August 23, 2007 by Tom Armstrong.

Another viewpoint, one offered today in the WSJ on why we should lower the Fed Funds rate (subscription required).

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August 23, 2007 by Tom Armstrong.

Fine, short article today on free trade. It begins:

Did you know — better, would you have guessed? — that the top income-tax rate in India, which is the home of breast-fed socialism, is a mere 30 percent? That is down from 60 percent in 1979. How does that compare? Well, in the United Kingdom it is down from 83 percent in 1979 to 40 percent today; in the United States, from 70 to 35. In all three cases, it has been cut roughly in half.

But not all the economic news is good, and we hear, especially from upward-bound Democratic leaders, about the loss of manufacturing jobs for American workers. This is attributable, of course, to a variety of causes, some entirely bad (lax immigration laws), others good in themselves though with bad side effects (free trade, the decline in the power of the labor unions). The most alluring comparisons would be with Japan and Germany, which have the reputation of carrying their solicitude toward the domestic working classes to extraordinary lengths.

In fact, in the last dozen or so years (1992-2005), U.S. manufacturing jobs have dropped by 20 percent. In Japan and Germany the drop in such jobs is comparable. Alan Reynolds, in his masterly study “Income and Wealth,” unpacks some of the assumptions. “Anxiety about deindustrialization or downsizing is usually linked to international trade through catch-words like ‘globalization’ or ‘offshoring,’” Reynolds writes. “The United States is widely imagined to have ‘exported jobs’ to countries that export more than they import, such as Japan and Germany, even though manufacturing employment declined even more dramatically in those countries where overall job growth has been abysmal.”

Also consider:

U.S. manufacturing jobs have been lost through automation, but this is so in every major industrial economy. The question to ask is: Have those who have lost employment on that account found jobs elsewhere? The answer is that yes, it is so in the United States, where a large number of those who have lost their jobs in manufacturing have moved to higher-skilled, higher-paying jobs in service industries. “As we discovered with the ‘vanishing middle class,’” Reynolds points out, “a rising percentage of American families left the middle class manufacturing jobs by moving up.”

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August 23, 2007 by Tom Armstrong.

Online banking rates are great. Savings rates can reach 5.5%, which is the rate Countrywide is currently offering on deposits of at least $10,000 (wonder why). There are literally dozens of online banks offering savings rates over 4%. I have taken advantage of this. I keep most of my cash in online banks, and I’ve had no complaints until recently. I wrote earlier of my intention to purchase Countrywide shares at prices below $20–I’m still waiting for my funds to clear. It’s never taken more than 5 or 6 days, but that’s still too long for some people. It’s cost me a 20-25% rise in shares, so one might say I’ve lost on my online account in the long term. Or, perhaps, you would advice me to wait and see what the share price is in a few months or a year–might turn out to have saved me big.

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August 23, 2007 by Tom Armstrong.

The Fed is partly to blame for our current situation. Now the Fed looks like it will try to correct its previous rate cuts with more cuts. These actions and mentality creates a moral hazard. 

We’ve all known people with liquidity problems, often resulting from over-consumption, which was financed with credit cards. We might bail them out once, but more than once and the bailout is expected, so the behavior is never altered. A rate cut is not needed.

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