Showing posts with label Inflation. Show all posts
Showing posts with label Inflation. Show all posts

Wednesday, November 27, 2013

Reflections of a Relic Investor



I used to think I was a fairly knowledgeable individual investor, watching measures such as the money supply (no one even refers to that anymore), interest rates, and comparing those to the earnings yield on stocks (the reciprocal of the Price/Earnings ratio) to partially determine asset allocation.  Alternatively there was also the tried-and-true asset allocation approach, maintaining a fixed relationship between a percentage of bonds vs. stocks in a portfolio.  March 2009 presented an incredible buying opportunity with the S&P reaching its nadir of some 676 (vs. 1,800 plus today).  If you rebalanced every year thereafter, you would have missed out on some equity appreciation, but, nonetheless, participated in the rise of the S&P with less risk. Buying long term bonds today for balancing now implies taking on more risk because of the artificially low interest rates.  The asset classes would be highly correlated in a period of rising interest rates and declining equity values.  

During that same period, the earnings yield on stocks vs. bonds became more and more divergent as the Fed moved from one stage of "quantitative easing" to the next.  The impact on both markets can be seen with clarity if five years ago you decided to commit half of your investments to the iShares 7-10 Year Treasury Bond (IEF) and the other half to the SPDR S&P 500 (SPY) and, then, took a five year trip to Mars, leaving the market behind.  Returning today, you'd find your 50/50 bond/equity allocation now at 35/65, simply because of equity appreciation.  So, what to do if you don't want so much at risk?

Jason Zweig addresses that question in this past weekend's Wall Street Journal. Bottom line, "know thyself."  He quotes investment adviser David Salem who said that investors holding large stock portfolios or are considering buying more equities, should be "both willing and able to bear the loss," clarifying that "willingness is behavioral and ability is financial, and you can't know for sure in advance which one is going to trump the other."  As the last bear market quickly eroded 50% plus of equity values, a 65% equity weighting puts one's portfolio at higher risk.  What one did as that last bear market gathered momentum is a good indication of what one might end up doing if this market, too, ends badly.  Of course, it can go higher -- in that regard I'm always reminded of John Maynard Keynes' famous comment “the market can stay irrational longer than you can stay solvent."

Today's investment environment is now as foreign to me as the Mars landscape would be.  Hostile too.  While GDP is hardly growing, and unemployment stubbornly stays above 7%, peak profits are being racked up by major corporations.  How can this be?  Zero interest rates translate into profits, borrowing at nearly nothing to reduce corporate higher-rate debt or financing stock buy-backs.  Corporations have squeezed their workers too, many laid off, a reward to shareholders in the form of increasing dividends.  Labor unions are no longer empowered, a major consequence of labor competition from overseas.  We no longer "make things" here and even intellectual labor can be harvested overseas, at lower cost, thanks to the impact of the Internet. So, by some measures, the "market" is "cheap." It certainly is cheap if you look at earnings yields vs. bond yields, a spread that has widened with every nail in the QE coffin. 

At one time I thought the Fed's actions saved the world from a financial meltdown.  Perhaps it did. But sustaining its monthly $85 billion bond buying program ad infinitum, not to mention maintaining zero interest rates, is creating an asymmetrical investment environment with every passing day (I'm avoiding the word "bubble" as the latter I sort of understand).  It gets worse: recent Fed minutes implied lowering the interest it pays on bank reserves, which has led banks to warn that such an action might force them to charge depositors for holding money in savings and checking accounts (a negative interest rate!). 

Perhaps all of this is being engineered to create a feeling of prosperity from the inflated asset prices of 401Ks, real estate, and equities, hoping that some will trickle down to the middle class via increased spending by the main beneficiaries, the wealthy. (Not surprising, Tiffany & Co. "reported a 50% increase in net earnings in its third quarter..., largely resulting from 7% growth in worldwide net sales and a higher operating margin.")   Or, perhaps, there is something more ominous behind the Fed's actions, a fear of deflation outweighing its concern for (or even desire for) inflation.  Deflation would be an investor's clarion call to buy longer term "secure" bonds, even at these low rates, but, then, we will soon see the next round of the shoot out at the O.K. Corral (a.k.a. Congress), when the debt limit debate comes up again in March.  So, even US Government Bonds may not be rated AAA given the crazy political environment.

No, all the old rules of investment are out the window in this investment environment, as understandable to me as Bitcoins, the price of which surpassed $1,000 today vs. $30 earlier this year, resembling the parabolic price rise of Dutch tulip bulbs in the 17th century.

Ending on a more understandable note, a Happy Thanksgiving to all.

Wednesday, March 6, 2013

Data Points



Driving home today I happened to hear some stock market guru on the radio (there are countless numbers nowadays, and I didn't get his name during my brief time in the car) predicting that the "bull market" will steadily march onwards and upwards and he compared it to 1982 (when the S&P 500 Index was around 140 vs. today's 1,500 plus), pointing out that bull market move began when unemployment rate was more than 9% vs. a little under 8% today.  I didn't quite get the connection to the S&P other than the inference that things looked gloomy then on Main Street as they do today. 

He sounded like a youngish man, probably either unborn in 1982 or in diapers.  He's right about the gloomy part, but he failed to cite other relevant data points in the comparison, such as the Price Earnings Ratio (P/E) that was about 7.5 then vs. today's 17.5.  Also, adjusting the 1982 140 S&P for the CPI, it was really about 340 not 140.  So, half the growth of the S&P since then is explained by the expansion of the P/E multiple.

Here are some other interesting data point comparisons (these are approximates -- not exact averages for the years cited):

                                                           1982                2013
3 month T Bill Rate                       12.49%            0.11%
10  year T Note Rate                    13.86%            1.88%
S&P Dividend Yield                       4.93%             2.13%
S&P Earnings Yield                        9.83%             7.18%

Classic asset allocation models dictate that if the earnings yield is less than the yield on a 10 year Treasury Note, stocks are overvalued and conversely, if the earnings yield is more than the 10 year T Note, they are undervalued.  By that measure, stock markets should indeed continue to rise now, but they should have been flatlining in 1982.

The reason the usual asset allocation rules may not apply to either scenario is that both 1982 and 2012 represent extraordinary economic times, almost the mirror images of one another, but with one thing in common: the Federal Reserve is in the pilot's seat.  Remember during the Ford administration we were brandishing "WIN" (Whip Inflation Now) buttons?  The oil embargo of 1973 had ratcheted up crude prices from 1972's $3.60 to more than $30.00 by 1982.  Consumer prices followed and wage demands took off.  Paul Volker's Federal Reserve slammed the breaks on the economy raising interest rates to unheard of levels. 

Today, we have the flip side of the coin.  The economy nearly collapsed five years ago into a depression and the Fed became the purchaser of last resort of mortgage-backed securities and is still buying 90% of new US Treasury securities, creating a scarcity of Treasury debt and ratcheting down rates to unheard of levels, this time to "Whip Deflation Now."

What does it all mean for investing?  I can't imagine it means a "new bull market," but who knows as we've never been in this situation before (and throw a calcified government into the mix). One thing I do know, in extraordinary times markets can behave illogically -- unremittingly postponing a normal reversion to the mean --  or as John Maynard Keynes said, “the market can stay irrational longer than you can stay solvent.”

Tuesday, March 1, 2011

Inflation Takes a Haircut

Jon Hilsenrath, normally a straight forward journalist who is the chief economics correspondent for The Wall Street Journal covering the Federal Reserve, made an argument on CNBC today essentially basing the real inflation rate on the price of his haircut. He was interviewed by Joe Kernen, who is enamored by his hair as well, in regard to today's testimony before Congress by Ben Bernanke.

According to Hilsenrath, the Commodity Research Bureau's (CRB) indexes "do not hit American households...we do a lot of other things with our money, like haircuts, which is one of the benchmarks I use, and [they] are not rising....The people who look at food and energy ignore those other things."

While the CRB puts commodity inflation well into the double digits, the CPI reports nearly no inflation (1%) excluding food and energy. Surely, between the two is the REAL inflation rate that is taking its toll on most Americans, particularly retirees.


Jon (and Joe), instead of preening your haircuts as anecdotal evidence of there being little inflation, you should walk in the shoes of a balding retiree. I just happened to have reconciled our 2010 expenses, and have accurate data going back eight years. Comparing that data our income was up only marginally as, even though social security kicked in during the period, investment income declined substantially due mostly to bonds and CDs maturing and having to be replaced by lower yielding investments (the Fed's attempt to force investors into riskier investments, the very issue that almost started a depression). Indeed, fuel and groceries were among the most significant inflationary items over the eight year period, up almost an identical 68% in our case. But what I found interesting there were also large increases in items that are not only essentially non-discretionary, but they are nearly monopolies as well, the consumer having only marginal choices, such as health care, insurance (car, home and health), water and sewage, communications (cable, telephones, Internet), and, most lately, real estate taxes. These take their toll on retirees.

But as I now generally buzz cut my remaining locks, haircut expenses were de minimis so there must be little inflation. Thanks for the fine journalism, Jon and Joe.
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Wednesday, December 1, 2010

Cheery Tidings from the Social Security Administration

For the second year in a row, this happy news from the SSA, received in the mail yesterday: "Your Social Security benefits are protected against inflation. By law, they increase when there is a rise in the cost of living. The government measure changes in the cost of living through the Department of Labor's Consumer Price Index (CPI). The CPI has not risen since the last cost-of-living adjustment was determined in 2008. As a result, your benefits will not increase in 2011."

What a country, retirees are protected from the ravages of inflation, and, better news, yet, there is no inflation! Hooray! There is certainly no inflation in interest rates from CDs, that's well documented. Thank you, The Federal Reserve!

Of course the SSA's Cola adjustments are made through the most bizarre calculation. Sounds like a lot of sleight of hand, but here is an explanation.

It is interesting to review how the CPI gets measured and how such measurements might distort what inflation seniors really face. According to Bureau of Labor Statistics Consumer Price Index the prices of certain items have actually declined over the last year, specifically Window Drapes (8.00%), Peanut Butter (5.10%), Bedroom Furniture (5.00%), Dishes (4.40%), and Sports Equipment (4.00%). But, with the notable exception of Peanut Butter which many seniors may have resorted to consuming, these items are probably not frequently among their purchases. On the other hand, let's look at some of the offsetting increases: Funerals +2.20%, Dental Services +2.80%, Nursing Homes +3.50%, Physicians Services +3.50%, Prescription Drugs +3.90% and Hospital Services +9.30%

No inflation for seniors? Ha. Also, for a quick peek into the future, let's review the past: According to the Bureau of Labor Statistics, the purchasing power of a 1984 dollar is now $.458 while a 1967 dollar is only $ .153.

No doubt entitlement programs need to be looked at along with taxes to get our fiscal house under control, but inflating away the dollar and playing shell games with Social Security is what happens when Congress cannot agree on anything and political posturing is all our representatives seem to be able to do. We've become a sound bite democracy.

Meanwhile, on another, but related topic, the essay du jour is Bill Gross' latest, with his conclusion saying it all: "The United States in short, needs to make things not paper, but that is not likely unless we see a policy revolution in Washington DC. In the meantime, our unemployed will continue to fill out forms and stand in line. We’re living here in Allentown."
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Wednesday, August 11, 2010

Inflation or Deflation?

I remember watching Wall Street Week with the late Louis Rukeyser in the late 1970s and early 1980s during another alarming economic period, with talk of South American style inflation reaching the U.S. and the mindset that goes along with that fear, people buying gold, eschewing long term US Treasuries which were yielding around 15%. It seemed each and every week investors were waiting for reports on the “money supply” with any large increase reinforcing the then prevailing view. In retrospect, how much simpler and more benign economic matters seemed then.

Now money supply measurements are not even discussed. Instead, we wait with baited breath for the Fed’s latest interest rate decision, endeavoring to parse the Federal Open Market Committee’s statements, comparing them with prior statements for clues as to what the future holds.

Today seems to be the inverse of those days with US Treasuries yielding nearly nothing, and the fear of deflation driving investor psychology, leaving few alternatives to us average folk not of CNBC’s fast money crowd. By the Fed’s decision to reinvest its portfolio of maturing mortgages in U.S. Treasury debt, rather than shrinking its balance sheet, it has embarked on a method of monetizing debt. Normally this would ring the inflation bells but not in this economic environment where spending is a higher priority than reducing debt or saving. Deflation is a state of mind that once it takes hold becomes a self fulfilling prophecy, particularly in the wake of the economic turmoil and bailouts of the financial sector of the last few years, with high unemployment and state and local government fiscal problems, leaving the Fed with few remaining options. And, unlike inflation, we have little experience with it other than the 1930s and Japan’s ongoing battle with it since the early 1990’s.

As reflected by CD rates of nearly zero, it is an investment environment where one has two choices, take risk (which is being encouraged by the government’s actions) or put your savings under a mattress (which, in a deflationary environment produces a positive return without risk). Inflation or deflation? One has to wonder what the Fed knows that we don’t. It is a conundrum for the saver. Bring back the good old days of Wall Street Week!


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Wednesday, October 21, 2009

Einhorn’s Speech and Bubble Du Jour

Sometimes you come across a point of view on our economic crisis that provides such clarity you want to share it. Such is the case with David Einhorn’s recent speech at the Helbrunn Center for Graham & Dodd Investing. Einhorn is President and founder of Greenlight Capital, a money management firm that specializes in long-short value oriented investments, and he is the author of Fooling Some of the People All of the Time, the story of Greenlight’s short sales of Allied Capital and the subsequent controversy that became highly publicized. I learned of this speech from a blogger colleague over at Fund My Mutual Fund but undoubtedly it has been widely circulated by others as well.

I have selected some salient points from the speech and post them here. If you read these, go to the entire speech, as quotes out of context cannot convey the full measure of Einhorn’s well-reasoned arguments. While his value oriented investing style will remain his approach, the current crisis has convinced him to include gold in his portfolio, something most value investors find antithetical.

I wonder what he thinks about the rise of the Dow to more than 10,000, a sixty percent “recovery” from its earlier lows. Late last year I had posted a summary of the Wall Street Journal’s headlines all of which were decidedly negative, the perfect contrarian indicator. Now, the market is being bid up with talk of green shoots and improving earnings. An anecdotal observation regarding the latter is the recently announced “improved” earnings (that is, a positive comparison to expected earnings, not normalized ones) of many of the Dow’s major components seem to be accompanied by a shortfall in revenue, in other words earnings that come as a result of cost cutting, particularly layoffs and hiring freezes. Corporations cannot sustain earnings growth without revenue growth and the latter cannot happen while real unemployment rates stubbornly remain in double digits leaving the consumer on the ropes.

The illogical exuberance of the market lately is in lock step with the dollar’s decline as interest rates have also disappeared into a black hole. Stocks have just become another commodity, with a more limited supply than the government’s ability to manufacture dollars. As the headlines of almost a year ago signaled a bottom, perhaps the recent introduction of the Porsche Panamera, a $133,000 four door sedan with a 500 horsepower twin turbo V8 that can reach 60 mph in a mere 4 seconds – the perfect car for the bailed-out gang on Wall Street in this energy-challenged age – foreshadows a new bubble.

Here are some salient points from David Einhorn’s speech (Value Investing Congress David Einhorn, Greenlight Capital, “Liquor before Beer… In the Clear” October 19, 2009) which should be read in its entirety here:

* As I see it, there are two basic problems in how we have designed our government. The first is that officials favor policies with short-term impact over those in our long-term interest because they need to be popular while they are in office and they want to be reelected. …. Paul Volcker was an unusual public official because he was willing to make unpopular decisions in the early ’80s and was disliked at the time. History, though, judges him kindly for the era of prosperity that followed. Presently, Ben Bernanke and Tim Geithner have become the quintessential short-term decision makers. They explicitly “do whatever it takes” to “solve one problem at a time” and deal with the unintended consequences later.

* The second weakness in our government is “concentrated benefit versus diffuse harm” also known as the problem of special interests. Decision makers help small groups who care about narrow issues and whose “special interests” invest substantial resources to be better heard through lobbying, public relations and campaign support…. [A]t some level, Americans understand that the Washington-Wall Street relationship has rewarded the least deserving people and institutions at the expense of the prudent. They don’t know the particulars or how to argue against the “without banks, we have no economy” demagogues. So, they fight healthcare reform, where they have enough personal experience to equip them to argue with Congressmen at town hall meetings. As I see it, the revolt over healthcare isn’t really about healthcare, but represents a broader upset at Washington.

* The financial reform on the table is analogous to our response to airline terrorism by frisking grandma and taking away everyone’s shampoo, in that it gives the appearance of officially “doing something” and adds to our bureaucracy without really making anything safer. With the ensuing government bailout, we have now institutionalized the idea of too big-to-fail and insulated investors from risk. The proper way to deal with too-big-to-fail, or too inter-connected to fail, is to make sure that no institution is too big or inter-connected to fail. The test ought to be that no institution should ever be of individual importance such that if we were faced with its demise the government would be forced to intervene. The real solution is to break up anything that fails that test.

(As a follow up to this last point, see today’s New York Times article: “Volcker’s Voice Fails to Sell a Bank Strategy: The former Fed chief said the giant banks must be broken apart and separated from risky trading on Wall Street, a view not shared by many in the White House”)

* Rather than deal with these simple problems with simple, obvious solutions, the official reform plans are complicated, convoluted and designed to only have the veneer of reform while mostly serving the special interests. The complications serve to reduce transparency, preventing the public at large from really seeing the overwhelming influence of the banks in shaping the new regulation. In dealing with the continued weak economy, our leaders are so determined not to repeat the perceived mistakes of the 1930s that they are risking policies with possibly far worse consequences designed by the same people at the Fed who ran policy with the short term view that asset bubbles don’t matter because the fallout can be managed after they pop.

* Over the next decade the welfare states will come to face severe demographic problems. Baby Boomers have driven the U.S. economy since they were born. It is no coincidence that we experienced an economic boom between 1980 and 2000, as the Boomers reached their peak productive years. The Boomers are now reaching retirement. The Social Security and Medicare commitments to them are astronomical. When the government calculates its debt and deficit it does so on a cash basis. This means that deficit accounting does not take into account the cost of future promises until the money goes out the door.

* [T]he Federal Reserve is propping up the bond market, buying long-dated assets with printed money. It cannot turn around and sell what it has just bought. ….Further, the Federal Open Market Committee members may not recognize inflation when they see it, as looking at inflation solely through the prices of goods and services, while ignoring asset inflation, can lead to a repeat of the last policy error of holding rates too low for too long.

* I subscribed to Warren Buffett’s old criticism that gold just sits there with no yield and viewed gold’s long-term value as difficult to assess. However, the recent crisis has changed my view. The question can be flipped: how does one know what the dollar is worth given that dollars can be created out of thin air or dropped from helicopters? Just because something hasn’t happened, doesn’t mean it won’t. Yes, we should continue to buy stocks in great companies, but there is room for [another] view as well. I have seen many people debate whether gold is a bet on inflation or deflation. As I see it, it is neither. Gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible. Gold did very well during the Great Depression when FDR debased the currency. It did well again in the money printing 1970s, but collapsed in response to Paul Volcker’s austerity. It ultimately made a bottom around 2001 when the excitement about our future budget surpluses peaked. Prospectively, gold should do fine unless our leaders implement much greater fiscal and monetary restraint than appears likely. Of course, gold should do very well if there is a sovereign debt default or currency crisis.

* For years, the discussion has been that our deficit spending will pass the costs onto “our grandchildren.” I believe that this is no longer the case and that the consequences will be seen during the lifetime of the leaders who have pursued short-term popularity over our solvency.

On the lighter side of things, here is something I caught at Westport Now, the online newspaper that covers Westport, Connecticut, where I worked for so many years. Our first office was built on the site of an old New England lumber yard, on the Saugatuck River at 51 Riverside Avenue, and I recognized the building, the one on the left, in Westport Now’s recent photograph, the same fall colors ablaze as I remember them nearly forty years ago…

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Thursday, October 15, 2009

Nice to be Home?

On our way back to Florida, we spent a few days in Asheville, NC, one of our favorite places, the mountains being such a contrast to the horizontal topography of our home. While taking a walk in that area we met someone who lived her entire adult life in Florida but had moved to Asheville to be closer to her grandchildren. When she heard we lived in Florida she commented that the reason she misses her old home is she can no longer see the moonrise until it is high in the sky, the mountains dominating everything. That is what she missed the most.

In Asheville, we visited with our friends, Irene and Pete, who also relocated there from Florida a few years ago. They now have second thoughts about having made the move while sometimes I have had second thoughts about moving to Florida from Connecticut. Perhaps one’s preference boils down to a whimsical perspective on the moonrise.

Returning to Florida, we were greeted by a few unwelcome notices, thanks to the economy and new county and local “budgets.”

Unlike the federal government, which can run deficits ad infinitum, state and municipal governments can’t print money and must have a balanced budget. So far so good. During this Great Recession, with declining receipts from sales and property taxes, they must either cut budgets or increase revenue. After years of bloated budgets, thanks to the chimerical prosperity since the last downturn, any cutback would have to be drastic to align itself with reality. The path of least resistance is to find ways of separating the taxpayer from his money in a stealth-like fashion.

Case in point, we returned to multiple notices of a speeding ticket (made out to me, although my wife was driving) from our neighboring community, Juno Beach. This ticket was issued by an automated camera in the back of a van operated by LaserCraft, a company in Georgia. One is instructed to send the $125 fine to Georgia; probably LaserCraft getting the majority and Juno Beach the smaller share, but a small percent of something is better than 100 percent of nothing.

This is the most nefarious kind of revenue raising tactic, with the taxpayer being forced to pay a fine without being able to face the accuser (there is a $50 fee to file an appeal, one you are warned you are sure to lose). Non-payment results in being turned over to a collection agency, with all the attendant credit history ramifications. The “evidence” is two photographs of our car clearly showing it in front of and behind other cars in a lane so presumably every car received a ticket. Desperate economic times dictate desperate tactics for municipalities, and this is one of the worst. Lest one thinks that this is typical FloriDUH and it can’t happen here (wherever that might be), if Juno Beach gets away with this (there is a suit in court to overturn this), other cities will surely follow and why not automated cameras on Interstates as well?

Then, as our Florida home is our primary residence, it is “protected” under the Save our Homes act, the property tax increase one year over the next being capped at 3% or to the Consumer Price Index, whichever is less. Read the fine print – that is during good times only. Palm Beach County property market value has decreased so much that it has simply frozen or reduced the “appraised value” of homes (thereby staying within the 3% cap), and increased the tax rate to take up the slack. (From the Palm Beach County Property Appraiser: A property's assessment could stay the same or go down but property taxes could go up any given year because of millage increases levied by your local taxing authorities). Why bring a budget in line with the economic times when it is easy to pick the pocket of the taxpayer? PBC tax rate will increase 15% over last year.

We are told there is no inflation, that this is a deflationary economy. It is true that there is no investment return to be found on our woefully declining US dollar, and no doubt there is asset deflation (e.g. homes), but consumer inflation is alive and well, the manipulated CPI not reflecting the real rise in the cost of living. Unemployment continues to grow (albeit at a declining rate) and until there is sustained employment growth – real growth – the recovery forecasted by the market is suspect (it’s time to “party” as the Dow passes 10,0000, Leo Kolivakis writes in his Pension Pulse blog)

Bottom line: if you want job security, retirement and health insurance benefits, work for your local government.

Welcome Home Taxpayer!.

Thursday, May 1, 2008

Friedman for President

It is not surprising that the most emailed article from yesterday’s New York Times, is Thomas Friedman’s “Dumb as We Wanna Be”
http://www.nytimes.com/2008/04/30/opinion/30friedman.html?em&ex=1209787200&en=c74689f177717558&ei=5087%0A.

I’ve missed reading Friedman who just completed a sabbatical book-writing project that expands an article he wrote for the magazine section a year ago:
http://www.nytimes.com/2007/04/15/magazine/15green.t.html?_r=1&oref=slogin
The book version, Hot, Flat, and Crowded: Why We Need a Green Revolution--and How It Can Renew America, will be published in August.

Why not start a write-in campaign to elect Friedman President? He always seems to have the right perspective on foreign policy and our economic and energy crisis. I also like his even-tempered demeanor. Someone once said you have to be crazy to want to be the President of the United States. Maybe that is the problem with a plan for his Presidency. Friedman is not crazy.

He calls Clinton and McCain’s proposal for a summer gas tax “holiday” political pandering (Amen) and a form of money laundering, borrowing from China, moving it to the oil producing nations, leaving a little in our gas tanks as the broker for the transaction, but also leaving our children with the debt. The analogy would be funny if it were not so sadly true.

But the rest of the article goes to the core of the problem, not having a game plan to achieve energy independence, and helping to repair our decaying environment along the way, something I’ve also ranted about: http://lacunaemusing.blogspot.com/2007/12/politics-as-usual-where-is-leader.html

The ongoing political shenanigans over this issue and the lack of a plan are enough to make me sick. I had thought our current administration was just too clueless to grasp the importance of leading our nation to energy independence through alternative solar, wind, and geothermal technologies. Imagine my shock at seeing Laura Bush recently conducting a TV tour of their home in Crawford, Texas, which is replete with geothermal heating and cooling and a system for capturing rainwater and household wastewater for irrigation. I would have expected this from Al Gore, but George Bush?

His public environmental policies are in direct contrast to what he has done in his own home. So it is not a question of not knowing better, it’s knowing better but not leading our country to a better place, an immoral travesty of the public trust. Where would we be today if we had thrown down the gauntlet at the beginning of his Presidency? By delaying a commitment to energy independence, we have made the goal even more difficult as we must now start with massive debt, and a devalued dollar.

Instead, we pour resources into ethanol with the unintended consequences of food shortages and burgeoning food prices. Sounds like a good plan, subsidize the farmers to buy seeds and fertilizer (at triple the cost vs. last year), squeeze out food crops and tax our water resources, buy oil for the energy needed to convert crops to ethanol (be sure to take on more debt to get that oil), and continue to watch fuel prices escalate in spite of increasing ethanol additives, while paying much more for all food staples (hoarding rice along the way).

Yesterday the Federal Reserve laughably said, “readings on core inflation have improved somewhat” (which excludes food and energy). Maybe it’s time we go back to the Consumer Price Index as a fairer measurement of inflation so government has to face the real facts.