Apparently the tax law is so complex that even the guy in change of writing it doesn't understand his own obligations under that law. Or maybe he just forgot to report tens of thousands of dollars in income over two decades. Somehow, I think that if I made a similar mistake there would be gruff men in dark suits knocking on my door.
Speaking of money owed to the government. Days after the Interior Department received an award for high standards of integrity the Inspector General of the Interior Department issued a detailed report describing inappropriate conduct among the minerals management services who collect royalties from oil companies. The sordid dealings include contract fixing, inappropriate sexual relationships between regulators and oil company execs, and regulators being on the payroll of oil companies as consultants. The missing money comes in where the MMS has failed to pursue thousands of dollars in royalties owed to the government by the oil companies while they have been racking in record profits and growing fat off of huge tax subsidies. Subsidies which also don't seem to be doing anything to keep gas prices low. At least the "MMS Chicks" had a good time.
Pelosi seems to think this will effect the nature of the debates regarding increased offshore oil drilling. By which she doesn't mean that this information revealing that the Bush administration could have done something about the rising cost of oil will be used to take increased drilling off the table. (Drilling that wont do anything to reduce the cost of oil since it will take decades for there to be any production and that production will be so small as to not make any impact at the pump.) No, this will just result in some language being added to the bill regarding integrity. This new information won't change anything because it has already been decided to go ahead with drilling. In fact congress has decided to go ahead with a worse plan than that suggested by Paris Hilton.
The world food crisis entered the perception of the average American this week when Costco and Walmart started rationing rice. I came upon rice at half the market rate today in the grocery store and bought up the thirty pounds you see to the left. I also snapped up a gallon of vegtable oil since land used for rice has been converted to the palm oil cash crop and will rise in parity with rice.
The prices of all foods, and all comodities, are linked in this global economy. The staples Wheat, Rice, and Corn have all drasticly gone up in price over the last year. The rise is due to a number of factors that feed back on one another because of the global economy.
In the United States the farm lobby has pushed congress to invest in corn based ethanol. This created an incentive outside of the market for U.S. farmers to dedicate feilds that had been used for producing rice and wheat for food in the past, to corn, that is being burned for fuel. The President spoke of using switchgrass but the money has gone to corn. So this decreases supply of staple foods that the U.S. would otherwise export to the world. With the falling dollar our exports would be very attractive except the cost of rice is fixed to the dollar so it faces the pressures of inflation. The cost of fuel feeds back into the cost of food because of the energy used in transport and processing.
High Gas prices wouldn't effect the hungry as devistatingly if their own countries produced enough food to feed them. Then they wouldn't have to import the food they need from the U.S. Around the world farmer's decisions about what to plant have been influenced by the U.S. economy over the last few years. The black hole of ever increasing imports to America due to ample credit have encouraged foreign farmers to switch to cash crops. Farming has always been a poverty industry since the beginning of time and how can you begrudge an Egyptian farmer who chooses sugar over wheat when its ten times the price?
This global trend to switch to sugar and oil instead of rice and wheat, or poppys in Afghanistan, has driven world food supply even lower. But it has done so in a highly localized way. Major rice exporting countries have cut shipments to ensure they can feed their own people and the major rice importing countries now face a crisis where the whole supply thretans to go into the black market. When the bottom dropped out of the U.S. economy and the falling value of the dollar started an upward trend toward inflation the whole world suddenly realised they had been catering to U.S. luxury demands instead of feeding themselves.
As closing the port of Mombasa in Kenya because of the post-electoral violence could potentially cause severe economic contraction in surrounding countries, so too goes the unfolding story of the financial markets. With the announcement that 2007 was a horrible year to try to find a job, the "r" word is on the lips of many experts. The most important note of the Employment Situation is that if one discounts government jobs and those in the service sector, the number of jobs fell by several thousand during 2007.
On a positive note, the price of oil went down based on projections of lower demand in the U.S.! I'm sure that this is going to be more than lost considering that the violence in Kenya and its consequent economic ramifications will cost the U.S. far more than getting crude for a couple of bucks cheaper on the barrel.
As always, there is a firestorm of news and protest surrounding U.S. foreign arms sales. And, of course, the countries involved are potential flashpoints for future conflicts.
From Iraq comes news that the Defense Department is bolstering its foreign military sales staff in Baghdad. In a program that was already plagued with problems of corruption and mismanagement, the problems were further compounded when the program realized the ridiculous leap in funding levels, from $200 million to $3 billion in only one year. The corruption in the acquisition process already has the potential to sour relations with our NATO ally, Turkey, as weapons bound for Iraqi troops have showed up in the hands of militant fighters fighting for an independent Kurdistan. However, due to the personnel shortage that accompanied the increased workload, the Iraqi government was forced to buy weapons from other countries. Now, members of Congress reportedly want to know whether American money was used to buy Chinese weapons for the Iraqi Army.
Arms sales, in fact, also provide one of the main sticking points between the United States and China, mainly weapons sales to the island of Taiwan. The economic problems that are the most prominent in the domestic, national discourse in U.S. relations with the PRC have been "underlined by the U.S. for years." However, the issue of Taiwan and the foreign arms sales are the basis for the other point of contention between the two superpowers. In fact this year, Section 1206 in the National Defense Authorization Act of Fiscal Year 2007, the House of Representatives Armed Services Committee establishes some pretty firm policies. Emphasis has been added by author.
More importantly, the committee believes that maintaining a balance of power across the Taiwan Strait is critical to ensuring deterrence and preserving peace, security, and stability in Asia. China’s National People’s Congress adopted an anti-secession law that essentially authorizes China’s Central Military Commission to use non-peaceful means against Taiwan if the latter declares independence. The committee is concerned that this law, in conjunction with an excessive military build-up by China, may signal a weakening of deterrence across the Taiwan Strait. The committee believes that the exchange program, by helping to strengthen Taiwan’s defenses, would help preserve and strengthen deterrence, thereby encouraging China and Taiwan to resolve their differences peacefully.
Considering that Chinese military spending is growing to make the PLA one of, if not the, strongest land forces in the world, the logic of the policy is almost self-defeating. The amount of equipment and money necessary to maintain the vision of deterrence expounded by this doctrine is well beyond the means of the United States. Look for this policy to cause problems in the future, as the U.S. is left groping for a new tact to maintain the stability in the region that is so vital to the international shipping lanes. The real question that would help one in thinking of this problem is, what event could happen that would leap the PRC's political elite to abandon the current Nash Equilibrium enjoyed by all parties in the region, in favor of a military strike? To which, the U.S. is bound under law to look upon with "grave concern," as per the 1979 Taiwan Relations Act.
There is a new arms race brewing in South Asia, although not the usual type. In this case, the developed countries of the world are falling over themselves to provide India with the next generation of military equipment. Looking at potential spending reaching $40 billion dollars, it's not hard to imagine why countries would feel interested in the competition. Nicholas Burns, the Undersecretary of State for Political Affairs feels so strongly about the subject of U.S.-Indian ties that he wrote an article for the current issue of Foreign Affairs. I particularly enjoy who he actually tries to make the article sound sincere in believing that ideology trumps the buying power of the Indian rupee. Again, the subtext to the entire discussion is long-term ties with India, in the fact of a emerging threat from China in Asia.
Before going onto the next topic, enjoy a little video goodness.
Now, the JDAM is going on sale to countries in the Gulf region, specifically Saudi Arabia, which has caused quite a bipartisan reaction on Capital Hill. One should consider, though, that Israel and its lobby aren't protesting the sale in and of itself, only the fact that sales of this type reduce the strategic and technological edge enjoyed that enforced deterrence and brought stability to the region. The sale is practically dead on arrival.
Finally, in Pakistan, an assassin has taken the life of former Prime Minister Benazir Bhutto, but that shouldn't stand in the way of ever-stronger ties developing between the U.S. and Pakistan. In particular, this event will not interfere in anyway with the proposed $2.1 billion arms deal in progress. Pakistan is slated to purchase18 F-16s of the C and D variants.
The end result of all of this is that American foreign policy, especially in the case of Pakistan, is being pulled into a cycle of arming one side to counter another threat that may or may not be of its own creation. And while arms sales and military relations reach new highs, things such as civil society and rule of law tend to be left by the way side. The Military Industrial Complex isn't exactly a democratic institution, after all. Those who are in a strong position to regulate this very important facet of foreign policy are focusing on other priorities, to say the least. Instead of controlling the number of arms distributed internationally, they are worried about the transfer of sensitive information, and the ramifications of Globalization on the MIC, but more on that later.
Apparently, the confluence of record oil prices, a financial fallout in our primary sector for economic growth for the past decade or so, and creeping inflation is too much for the U.S. Economy to bear. The main indicator of the turbulence, the poor dollar has in the past day tumbled to a new record low against the Euro, as well as for the most part falling back to pre-Clinton exchange rates against other world currencies, notably the Canadian dollar. The Chairman of the Federal Reserve, Ben Bernake, one of the masterminds behind this rapid currency devaluation, has signaled that he expect the economy to slow for the rest of the year, and regain momentum in the beginning of 2008. What might be slightly worrisome is that he mentioned that they have not even calculated for even the possibility of a recession. The European Central Bank, for their part, are worried about the potential impact of cheap American exports on the world market, with Bush's new best friend Nicholas Sarkozy going so far as to mention the phrase "trade war." All of this makes me wish that the Fed still published statistics about the growth of money supply.
Oil, on the other hand, is not nearly as interesting, it only hit an amazing high just over $96 per barrel, as opposed to actually eclipsing the $100 price range. Between the price of oil being up 42% since August and "I think the market is due for a correction," I would say that we need to start car pooling more, or perhaps look into public transportation.
In other news, the primary builder for expensive homes in the U.S., Toll Brothers announced that their sales are going into tailspin, bringing up the question of whether the leg that is consumer spending is wobbling... Hopefully, it's only wobbling.
The New York Stock Exchange and most other world indices were pushed down today by poor results in the tech sector.
By far the most worrying aspect of all of this is the mention by Cheng Siwei, Vice Chairman of the Standing Committee of the National People's Congress and the other mastermind, that the American dollar is losing its status as a world currency.
I hope the managers at brokerages are telling their people to lay off the coke.
