Deflation fears or not

Greg Mankiw is perplexed by the return offered by the 5 year inflation adjusted bonds:

One might have thought that widespread fear in financial markets would cause a flight to quality, driving the price of safe assets up and their yields down.... If one wants to flee risky assets and invest safely, for many investors [5-year inflation-adjusted government bonds] are a pretty good place to be. But their yields, rather than falling, have been rising sharply of late. It's a puzzle.

This is a little bit beyond my technical capabilities, but it is not all that perplexing to me. In fact, it is one more data point that the current financial crisis is potentially very threatening to the American economy. These bonds are indexed to inflation, and would quickly lose value in a deflationary period. Investors are avoiding these bonds because they are expecting a deflationary period in the very near future. The fear is based upon an expectation that the credit crunch will cause a contraction in the money supply leading to deflation.

Update: I looked at the 5 Year Treasury note versus the 5 Year Treasury Inflation Indexed note. The 5 Year Treasury note is falling and trading at 2.87. The 5 Year Treasury Inflation Indexed note is rising and trading at 1.92. Based upon this information, it is clear that investors are still willing to pay a premium for protection from inflation (i.e., they still expect inflation). However, the amount of the premium that they are willing to pay for protection from inflation is decreasing.

So, it is clear that I was wrong (or overstated the case) to say they expect deflation. Instead, it would be more accurate to say that the rise in the yield of the 5 Year Treasury Inflation Index note is a result in a decrease of the expected inflation rate.

If at any point the 5 Year Treasury Inflation Index note rises higher than the 5 Year Treasury note, then at that point it could be said that the investors are demanding a premium for the deflation that they expect.

McCain should win the election

Dan Balz at the Washington Post writes:

But when Hart stepped back and focused in particular on the four voters who said their vote could still be won by McCain or Obama, it was telling that all four had supported President Bush in 2000 and 2004. Not a single Kerry or Gore voter was wavering over Obama.

If this focus group is indicative of the general population, and the only undecideds left are former Bush supporters, I feel much better about McCain chances than what the polls are indicating. I am guessing it will be much eaiser for McCain to convince former Bush supporters to vote for him, as it will be for Obama.

Additionally, the VP debate might have been enough to seal the deal for McCain. For the past few weeks, the media elite have been relentlessly mocking Palin as an idiot. This put enormous internal pressure on these "soft" Republicans not to commit to McCain (no one wants to deal with constantly hearing that their preferred candidate selected an idiot for a VP). Palin's performance in the debate might have been enough to instill them with the confidence to no longer fear having to hear other people's low opinion of Sarah Palin.

Marketing to the wrong demographic

I have a friend who is an eBay scofflaw. She has earned a life time eBay ban due to her tendency not to pay for items she has bid on. She asked me to bid on some bras for her. I did so. It wasn't a big deal, but now every time I log onto eBay, they are trying to sell me some more bras.

The Biden the media does not want you to know

Pulled from Youtube

Could any Republican get away with saying what Biden says about the Iowa school system versus the DC school system?

Post Bailout Politics

Paul Mirengoff at Power Line provides John Boehner statement on the bailout:

The passage of this flawed but necessary bill is not cause for celebration.

The financial crisis is not a failure of the free-market system. It is a failure of a broken Washington, and a government culture that allowed executives at Fannie Mae and Freddie Mac and other firms to run amok, ultimately imperiling our nation’s economy. For years Republicans warned of this danger and advocated reform of these government-sponsored enterprises. And for years such reforms were thwarted by legislators with deep political ties to the worst offenders, putting the companies’ interests ahead of the interests of our country.

House Republicans stood on principle throughout this process. We secured numerous reforms on behalf of American taxpayers, such as raising the FDIC insurance cap, the SEC’s change to mark-to-market rules for certain assets that have worsened the credit crisis, and an insurance program that forces Wall Street to bear a financial burden in the rescue package. Republicans also were successful in stripping from the original Paulson-Democrat bailout plan of its special-interest earmarks for trial lawyers, labor bosses, and thinly-veiled political organizations like ACORN. This significantly improved legislation is much stronger than the initial Paulson plan and protects the interests of families, seniors, small businesses, and all taxpayers.

John Boehner is right. Hopefully, Republicans and conservatives will be able to unite behind this truth and get the American people to understand that the Republicans are working to create wealth, prosperity and security from terrorists while Democrats are working to create poverty, stagnation and uncertainty over America's ability to forcefully counter threats from terrorists.

Premature Pontification

Andrew Sullivan thinks all of the polls show that Obama's lead is growing. He then goes on to criticise conservatives who were heartened by Sarah Palin's debate performance.

Does Andrew Sullivan not realize that the RCP average of polls which he cited only includes polls that were taken before the debate? He maybe right that the VP debate ultimately helps Obama (I doubt it), but he is about 3 days premature in citing polls.

McCain's Health Plan

Ross Douthat offers a good explanation of the economic principles behind the McCain Health Care Plan:

...the typical family will get their $5,000 credit from the government, and something like the remaining $7,000 they need to buy health insurance will show up in their paycheck. Except that a lot of Americans will actually come out ahead, rather than just breaking even, since McCain's plan offers a flat credit regardless of income, whereas under the current system the dollar value of your tax deduction - and thus the compensation your employer is incentivized to give you - goes up as your income rises.

Therefore, if you want the cost of health insurance to decline and a $7,000 pay raise as well, vote for McCain

Media Scoop

If a reporter wanted a good scoop, they should track down the young lady in the following video and ask her what she thinks about Joe Biden's apparent bald face lie.



via Glenn Reynolds pulled from Youtube

Update: I sent a suggestion to Fox that it would make a good story if they were to track down this young lady, but they might not agree, or they might feel that it is too difficult to track the woman down.

So if you are interested in her response, I am thinking maybe it could be gained virally. Send this link to all of your acquaintances who might be interested in her response, and have them do the same. If you have a blog, write a post asking others to do the same or link to this thread. After six to seven degrees of separation, someone should know her, and be able to ask her, what her opinion is. Get that person to upload her response onto youtube, and then reverse the viral process.

Palin winked at me

George Stephanopoulos writes:

She also tried to wink to the audience about four or five times and you got the sense that she really was connecting with the people back home.

This comment makes me wonder if the VP debate is actually going to be more decisive in the favor of the McCain campaign than people realize. Many Americans were turned off by McCain's behavior in the first debate. Palin's winking might be an small but effective way to win them back.

Palin the "Savior"

Before the Republican convention, the McCain campaign was at a low point as Obama appeared to be pulling away towards victory. McCain called on Sarah Palin, and the race was dramatically changed overnight. Recently, again Obama appeared to be pulling away towards victory as the McCain campaign ineffectively responded to the financial crisis, and as liberals and the media effectively attempted to destroy Sarah Palin. Once again, Sarah Palin might very well have given new life to the McCain campaign:

[Palin] may not have been a clear winner Thursday night, but the McCain ticket has got a different story to shout out on Friday.... and that gives Sen. John McCain the narrowest of openings.

McCain Campaign

Mickey Kaus thinks that McCain will turn to Mike Murphy to "save the McCain campaign":

McCain's behind. It's October. If Palin doesn't change the momentum tonight, isn't it getting to be about the time when you'd predict McCain would do what all the insiders said he wouldn't do, namely turn his campaign over to Mike Murphy to see if that will save him?

The McCain campaign has been hurt by two things recently. The first was the the media's insistent pushing of the Palin is an idiot meta-narrative. Tonight's debate most likely effectively killed that meta-narrative.

The second thing that has hurt the McCain campaign has been the financial crisis. The McCain campaign has yet to turn the financial crisis into a political positive. Rather than dumping the campaign manager, the McCain campaign would be better served by finding a way to turn the financial crisis into a political positive.

Palin's Meta-Narrative

Jonah Goldberg writes:

...it is amazing how the press can focus on how Palin's a disaster and then the second she stops being one, the press yawns as if this is a non-story.

Isn't this a good thing and not a bad thing? It means that McCain won last night's debate, and he won it big. It means that the meta-narrative has changed from Palin is an idiot to she is no longer a critical story in this election. Doesn't that help McCain significantly?

The New York Times is still trying to push the Palin is an idiot Meta-Narrative, but I think enough of her detractors were impressed so that it will not have as much of an affect anymore.

Update: My unsolicited advice to conservatives and Republicans. If the press and the liberals do not want to talk about why they think Palin is an idiot, don't invite them to talk about it by bringing the subject up.

Update II: Glenn Reynolds makes essentially the same point I am making, but he does not trust his instincts enough to be certain:

I don't trust my instincts on this stuff .... But it seemed to me that both did well, and that this was a bigger deal for Palin than for Biden since the press was portraying her as some sort of airhead before.

As it is possible that the left might successfully continue to push the Palin is an idiot meta-narrative (it only takes 1 bad Palin interview to bring it back to life), there is definitely room for uncertainty.

Palin versus Obama

An Ace of Spades reader comments:

The Worst Lies About Sarah Palin don't compare with the Plain Truths about Barack Obama.

Ouch. It is true, but yet, the media reports the lies as truths, and refuses to report the truths.

I am becoming to think we are living in an Orwell Novel.

Circling the Wagons

Howard Kurtz, a Washington Post writer comes to Gwen Ifill's defense, writing:

Ifill's forthcoming book, "The Breakthrough: Politics and Race in the Age of Obama," was mentioned in a Sept. 4 Washington Post article. WorldNetDaily.com, in criticism that was picked up by the Drudge Report and Rush Limbaugh, questioned whether the book would be "pro-Obama" and undermine her fairness as moderator.

"The book has been out there and discussed for months," PBS spokeswoman Anne Bell said. "It's a non-issue."

I sent Howard Kurtz the following e-mail.

So let me see, I like most Americans have been completely unaware of Ifill's book. I only learned of it recently (on Wednesday to be exact). I am guessing that most American who know of Ifill's book are in the same category as me (i.e., they have only recently learned of the book).

Yet since, you can a find a few past public mentions of the book, I and other Americans who are bothered by Ifill's behavior, have to accept it as a non-issue because we did not complain when it was first made public, even though we were unaware it was made public.

Your logic is convoluted.

I know you journalist do not like being called unethical, but I can see no other reason for why you would offer such a convoluted defense for Gwen Ifill's behavior except you are part of the vast media propaganda wing of the Democratic party.

If you do not like being called unethical. Stop acting unethically.

Let us question Ifill's behavior for what it is. If she has a defense, let her offer it, but stop telling us that we have to accept her behavior because our statue of limitations for complaining has passed.

You owe the American people an apology for trying to suppress their right to a free open debate.

I probably will not get a response, but if I do, I will post it.

Prison Movies will never be the same again

At the Wall Street Journal, Justin Scheck writes:

There's been a mackerel economy in federal prisons since about 2004, former inmates and some prison consultants say. That's when federal prisons prohibited smoking and, by default, the cigarette pack, which was the earlier gold standard.

When I was studying economics in college, we actually studied how prisoners used cigarettes to create a money supply. From an economist perspective, anything can be used as money just so long as society feels it is a safe store of value, and people are willing to accept it as currency.

Mike Huckabee was right

Many mainstream Republicans hated Mike Huckabee because they felt he was an anti-capitalist populist. However, there was a truthfulness to Mike Huckabee's populist rhetoric. Unfortunately, Mike Huckabee did not know how to make his rhetoric acceptable to the main stream free market advocates who dominate the Republican party.

Mike Huckabee's populism should be embraced, because it has a truthfulness to it, and it is also the most politically popular way to defend capitalism available.

Democrats, the Party of Greed

Ed Morrissey finds it shocking that some companies prefer the Democratic Party:

...one will be shocked to see Obama... leads in what Al Franken calls “Wall Street” money — Securities/Investments and Commercial Banks. In the former, Democrats enjoy almost a 2-1 advantage over Republicans.

It should not be shocking. Ed Morrissey and others who share his shock probably assume that companies want free markets. Companies do in principle want free markets, but even more than free markets, they want competitive advantages. The Democratic party creates competitve advantages for the Securities/Investments and Commercial Banks, and are rewarded with donations for doing so.

These competitive advantages result from laws that create market inefficiencies. These inefficiencies create short term fluctuations as the market attempts to return to equilibrium. These fluctuations provide ample profit opportunity for smart investors who understand the cause and effect relationship between the laws and the market inefficiencies.

Most investors are long term investors, and do not care about these short term fluctuations. Securities/Investments and Commercial Banks, on the other hand, do care. Furthermore, they have the resources available to identify and understand the cause and effect relationship of market distorting laws. This creates a competitive advantage which allows Securities/Investment and Commercial Banks to profit from long term investors' indifference to short term fluctuations in the market. Hence, they donate to the Democratic Party so that they will continue to write these profit creating market distorting laws.

Additionally, monopolistic corporations also tend to donate more money to the Democratic party than most people would expect. The behavior should not be surprising since monopolistic corporations also gain competitive advantages from market distorting laws.

Market distorting laws produce government endowed economies of scale. Economies of Scale mean that the larger the company is the more efficiently it can create its product. The way the government endows economies of scale is by taxing, subsidizing, and regulating companies.

To respond to these market interferences, companies must hire accountants, tax advisers, lawyers, and human resource personnel to be compliant with all applicable laws, taxes, and regulations. All of the above mentioned personnel are overhead and non productive employees (i.e., they are not engaged in producing the products or services that the companies' revenues are derived from). Hence, the cost of such employees has to be spread across the productive employees. The more employees the company has, the smaller this cost will be per employee. Hence, economies of scale result and all companies are given a competitive advantage if they can grow in size. Consequently, monopolistic corporations reward the Democratic party for taxing, subsidizing and regulating the American economy.

Biden/Palin

I wonder how many people could end up reading Victor Davis Hanson's column and not realize it is a parody. Some might take my comment as an indictment of the collective intelligence of the American people. It is not. It is an indictment of the American media which has refused to fairly and accurately reports the facts in this election.

Politics Thai style

This is what American politics needs. Hopefully, Sarah Palin will open a can of whoop ass on Gwen Ifill tonight.

AIDs

The AIDs virus is apparently older than people realized.