The Fortune 500 cover Fortune will never print

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No, no, no to car-buying stimulus

Congress allowing the interest on new car payments as an income-tax deduction is about the worst middle-class targeted deduction since the one on which it’s modeled – the deduction for mortgage interest.

And, long-term, this could be much more pricey than Congress is estimating, methinks.

Beyond that, overlooked in the focus on the housing bubble, the car industry also “bubbled” due to too many people getting better deals on car loans, and for more pricey cars, than their credit history warranted.

I really, really, don’t like the idea of reinflating bubbles like this.

Kevin Phillips denotes 40 years of government economic lies

The real unemployment rate in America today? Oh, about 9 percent?

Gross domestic product didn’t grow 0.6 percent this quarter; it slipped.

Inflation? About 6-7 percent, in reality.

A newspaper excerpt of Phillips’ new book, “Bad Money: Reckless Finance, Failed
Politics and the Global Crisis of American Capitalism,” details how, since JFK, every American president except Carter has jacked with how we calculate unemployment, the Gross National/Domestic Product (remember, one of those changes was to move from GNP to GDP), the inflation rate, or two or more of the above.

Phillips points out it was Jack Kennedy who had his administration invent the idea of “discouraged” workers to lower unemployment numbers.

Under John Kennedy, out-of-work Americans who had stopped looking for jobs — even if this was because none could be found — were labeled “discouraged workers” and then excluded from the ranks of the unemployed.

Lyndon Johnson orchestrated a “unified budget” that combined Social Security with the rest of the federal outlays. This innovation allowed the surplus receipts in Social Security to mask the emerging federal deficit.

Richard Nixon created a division between “core” inflation and headline inflation. If the Consumer Price Index was calculated by tracking a bundle of prices, so-called core inflation would simply exclude, because of “volatility,” categories that happened to be troublesome (and thus in the “headlines”). At that time, it was food and energy (as it is now).

Under Ronald Reagan, the Bureau of Labor Statistics decided that housing was overstating the Consumer Price Index and substituted an entirely different “Owner Equivalent Rent” measurement, based on what a homeowner might get for renting his house. This methodology, controversial at the time but still used, sidestepped what was happening in the real world of homeowner costs. Some say that led to the mortgage crisis today.

Under the first President Bush, officials moved to reorient U.S. economic statistical measure away from old industrial-era methodologies toward the emerging services economy and the expanding retail and financial sectors. Skeptics said the underlying goal was to reduce the inflation rate in order to reduce federal payments — from interest on the national debt to cost-of-living outlays for government employees, retirees and Social Security recipients.

Under President Clinton, the convoluted CPI changes proposed under Bush were implemented. And the Clintonites tinkered with the unemployment number, in part, by changing its housing economic sampling, disproportionately eliminating inner city households. That is believed to have reduced black unemployment estimates and eased worsening poverty figures.

Don’t expect any of this to change. Hillary Clinton’s husband was one of the bigger numbers-fudgers, in a way that “the first black president” didn’t help blacks.

McCain? It doesn’t involve a tax cut, so he doesn’t give a damn, and he’s already admitted his economic cluelessness.

Obama? Maybe, but I won’t hold out too much hope.

But, the bottom line is this has been bipartisan. Republican and Democratic Congresses have acquiesced in Republican and Democratic Presidents doing this.

And, no, in our current two-party system, I really don't expect this to change.

John Markman: Another stock market moron

The only way the Dow hits 21,000 in four years is if stock buyers become even much more irrational than they already are. I suppose that’s theoretically possible. It’s also theoretically possible that either George W. Bush or Vladimir Putin will win a Nobel Peace Prize.

At some point before 21,000, enough people will either start flinging out honest questions, or simply saying “Whoa,” to keep a mega-bubble from getting to ridiculousness.

Or the Chinese will move enough money to euros. Or OPEC will.

Markman says the Dow will hit 21K if it just performs as well as the Dow utilities or transportation indexes.

Well, I suspect the utilities index has been inflated by privatization. A slowdown, if not a stop, to that, plus more global warming worries, will spike utilities in the future, I wouldn’t doubt.

Transport stocks will be jumbled by oil price confusion in coming years.

“Bubbles” are good? Sorry, Gross is moronic

Slate’s Daniel Gross claims bubbles, like the housing bubble, are invariably good for the economy.

Now, without dismantling him point-by-point, let me comment on one or two things.

First, he says:

Bubbles get started when entrepreneurs latch onto new technologies, or new economic assumptions (or both).

Nonsense. The real-estate bubble was started by, in essence, speculative lending. Nothing new there. It was enhanced by finding a way to package junk-bond money making into a new package through collateralization of subprime loans. Not much new there.

Second, he claims:

And because Americans process failure quickly, the infrastructure swiftly morphs into a cheap, pervasive, and powerful platform for other entrepreneurs—who then launch businesses and innovations that benefit the economy at large.

Well, he is assuming that they also always process failure correctly. And that’s not a given.

Third, he overlooks that we may be in a worldwide bubble right now.

Jeremy Grantham notes:

everyone, everywhere is reinforcing one another. Wherever you travel you will hear it confirmed that “they don’t make any more land,” and that “with these growth rates and low interest rates, equity markets must keep rising,” and “private equity will continue to drive the markets.” To say the least, there has never ever been anything like the uniformity of this reinforcement.

With this as the set of talking points of focus:

1. Global fundamental economic conditions are nearly perfect and have been for some time.

2. Availability of global credit is generous and cheap and has been for some time.

3. Animal spirits and optimism are therefore high and feed on themselves through reinforcing results and through being universally shared.

4. All global assets reflect this and are overpriced and show, probably for the fi rst time, a negative return to risk taking.

5. The correlation in global economic fundamentals is at a new high, refl ected in the steadily increasing correlation in asset price movements.

6. Global credit is more extended and more complicated than ever before so that no one is sure where all the increased risk has ended up.

7. Every bubble has always burst.

8. The bursting of the bubble will be across all countries and all assets, with the probable exception of high grade bonds. Risk premiums in particular will widen. Since no similar global event has occurred before, the stresses to the system are likely to be unexpected. All of this is likely to depress confidence and lower economic activity.

9. Naturally the Fed and Fed equivalents overseas will move to contain the economic damage as the Fed did last time after the 2000 break. But the heart of the last bubble, the NASDAQ and internet stocks, still declined by almost 80 percent and 90 percent, respectively. (The heart of the bubble this time is probably private equity. In 10 years, it may well be described as the private equity bubble just as 2000 is thought of as the internet bubble. You heard it here first!)

10. What is wrong with this logic? Something I hope.

11. Of course the tricky bit, as always, is timing. Most bubbles, like internet stocks and Japanese land, go through an exponential phase before breaking, usually short in time but dramatic in extent. My colleagues suggest that this global bubble has not yet had this phase and perhaps they are right. (A surge in money flowing into private equity might cause just such a hyperbolic phase.) In which case, pessimists or conservatives will take considerably more pain. Again?!

Now, he does console us with the idea that some catalysts for change may more gently deflate bubbles than savagely bursting them. Let us hope.