Ethanol Politics 08/07/2008 06:03:07 pm by Dan Krohn

	Today the Houston Business Journal ,in one of its daily emails, carried a story concerning the EPA's rejecting a request from Texas Governor Perry to reduce the federal ethanol mandate in Texas by one-half. The article goes on to quote a number of people criticizing the federal program's diversion of corn from food to fuel. Well, this is old style farm state politics at its best (or should we say worst). But the worst part of the story is not the ruling on Gov. Perry's request. The United States seems to have taken a clear position preferring petroleum imports from the Middle East to ethanol imports from Brazil. There is no import tariff on the imported oil, but there is a high import tariff on Brazilian ethanol (which is largely produced from sugar cane which is far more efficient and cheaper than corn based ethanol). Brazil is so annoyed by this tariff that it is threatening to file an action against the U.S. with the World Trade Organization. But look at the number of representatives and especially senators from corn growing states and all becomes clear. Yes, the use of corn for ethanol is a factor in keeping both U.S. food and fuel prices high. Yes, removing the tariff on cheaper Brazilian ethanol might reduce fuel and food prices. Yes, the U.S. maintains that it favors free trade in the international market (and often files WTO actions against other nations which it believes impose unfair restrictions on U.S. imports to their countries). But NO, old style politics means that the U.S. will support expensive oil imports and prevent less expensive ethanol imports because (1) the farm lobby likes the windfall, and (2) the Bush administration loves the oil industry and does whatever it can to assist it to profit. In all fairness, this blogger lives in Texas and benefits from good times in the oil industry, so perhaps I should like this policy. But you might not.

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Politics and the Economy 07/22/2008 09:55:21 am by Dan Krohn

	It has often been said that small businesses are the growth engine of the U.S. economy. Frequently politicians cite the potential damage to small businesses as the reason for opposing a proposed bit of legislation or regulation. Yet, small businesses by their nature do not have as much to spend on lobbying and campaign donations as the very large. So what do we see happening? The federal government is increasingly bailing out big businesses, which means taxpayers will pick up the burden. First we have the subsidized takeover of Bear Stearns. Now we are watching the taxpayer being saddled with subsidizing Freddie Mac and Fannie Mae. And if you look carefully, you will find that investment banks are being given unprecedented access to the Federal Reserve window - a right previously available only to traditional banks. (Admittedly that line has been blurred for many over the last decade.) There are plenty of other financial institutions and corporations walking towards the federal bread line. So what is happening to small businesses? If a small business goes under, off it goes to bankruptcy where it is liquidated and where the owners get nothing. That is exactly what should be happening to big businesses that are insolvent. And while we're at it, maybe their top executives should be fired and not receive multimillion dollar severance packages. The laid off employees of many big companies certainly aren't seeing much in the way of severance. But the small businesses are being forced to contribute to the government's big business bailout efforts through their taxes. All of this federal activity, along with foolish economic practices (like record setting federal deficits) has clobbered the dollar. And now the Fed, citing concerns about inflation, is about to increase interest rates - that will clobber small business as their lines of credit and other loans will cost more - if they can get loans from struggling banks at all. This amounts to an additional hidden tax on small businesses to help finance the bailout of big ones. In this campaign year, don't pay too much attention to what the candidates say. Rather take a serious look at what they've done. And check out their primary advisors. As Don Miguel Ruiz wisely wrote many years ago, "If you choose to believe what a person says rather than what that person does, you are choosing to lie to yourself."

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Time for More Mortgage Euphemism 07/13/2008 01:50:40 pm by Dan Krohn

	There are experts on Wall Streed stating outright that Fannie Mae and Freddie Mac, the monster U.S. mortgage guarantors, are insolvent. If that is true, then one way or another the U.S. taxpayer will end up in their places. The loan guarantees by those two outfits exceed half the total national debt - hence the use of the word monster. Imagine the national debt up 50% in an instant. Since calling this as it is would be beyond our government's capability, you can be sure that all sorts of interesting terms and phrases will be bandied about. Only the politically blinded and ignorant will be buying the official line. If these outfits are ready to go, and if this amount of debt is suddently going to appear on the U.S. balance sheet (in reality even if some sort of off balance sheet razzle dazzle is tried) you can bet it will hurt. For one, this added federal debt will cause further weakening of the dollar. Foreign governments will not be fooled, and may start moving out of the dollar more quickly. And mortgages in the U.S. might become even harder to get - which will intensify the housing crisis. Keep an eye on this one, and read between the lines. The lines themselves will be less true than those lines tossed about in singles bars.

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eBay Ruling - Renewal of a Trend? 07/12/2008 12:24:21 pm by Dan Krohn

	For years certain brands have been doing their best to ensure that their products are sold only in retail outlets which they approve. Generally speaking these have been luxury goods trying their hardest to maintain an air of exclusivity by being available only to a select few wealthy customers. The classical approach has been to permit only exclusive boutiques and high end department stores to carry the items. Of course, there has been a nice history of lawsuits and legislation dealing with this technique. But now, the issues emerges on the Internet in a very big way. A French court has ruled that eBay has not been doing enough to prevent fake versions of these elite brands from being sold at auction. But the court's decision went further by upholding at least some brands' rights to require that their products be sold only in authorized stores. This blogger has some sympathy for the fake products problem. If a buyer decides not to like the Dior brand because of a bad experience with a product which was not Dior though labelled as such - Dior has a right to be annoyed. But what if this blogger gives some real Dior perfume to his wife, who decides it's just not her scent. Under this ruling, it is unlikely that I would be able to resell that bottle of perfume online. And this seems hardly fair. This represents one aspect of something the Internet has brought into focus in many arenas. What control should an original manufacturer have after the first sale? The performing arts are at the forefront, but ponder where this ruling could go. Imagine that you have bought a music CD and then decided that you don't like the music. Should you be legally prohibited from giving that CD to a sibling or friend who might like the music? You sneak - that's just what you claim to have done. Really you have put that music on your MP3 player and are ripping off the artist - or so it will be argued. Imagine the Christmas police, waiting with your family for the presents to emerge from under the tree. When the perfume is opened, they demand to see the receipt to assure it came from an authorized seller. The same thing happens when dad unwraps his designer tie. And imagine the turmoil erupting when someone unwraps a music CD which is not in its original shrinkwrap! A happy holiday indeed. Merry Christmas.

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Correct But a Bit Too Early Today 06/06/2008 04:54:57 pm by Dan Krohn

	Earlier today this blog suggested that caution was the word on the U.S. economy. That was before this blogger saw the close of market headlines showing oil prices back up to their all time highs and the Dow falling almost 400 points today. Apparently others have also concluded that the worst rise in unemployment statistics in 22 years combined with the other factors stated above and the weak dollar warrant pessimism. To top matters off, a high ranking Israeli official stated forthrightly that if needed to prevent Iran from having nuclear weapons, an attack on Iran would be made. Allegedly Iran has spread out its nuclear program geographically, so an effective attack would likely do serious damage to Iranian oil exports. An ongoing war with Iran would certainly have an effect on oil production. Readers might want to note that U.S. officials have been making more aggressive noises concerning Iran during the last couple weeks. Israel might not be going alone. From an economic point of view, such a war would clearly raise oil prices, and since oil prices affect almost everything else, inflation would naturally follow. Inflationary periods going back to about 1970 were generally the result of overheated economic activity with rapidly rising incomes. This kind of one commodity driven inflation is a different breed, if not a different animal (note rising unemployment does not typically accompany an overheated economy); and the usual cure of raising interest rates will not be as effective. If there were war with Iran, there would be an increase in government spending (wars always do that) and such an increase would be an additional inflationary factor. There are cynics who believe that a war with Iran will be launched in time to assist the McCain candidacy - people would vote for the war hero during wartime. But would McCain really want that? What is clearly true is that the next president of the U.S. will inherit a real economic mess and will be blamed for much of it no matter what. Such was the fate of the first President Bush. (Nothing in this entry should be read as an opinion on whether or not Iran should be attacked in some way. Given its president's clearly stated dedication to the total destruction of Israel and the recent activities of its client group Hezbollah in Lebanon, one cannot blame the Israelis for being concerned.)

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