checks. You can review the dire situation here at the Controller's website.

This is an important story to follow. There is no comfortable way to close the massive budget deficit in California. They have delayed taking significant steps and are on the verge of default. It's game of chicken between the state and Washington D.C. The talk of California receiving a bailout should heat up soon.

*****

Happy Independence Day! (A day late.)

Have a read of the Declaration of Independence here.

Third and Final Update on S&P Forecast

Independence Day has arrived. It is the day of reckoning for my S&P 500 forecast. (You can review my last update here which has links to the original post and first update if you are interested.)

The S&P closed yesterday at 896.42 which leaves my prediction as a failure. I was calling for the S&P to trade in the 600-640 range by this time. We hit a low of 666.79 in March and rallied back to current levels. I admit and accept defeat.

The latest version of the S&P earnings forecasts can be found here. The picture is about the same as it was in our last update on Memorial Day. The earnings forecast for 2009 now sits at $55.61. The trailing twelve months at the end of June yielded earnings of just $40.15 which implies a huge trailing P/E ratio of 22.9. It is difficult to say whether this is too optimistic at this point or not.

However, despite all the talk about the economy being in the early stages of recovery, I think we are still in for some tough times. California is bankrupt, commercial real estate is about to implode, the housing market has not yet hit bottom, huge volumes of Alt-A and other adjustable mortgages have yet to reset, and we continue to dig ourselves deeper into debt. This is not a typical recession.

Tegucigalpa, We Have a Problem

I've been keeping an eye on the situation in Honduras which evolved this week. If you have not heard, there is political unrest due to an alleged coup d'etat in the small nation in Central America. President Manuel Zelaya was captured by the military and exiled on June 28. The action has been nearly universally condemned. Here's what's gone down...

Zelaya was elected on November 27, 2005 and took office the following January. In Honduras, the President is limited to serving just one four-year term. Zelaya is a member of the Liberal Party of Honduras (PLH); the National Party of Honduras (PNH) is the other main party in Honduras and leans to the right. The Honduran Constitution explicitly prohibits amendments which would allow for the President to serve more than one term. Zelaya was calling for a referendum in November to allow for the convening of a Constitutional Convention. Despite his low approval ratings, it was considered to be a ploy by which Zelaya would seek an amendment which would allow for Presidents to serve multiple terms.

Latin America has a history powerful heads of state which rule for long periods of time. These often are formed as or devolve into dictatorships. Conscious of this danger, the Honduran Constitution goes as far to revoke citizenship and remove from office anyone who even suggests such an amendment (Article 42, clause 5 and Article 239; link in Spanish). Zelaya wished to move forward with a non-binding vote on June 28 on such a referendum. The military oversees security and logistics for elections in Honduras and, thus, Zelaya had charged General Romeo Vasquez Velasquez to conduct the election. Vasquez refused on the grounds of its perceived illegality; Zelaya had him removed from command.

On June 28, Zelaya awoke surrounded by members of the military who detained (arrested or kidnapped depending on your point of view) him, put him on a plane, and dropped him in San Jose, Costa Rica. The international firestorm began as reports of a military coup began to surface. Meanwhile, the Honduran Supreme Court and the National Congress both indicated that they had authorized the so-called coup.

There is a whole lot more to the details if you are interested. The Wikipedia entry, as usual, is a good source. Although, the neutrality is currently disputed as the events are unfolding.

I have found it very interesting that the international response has been, as far as I can tell, in unanimous support of Zelaya. The Organization of American States issued a resolution to "condemn vehemently the coup d'etat staged against the constitutionally established government of Honduras" - full text here. The United Nations also passed a similar resolution. The Supreme Court of Honduras has fired back (full text in Spanish) stating that the removal of Zelaya was constitutional and in accordance with the rule of law.

It seems clear to me that questionable measures have been taken by the military and those who have ousted Zelaya. There does not appear to be due process and some of his supporters have apparently been detained. However, the overwhelming international support for Zelaya is nonetheless interesting. I'm not sure what I'm missing. This is a Honduran affair and, despite the use of the military, has been a relatively peaceful change of power (no deaths reported) which appears to be consistent with the law in Honduras. It appears to me that the international community is quick to support any existing head of state provided that the government is deemed to be legitimate on the international stage. The international power structure will likely always favor the status quo in these circumstances.

I also did not know of the Organization of American States. This body has adopted the Inter-American Democratic Charter which

"[recognizes] that representative democracy is indespensible for the stability, peace, and development of the region, and that one of the purposes of the OAS is to promote and consolidate representative democracy, with due respect to the principle of non-intervention."

This sounds quite noble. However, promoting democracy has not always been very consistent with non-intervention - perhaps that is the point of calling both principles out in this introduction. Consider the short description of non-intervention from Wikipedia: "one state cannot interfere in the internal politics of another state." Or consider this more detailed summary from a Chatham House white paper quoting a 1970 UN declaration:

No State or group of States has the right to intervene, directly or indirectly, for any reason whatever, in the internal or external affairs of any other State. Consequently, armed intervention
and all other forms of interference or attempted threats against the personality of the State or
against its political, economic and cultural elements, are in violation of international law.

The United States is a member of the OAS; so is Cuba and Venezuela. It's hard for me to take any of this seriously. The U.S. hardly practices non-intervention. I'm not sure I'd consider Cuba or Venezuela to be sterling examples of representative democracy. In the worlds of politics and international relations, there is no shortage of hypocrisy.

Loose Ends... Vol. XLIX

Not much to say tonight... rough week for celebrities with Ed McMahon, Farrah Fawcett, Michael Jackson, and Billy Mays all passing away. I am reminded how much Jackson's music rules and awed at his dancing talent. He was a troubled man - that is clear.

Turmoil continues in Iran. I still have more that I want to read before I write much about what's going on there. The health care debate is going to pick up even more over the coming weeks. Despite the House passing ACES (the cap and trade bill), it is far from over since the Senate will likely modify the bill significantly before passing it (if they pass it).

We'll watch and report.

John Boehner's Failed Gambit

In case you are interested in the decisions being made on Capitol Hill and not too caught up in the Michael Jackson circus, I'd like to provide a summary of a very interesting day in the House. As you may have heard, the House passed H.R. 2454, the American Clean Energy and Security Act of 2009. This is also referred to as "ACES", "Waxman-Markey", or the cap and trade (cap and tax) legislation.

The short summary of the bill says that it will "create clean energy jobs, achieve energy independence, reduce global warming pollution and transition [the US] to a clean energy economy." The official long summary is quite long. The GOP will tell you that it will destroy our economy.

This legislation was officially introduced on May 15, but has been long anticipated since this session began in early January. Nancy Pelosi (D-CA) had vowed to get the bill passed before the July 4 recess in the House. As I had mentioned on this blog a few weeks ago, the bill checked in at 932 pages at the time. Henry Waxman (D-CA), chair of the House Committee on Energy and Commerce, admitted that he had not read the whole bill and hired a speed reader to read part of the bill in a committee hearing in an act of disturbing arrogance. See the link above for more details.

Over the last few weeks, the Democrats have been preparing to get the bill ready for a vote on the floor. It had been reported that the vote would be a close call. That brings us to the events last night and today. The powerful House Committee on Rules published H. Res. 587 late last night (well, early this morning) which laid out the nature of the debate which would be had today on the House Floor.

For those of you not familiar with the Rules Committee, I think it is arguably the most powerful committee in the House - more so than Ways and Means or Appropriations. The Rules Committee determines which bills will go to the floor of the House for a vote. They determine which amendments to the bill may be considered on the floor and the nature in which they may be considered. Finally, they determine the amount of time which will be given to debate for a particular bill or amendment. As you can see, they can pretty much control what gets done. Pelosi knows this (so has just about every other Speaker since the late 1800's) and uses it to its fullest advantage. Oh, if that's not enough, the Rules Committee is the only committee with significantly disproportionate representation from the majority party (9 D's and 4 R's).

So, H. Res 587 was introduced last night for consideration today. They unilaterally adopted an alternate version of H.R. 2454 in the form of H.R. 2998 with an additional amendment submitted by Waxman. They also rejected all alternate versions and amendments proposed by the Republicans except that of Randy Forbes (R-VA) in the form of H.R. 513 as an alternate version to ACES (in its new 2998/Waxman form). Did you follow that?! The full report from the committee can be read here (caution, it is 349 pages).

Why is the report 349 pages? Because it contains the text of the new Waxman amendment which was to be adopted as part of the official version of the bill for vote today. So, if you are keeping track... a few weeks back the bill was 932 pages; H.R. 2454 in its most recent form was 1092 pages; the alternate version of H.R. 2998 was 1201 pages and introduced on June 23 (three days ago); and the Waxman amendment was 310 pages of changes to the 1201 page version and was introduced last night. John Boehner (R-OH), the Minority Leader, indicated that the text became available at 3:09AM this morning.

Boehner, of course, felt this was all ridiculous. I'm not fan of Boehner, and the GOP has played the same dirty tricks in the past when they were in control, but I supported him in his frustration today. As mentioned earlier, the Rules Committee sets the amount of time allowed for debate on the floor of the House. Parliamentary procedures in the House lead to strict accordance to these time limits except when it comes to the Speaker, and the two Leaders. The three leaders are given as much time as they'd like as a matter of custom. For important bills, they usually are given the last word when each side only has one minute of time left. Boehner took full advantage today.

When Boehner began his speech in opposition to the legislation, he attempted to make it clear that voting on a 1200 page bill with a 300 page amendment made available only hours earlier was ludicrous. He made his point by speaking for over an hour reading "highlights" from the Waxman amendment which his staff no doubt had furiously gathered throughout the day. And he read a lot of "highlights" to the point where he addressed text on probably 100 of the 300 pages of the amendment. Waxman attempted to stop the virtual filibuster, but was unsuccessful (view the full 5+ hour debate on C-SPAN here or the Waxman interchange on YouTube here).

Once Boehner finally stopped talking, Pelosi gave a quick speech. The Forbes amendment was defeated, and the revised Waxman/ACES/2454/2998 bill passed narrowly (219-212). The vote details are not yet available on GovTrack - I will link them when they become available. If you can't wait, you can scroll through the details here.

This was an interesting saga, but I have to chime in here with some opinion. I found this episode disgusting. I find it disgusting that the majority had the audacity to push forward a huge bill which could not possibly have been read by those who voted for it. In fact, I would be surprised if even one member of Congress actually read the entire 300 page amendment, let alone the 1200 page bill. Further, having attempted to read legislation like this in the past myself, it is nearly impossible to comprehend legislation like this without having a copy of the U.S. Code sitting nearby since countless references are often made to existing laws.

If you seriously think that your Congress is representing you, then you are sadly mistaken. This goes for members of both sides of the aisle because the culture in Washington is the problem. Both sides have their staff with the assistance of lobbyists and other lawyers of special interest groups draft massive legislation which is not likely read by the members of Congress. Most bills are filled with provisions which are unrelated to the core legislation. There are countless other gimmicks and tricks used to get things done. All of it is played up on a grand stage where the two sides point fingers at each other - usually accusing the other side of intolerable acts which they committed themselves when in the reverse position (i.e. the GOP accusing the Dems of abusing their power as the majority when that is precisely what they did when they had power).

Please, I urge you to reflect on this. I can't square this circle. I can't reconcile how one could honestly think that this legislation was passed with open eyes. This is just one example. The Sunlight Foundation is an organization which is working to fight for more transparency in Washington. One of their initiatives is "Read the Bill" which would seek to urge/require Congress to wait at least 72 hours to vote on a bill after being published. This is not enough, but it is a start. I signed the petition tonight.