The question is what might trigger a decline in the stock market, and put a damper on bond interest rates at the same time.  The price of oil is a likely suspect based on last year’s events.

Last year the price of gas in the US hit $4.25 at it’s peak in the summer.  There was some speculation when oil hit $147 per barrel, of course, but the underlying fundamentals were at play as well.  The economic expansion of Eastern economies beginning in 2000 was unprecedented, as was their demand for petroleum.

Last year, OPEC and other oil producers all wound in $80 or more per barrel into their budgets. These are non-speculative estimates. But they are dependent upon some semblance of economic health.

The fact is, short of a sudden and totally unexpected discovery of oil, the price will rise to the $80 plus level or until the price is where it once again collapses economies too dependent on this energy source. In the US currently, that’s probably somewhere in the $3 per gallon range.

We have another 70 cents to go. That’s probably where the equity markets roll over, and the interest rates pull back.

Investments in gas sipping vehicle producers might start to look pretty good though.

Why don’t we just hand out cash, instead of bombing and waterboarding people?  There’s evidence everywhere around the world that providing people with direct cash support can be wildly effective.

Take, for example, what Oxfam and Concern Worldwide did in Zambia in 2007.  Flash floods that year destroyed many homes and livestock, endangering the well being of many Zambians.  Instead of sending in a lot of seeds, fertilizer and training help, Oxfam and Concern Worldwide sent $25 to $50 monthly cash payments directly to Zambians.

This from the blog Aid Watch.

“Two NGOs working in Zambia, Oxfam GB and Concern Worldwide, tried a different approach: they handed out envelopes stuffed with cash—from $25 to $50 per month per affected family, with no strings attached. An evaluation found that common fears about cash transfers—that the cash infusion will cause inflation in the market, that the money will be squandered, or that men will take control of the money—were unrealized.

What did people buy with the money? The list includes maize, beans, salt, cooking oil, meat, vegetables, clothes and blankets, paraffin, transport, soap and body lotion, and lots of other mundane household items. They also loaned it to friends, used it to pay back debts, purchased health care, education and transport, and rebuilt their homes. Only a very small fraction of the money (less than .5%) was spent on “unproductive” items, like liquor for the men…..”

Cash transfers also acknowledge that poor people are capable of making good economic decisions without the help of outside experts armed with needs assessment checklists. An evaluation of another Oxfam cash transfer program, this one in Vietnam (summary here), found that villagers made sophisticated investment decisions, choosing whether to invest in seeds and fertilizer, family coffins and tombs, cows and buffalo, home improvements, debt repayment, and /or community roads.”

Our enemies know being a Sugar Daddy works well.  What was the first thing Hezbollah did after its supporters got hammered by Israel in the most recent clash with Lebanon in 2006?  They handed out cash.

That the poor have choices and can make them effectively is being demonstrated daily by Nobel Prize winner Muhammad Yunus, a Bangledesh economist who became a banker to the poor.  Yunus formed the Grameen Bank and proved that the poor, given even a modest loan, not only used the money effectively but paid the loan back on time.  Loan losses were an astonishing 2-3% at most.

Interestingly, Yunus discovered that women made the best customers by far.  Women now receive 97% of all Grameen Bank loans because of their credit worthiness. 

Despite these successes, the US still stubbornly spends mightily on its military might.  The wars in Afghanistan and Iraq have cost $830 billion so far.   Defense receives $704 billion in President Obama’s first, $3.4 trillion budget.

If poverty and hopelessness feed terrorist organizations, then providing direct cash payments to the poor may be far more effective for US policy than bombs and torture.  And a lot less expensive too.

Meanwhile, back home the US is in the throes of a recession and spending is being curtailed everywhere.  Military budgets of this size are not sustainable even in good economic times, but in a recession they become very unpopular politically.

US foreign policy would be more successful, and cheaper, if we developed techniques for delivering cash infusions into “hot spots” instead of bombing runs. 

Maybe a ”Sugar Daddy” foreign policy is better.  President Theodore Roosevelt advised ”Speak Softly but Carry a Big Stick.”  How about ”Speak Softly, but Carry a Big Wallet.”

There’s nothing more democratic than a little money in the bank and the pocketbook.  

Thanks to Prof. Mark Thoma and his Economist’s View blog for providing the links for this article.

Savings, consumption and productive capital investment are just about it.

If we have too much global savings, then we need more consumption and capital investment. China’s been doing the capital investment to a fare the well, apparently. So if they still have savings to burn (and I don’t know that they really do), then consumption is needed. Incomes need to be raised.

We’ve been consuming too much, saving too little and forgetting to invest in ourselves which has created a lack of real capital investment. We faked it quite a bit with derivatives, but that faux investing was nothing but a swindle.

We need to come up with real capital investments, and real capital securities to fund these investments. This creates jobs and income, some of which can be used to increase savings.

Globalization and so-called “free” trade need to be reconsidered and modified. As currently practiced globalization de-stabilizes economies and creates systemic risks.  The US, with 300 million residents, is large enough to develop a complete, self sustaining economy. So too should other large nations or, as with the EU, nation organizations.

This would allow for more stable global trade, fewer imbalances and less systemic risk.

I still like Buffett’s import certificate concept.

There’s really no other way to describe what we’ve witnessed the past several months other than with the phrase “financial promiscuity.”

Financial players at almost every level jettisoned any respect for professional conduct, paying themselves richly for oversize leveraged bets on “innovative” securities that came no where near performing as they had promised their customers.  And because the administration under President Bush dismantled much regulation, and refused to enforce what remained, this irresponsible behaviour went unchecked resulting in the loss of trillions in savings. 

It was “anything goes,” and no surprise almost everything went.

The losses weren’t just those held by wealthy people.  Much of the money lost was in pension funds created for ordinary people.  Both private and public pension managers are scrambling to replace the money lost. 

And to add insult to injury the major players remain in their positions while trillions in taxpayer funds and committments are lavished on Wall Street bank holding companies.

Yet still the perpetrators (primarily through their shills at CNBC) complain about government moves to restore strong regulatory regimes.   Fortunately, they’ve been so discredited by their cavalier disregard for public and private savings that strong regulation will be imposed.

President Obama should not relent a bit in this effort.  It is critical for the nation’s health that this type of gambling and the resulting malinvestment and loss of savings never happen again.

What’s becoming increasingly more and more clear is that private markets really don’t do much in the way of long term planning or preparation.  And when it comes to so-called “social issues” like pollution, good health care systems, or energy sustainability, they do almost nothing.

Private businesses didn’t put in sewer systems or water treatment plants.  They didn’t decide to build the interstate highway system.  They didn’t think to clean coal air pollutants from utility power plants.  They didn’t consider the risk of derivatives.  And they loudly complain about government intervention, unless of course the intervention is on behalf of private markets.

Which doesn’t mean private markets aren’t useful.  They are creative and, oftentimes, can move quickly to provide job opportunities and capital investments.   As could any organization that assumed absolutely no responsibility for adverse consequences to the social fabric or other “externalities” like environmental devastation.  Trying to mitigate these considerable negatives as part of one’s business plan tends to slow things down, and in the oversimplified state of accounting, make things “cost too much.”

Take sustainable energy, as an example.  Why aren’t builders building energy efficient structures as a matter of course?  Because to do so makes them more expensive and the competition will build less efficient buildings that are cheaper.  Of course today’s cheap is going to become tomorrow’s expensive.  But that’s tomorrow.  What do you care?

No it’s clear that when it comes to private markets, planning for the future is HCWSWDWDN “Holy Crap, We’re Screwed. What Do We Do Now?”

There’s little question that our current health care system is not sustainable.  If we don’t bring costs down the system will bankrupt the country in short order. 

You see the problem manifest itself everywhere.  Estimates are that more than half of all personal bankruptcies are caused by medical bills.  Public employee health insurance costs are skyrocketing, and because they’re public, the cost increases are public knowledge.  In Manchester, NH, for example, the health insurance rise for teachers this year is a whopping 15%.  In a deep recession, a rise of this magnitude is an easy tell that something is amiss in this industry.  It’s obviously not competitive.  A rise of this kind into the face of a recession is something only a private monopoly would attempt.

President Obama has made health care reform one his top three goals, and because of its urgency he is pushing for reform now even as he fights the recession.   Reforming health care is a popular idea, even with physicians.  In a recent survey, 59% of doctors support a public system.

Physicians For A National Health Program (PNHP) provide a lot of clean data in support of such reform.  They have an excellent Frequently Asked Questions (FAQ) page here.  A spokesman for the group also provided Congressional testimony in April.  That testimony can be read here.

Among the items in the testimony, given by Dr. David Himmelstein, a Harvard Medical School professor, was this estimate of $400 billion in annual savings.

“Dr. David Himmelstein, an associate professor of medicine at Harvard Medical School and a primary care doctor at Cambridge Hospital in Cambridge, Mass., told the House Subcommittee on Health, Employment, Labor and Pensions that only a major overhaul of the existing system, one which replaces the wasteful, for-profit, private insurance industry with a publicly financed, single-payer program similar to Medicare, can rein in costs while guaranteeing universal, comprehensive coverage.

“A single-payer reform would make care affordable through vast savings on bureaucracy and profits,” Himmelstein said in his statement. “As my colleagues and I have shown in research published in the New England Journal of Medicine, administration consumes 31 percent of health spending in the U.S., nearly double what Canada spends. In other words, if we cut our bureaucratic costs to Canadian levels, we’d save nearly $400 billion annually – more than enough to cover the uninsured and to eliminate co-payments and deductibles for all Americans.”

With it’s profits in danger, any reform proposal with a public plan being offered citizens will be fought vigorously by private health care providers.  They see that reform is coming, but are trying to forge a “compromise” where they are offering cost savings (hmmm. I thought free markets drove costs down, didn’t you?) in lieu of a public plan being offered.

President Obama should not make this compromise.  A public single payer plan is needed.  It will emphasize preventative care, will be transparent and most importantly will  be available to all.