Pulp Economics: The Structure of an Interest Rate, Part 1

In the continuing work of The Dark Wraith Forums to help blog readers become more informed and knowledgeable about economics and finance, this Pulp Economics article is the first in a series on interest rates. The current series will interweave with the Pulp Economics series entitled, "A Brief Story of Money," Part 1 of which was published here last week. Whereas the money series focuses on how interest rates change as a consequence of monetary and fiscal policies, this series summarizes the theory of how interest rates form. Each series is, then, a supplement to the other. Information provided here about the processes that underlie the creation of interest rates provides the backdrop for information in the money series about how interest rates move over time and across economic policies and circumstances at the federal and global levels. Here, the emphasis is on what interest rates represent and why they exist in the first place.

To begin this analysis, we need a very important, basic idea from the core principles of economics, and we'll introduce this idea with the story of Irwin Hornflocker, an average guy who worked as a furniture delivery man at Doolick's House of Furnishings over in the old Town & City strip mall on Maple Rock Street about a block from the new, three-story professional building that went up last year. Irwin had been working at Doolick's for eight years, ever since he got out of high school, where he was a first-string wide receiver his Junior and Senior Years at Tri-County Consolidated High School. He didn't get any offers for college scholarships, and that was due in no small part to Tri-County's two-and-twelve record during his Senior year, when he had no fewer than seventeen fumbles to his credit along with a two-game suspension for putting so much stick-'em paste on his hands that, during a tackle in Tri-County's game against the Haley Valley Panthers, his hands stuck so fast to a Panther player's jersey that he ripped the sucker clean off the boy. Irwin has lived a modest life ever since those glory days, and his job at Doolick's hadn't provided him much discretionary income until recently. At $10.25 an hour last year, Irwin pretty much just barely got by. But then Ned Forrell, the old dock manager since Doolick's started business in 1969, had a heart attack while he was having dinner with his wife at Claire's Family Restaurant. Ned went down for the count and passed to the hands of Jesus right there in his hot roast beef and mashed potatoes special.

Irwin saw daylight the next day. He got called into the business office at the request of Fanny Doolick, who took over when her own husband, the late Clyde Doolick, died the very same way as Ned did at Claire's, except that Clyde was having the liver and onions Blue Plate with a side of green beans and cornbread when the Lord called him home. Irwin went in to Fanny's office not knowing what to expect; but much to his shock, Fanny told him that he was now the loading dock manager, what with his eight years of experience and a "damn fine set of muscles any healthy, lonely woman could appreciate." With that one conversation—admittedly a little uncomfortable for Irwin, what with his history of being known around town as something of a lady's man in his youth—Irwin's wage went from $10.25 to $13.45 an hour right there on the spot.

Irwin saw his life turning around. On his way home that afternoon, he thought about all the things he was going to do with that extra money. He was okay with where he lived, and he was okay with the furniture he had and all that. He was thinking more about his hobbies. He liked to work out, and with the extra money, he could buy himself a set of weights instead of using his sofa—purchased with his employee discount at Doolick's Factory Outlet—for his nightly bench presses. More importantly, Irwin had always wanted to go to college, and with plenty of extra money, he could start with a three-hour course at the local community college, which charges $50 per credit hour: that'd be only $150.

Life was turning good. Irwin bought a set of weights for $120 at Sven's Bulge Barn, and he signed up for Econ 101. The course ended up costing a little more than he had thought because of the textbook, which ran $85 for a used copy. Still, for only $235, Irwin was on his way to that college degree he never got because of those lousy last two football seasons when he was in high school.

Irwin did live better even if not everything went according to plan. After a few hour-long work-outs the first week with his new weights, he never touched them again. And that college course didn't really work out because the teacher was one of those air-headed academic liberals he'd heard about and the whole subject had nothing to do with the real world that real people live in; and so Irwin stopped going after the third week of the sixteen-week semester.

But Irwin is now making a lot more than $10.25 an hour, and since his promotion, he's been working 50 hour weeks quite often. He's happy with his life, even if he has had to compromise his principles on two occasions with Fanny; but even there, he found that the pay raises have come more frequently, and they've been more than fair. These days, Irwin's pulling $15.80 an hour, and he does some work in the business office as well as running the loading dock every bit as well as Ned did. In fact, the guys he supervises say he's better than Ned because he's there all the time, and he keeps everything running smoothly. Irwin's life is a case study in the American dream coming true.


Irwin bought weights, but he didn't use them, even though he'd been working out with the sofa for years. Irwin dropped out of college, even though it was something he'd wanted to do ever since high school. In fact, if the truth were to be told, Irwin was even shopping for groceries at the "snooty people's" store, Emerald's Fine Foods, instead of at the old Famous Foods for Less mega-store over by the county fairgrounds about a mile outside of town. Irwin had his reasons for all the things he was doing differently; and once in a while, he even mentioned in passing the real reason: "I don't have time for nonsense anymore; I got responsibilities."

Yes, Irwin does.

In economics, the term is opportunity cost: the value of the best alternative given up to carry out a given action. This is one of the implicit costs an activity carries. Implicit costs are those that don't have a bill that's paid with cash money; the cost is part of the activity, itself. Opportunity cost has to do with what a person gives up; that means it necessarily doesn't have any visible bill or receipt or charge.

A person's wage rate is the opportunity cost of leisure: when Irwin is doing something other than work, what he's doing excludes earning his wage rate at work. When Irwin's wage rate rose, the cost of doing things other than work rose with it.

Consider his weight lifting. When Irwin was making $10.25 an hour, two hours of work-out a week cost him $20.50 in foregone wage; but when he was making $13.45 an hour, the opportunity cost of those two hours of workout a week rose to $26.90. Over the course of a year, the opportunity cost of working out rose from2 hours a week × 52 weeks a year × $10.25 = $1,066.00
to2 hours a week × 52 weeks a year × $13.45 = $1,398.80
Notice that the explicit cost (or direct cost) of those new, fancy weights Irwin bought were actually a small part of the total cost—the sum of the explicit costs and the implicit costs. Irwin's annual opportunity cost of working out two hours a week had jumped by $332.80 ($1,398.80 minus $1,066.00), but the weights cost him only $120! That means Irwin, looking at only that $120.00 direct cost, didn't see the far larger, permanent annuity of costs of an extra $332.80 per year to which he was committing himself by buying and using the weights.

The situation was even worse with that college course. The first night Irwin went to class, the professor said that, for every hour in class, a student would have to study for two hours outside of class. And that was just to get a "C" in the course! That meant Irwin was going to spend three hours in class every week and six hours outside of class every week studying economics, and he was going to have to do this for 16 weeks. Now, Irwin had looked only at the direct cost, which at first he thought was $150.00, but which he had to revise upward to $235.00, including the cost of the textbook for the course. But even at that, Irwin was simply blindsided by the far larger opportunity cost of undertaking just one college course: nine hours every week (three in class and six outside of class) for 16 weeks is a total of 144 hours. Irwin would have to forego $13.25 for every one of those hours, which means his opportunity cost for that course was144 hours × $13.45 = $1,936.80
which put his total cost at$235.00 + $1,936.80 = $2,171.80
for just that one course.

When Irwin was making a measly $10.25 an hour, the opportunity cost of that 144 hours committed to the college course would have been only144 hours × $10.25 = $1,476.00,
putting the total cost at$235.00 + $1,476.00 = $1,711.00
for that same course.

With the workouts and with the college course, Irwin faced the classic law of demand: as the price of a good or service falls, consumers and firms tend to want more of it; as the price of a good or service rises, consumers and firms tend to want less of it. For Irwin, even though the explicit costs of the goods and services didn't budge, the opportunity cost of everything that precluded him making his hourly wage became more expensive overnight; hence, Irwin wanted less of those things, even if he didn't see the prices of the goods and services rising.

And about Irwin, the fellow who always used to make fun of others who went to the "snooty people's" grocery store, the same thing was happening. The cheap prices attracted longer lines of people at the checkout counter. Irwin, himself, was constantly grousing under his breath about people standing there checking out, trying to figure out how the debit card slider worked or fishing for change in their pockets or taking forever to write a check. There were times when Irwin almost lost it because some hoehandle with five unruly kids simply had to put into her shopping cart the one item on the racks that didn't have a price tag on it, thereby prompting the cashier to bawl out, "Price check on Line 29," to which a floor manager would respond sometime within the next several hours. But the prices were always great at the Famous Foods for Less mega-store, even though it was something of a drive to get clear out there. But then, as if all of a sudden, there was Irwin, standing in a nice, short line at Emerald's Fine Foods, paying sometimes 30 percent more for the same things he used to buy at Famous Foods for Less. Had Irwin stuck with his economics course, it might have occurred to him that the line, itself, at Famous Foods was part of the cost of the groceries. The longer a person stood in the line, the greater the cost. But for someone making more money per hour, the cost of a given line was higher than it was for someone making less per hour. That's why people earning more were willing to pay a higher direct cost for groceries at Emerald's: they were simply avoiding an implicit cost that was being driven by people who made less per hour.

In his own way, Irwin came to understand all of this. In fact, during one of his rants with his friends about liberals, he said that the only reason liberals want a higher minimum wage is so they won't have competition for their jobs that require a college education. He had the economics exactly right: as the minimum wage goes up, the opportunity cost of going to college increases, which means more high school graduates will enter the work force directly out of high school, in part because the cost of giving up full-time work to attend college rises. As fewer people attend college, fewer college graduates enter the labor market with the skills to compete with those already in the labor market with college degrees. Hence, a rising minimum wage ensures a tighter supply of college-educated workers, ensuring higher wages and salaries for them.

Irwin's friends just sort of looked at him when he explained the logic. Irwin said, "Don't argue with me about it: I had three weeks of economics at the community college; an' besides, every now and then, I read these long-winded articles about economics on the Internet. The guy calls himself the Dark Wraith, an' he sure explains things good... except sometimes he goes five times around the barn to get to the outhouse. I'm still tryin' t' figure out what that story about the furniture loading dock guy had to do with the structure of an interest rate."


Irwin was right. It seems like the concept of opportunity cost is far removed from the financial world of interest rates and what determines them; but opportunity cost is the driving force at the very base of every interest rate.

When a person puts money into a savings account, he or she is necessarily giving up the right to use that money for immediate consumption. To induce a person to put money in the bank, there has to be an incentive to forego current consumption. That's where interest rates come into play. Now, some investments are risky, some investments are safe; but every inducement to get people to do something other than to use their money for consumption must include a core, basic reward for the immediate consumption that is given up. Every interest rate, then, includes a compensation for not spending money in the here and now, and that core interest rate—call it the real interest rate—is the opportunity cost of immediate consumption. If investors really like to use their money right away, then giving it up will require a big incentive. If people don't get really worked up about using their money right away for consumption, then it won't take a lot to induce them to put money away instead of using it.

This real interest rate, which we designate by r_real, is driven by a number of factors. One big one is the supply of and demand for liquid money. Recall from Part 1 of the Pulp Economics series, "A Brief Story of Money," that liquidity is the speed and efficiency with which an asset can be transformed into another asset. Dollar bills are highly liquid: when there are a lot of those highly liquid dollars floating around in an economy, it won't take very much of a reward to get people to squirrel a few of them away in savings; but when greenbacks are not in abundant supply, it will take a higher real interest rate to induce people to put some of them in the bank. At the same time, when people are very worried about their immediate financial prospects, they won't be too thrilled with the idea of sticking money in a savings account. That means, when people are worried about their circumstances and those of the economy as it affects them, they'll need more incentive to put money into a savings account instead of using it; on the other hand, when people are confident about their own immediate prospects, and they see the economy as being strong, they'll tend to be willing to put money into savings without as much inducement in terms of the real interest rate.

To put it in the context of Irwin, if he were to have more hours in a day, he'd be willing (all other things being equal) to commit time to the economics course or to that workout regimen. With money, if there's more of it swirling around in an economy, the real interest rate doesn't have to be as high to get people to commit some money to savings. But if Irwin has something very important to do right now with the hours he has in a day, he's going to commit fewer of those hours he has to things other than the most valuable thing he can use them for. In the same way, when the greenbacks in an economy are limited, their value goes up.

But all of this leads to something even more important. Yes, there is a basic component of every interest rate that represents the opportunity cost of immediate consumption; but perhaps more fundamentally, a short-term interest rate—one that doesn't have all the extra "premiums" added in that we'll explore in later parts of this series—is in some very material way the price of a dollar!

Now, this "real" interest rate is never seen. It hides below the surface, buried in every interest rate that gets quoted in the actual economy. Every interest rate starts with this real interest rate, and then those premiums mentioned above are tacked on, each to its extent necessary for the instrument on which that interest rate is bearing. The first interest rate that any market would actually form for use would be one very close to the theoretical risk-free rate, designated r_f, which is the sum of the real interest rate, r_real, and a short-term expected inflation premium, π^e, that represents the reward for investors' expectation of lost purchasing power of the money while unavailable for consumption. Take care to notice that the expected inflation premium rewards an expectation: what has already happened with inflation is irrelevant. Investors must be induced based upon what they expect to happen.

The real interest rate rewards foregone consumption; the expected inflation premium rewards lost purchasing power due to the current dollars getting "watered down" by a rise in the aggregate price level, and that's a fancy way of describing plain, old inflation. This sum of the real interest rate and the expected inflation premium is called "risk free" because it doesn't include any rewards investors would have to be provided for bearing various types of risk, one of which is that of losing part or all of their investment through default of the borrower. The so-called "default premium" is but one of several layers of reward stacked on top of the risk-free rate. Each of these risk premiums will be investigated in detail in a subsequent article in this Pulp Economics series. It should be noted at least in passing that the risk-free rate is the one over which the central bank (the Federal Reserve in the United States) has control, but that risk-free rate is also affected over time by forces beyond the central bank's control. In particular, the amount of borrowing by the federal government drives all interest rates because the government will drive interest rates up to induce investors to lend it money; and the expected inflation premium rises and falls through time based upon whether or not the central bank has previously pumped too much or too little money into the economy compared to the growth of that economy's actual need for greenbacks.

Describing too many of the factors affecting observable interest rates in one article can lead to all kinds of undesirable outcomes. In fact, the very last economics class Irwin attended before dropping out was the one where the professor was describing this very subject of the structure of an interest rate. The professor had decided he should lay the whole thing out in one, 90-minute lecture. Irwin actually stayed with him through the risk-free rate, although Irwin was a little suspicious about the part where the professor said that the risk-free rate is theoretical, but a close approximation of it is found in the interest rate the government pays on very short-term loans it gets from investors by selling them what are called "Treasury bills," or "T-bills." The professor explained that, since T-bills are highly liquid—that is, they are easy to sell—and have no chance of default, they are virtually risk free, meaning that the investor gets rewarded only for the basic surrender of immediate consumption and for the expected erosion of purchasing power over the term of the loan. No reward is paid for bearing the risk of default, nor is any reward paid for the risk of longer-term surrender of consumption, nor for the possibility that it would be difficult to sell the T-bill to another investor.

Irwin got worked up because he'd heard his very own President say something about how the Social Security Trust has about two dozen Treasury instruments representing huge loans the Trust has made to the federal government. According to the way Irwin interpreted the President's words, those Treasury instruments in a drawer at the Trust offices were just pieces of paper, and there was no guarantee that they'd be worth anything at all when the Social Security Trust needed them cashed in to pay benefits to retirees. "So," Irwin challenged the professor, "the President says there's a good chance of default on them Treasury borrowings, an' you're sayin' there's no chance of default. An' I'm supposed to believe you instead of the President of these United States, huh?"

The professor answered, "Yes, but that's because the President is irresponsible for even suggesting that the United States Treasury could default."

Irwin shot back, "How can you get by with calling President George W. Bush names?" to which the professor answered, "You're right. Bush is too stupid to be irresponsible."

Irwin left, never to return, never to learn the rest of the story of interest rates, never to learn that he could be smarter with one economics course than his President could be with all of his neo-conservative political and economics advisers.

And absent that economics course, when he's not at work, Irwin now spends the nights hanging out in cyberspace, where he reads the articles at The Dark Wraith Forums, enduring as he then must the gruesomely long stories that only occasionally and randomly ever get around to making a point clearly, lucidly, and interestingly.


For those readers who have made it this far and want more of this series, the next installment will cover the so-called "maturity premium" impounded in some interest rates. That article will be published after Part 2 of the series, "A Brief Story of Money," coming soon to this very blog.



The Dark Wraith trusts that readers will come away from this series understanding not just more about interest rates, but also more about why economics is the science of common sense made obtuse.

Special Blog Post: Unsightly Blog Maintenance... at Conclusion

From 3:15 p.m. to 8:00 p.m. EST on November 22, 2005, The Dark Wraith Forums will be undergoing a behind-the-scenes upgrade of template code. You should expect to see errors, especially when you try to refresh or reload the blog. Other possible effects include the occasional, unspeakable demon lashing out at you from your computer monitor. In rare instances, you may hear the wailing of lost souls crying out in agony from the infinite depths of Hades. Forward views of future political scenes may be briefly visible, including a chance encounter between Democratic Presidential Nominee Hillary Clinton and Republican Presidential Nominee Condoleeza Rice at the Rupert Murdoch Is My Kinda Guy gala fundraiser.

Where was I?

Oh, yes: this blog. Maintenance will be going on this evening to the end of sophisticating the code, removing most of the vulnerabilities arising from the Blogger platform, and preparing for the launch of a new service. Should anything unusual (other than the above-mentioned, routine problems) occur, please feel free to post a comment. For that matter, please feel free to post comments on anything.

In news to chew—perhaps something to get folks riled up—some of you might not have caught yesterday's headline from the Guardian Unlimited on The Dark Wraith News Network over at the Message Board about an interview with Lt. Gen. Walter E. Buchanan III, Commander of the 9th U.S. Air Force and U.S. Central Command Air Forces. It seems that, in the interview, which he granted while he was in the United Arab Emirates for an airshow, Buchanan claimed that the civilian casualties in Iraq have been overstated, and he went on to say, "I would tell you first off I don't believe most of it and I am very much aware that some of that has been staged," the 'it' and 'that' in his bloviation apparently referring to civilians being maimed and killed by Coalition bombings. In other words, good readers, the top Air Force officer in Iraq is telling the world that at least some of those horrific scenes of baked corpses, burned flesh, and hanging limbs have been created for gullible viewers by Iraq's equivalent of our Hollywood special effects jockeys.

Amazing. It all looked so... so... real. And here it was just digital manipulation and make-up. Well, spank me, Moses. Boy, do I feel like a real fool for almost blowing my groceries on some of those photos.

Sheesh.

In other news, The Washington Note is claiming that there's been a Deep Throat sort of insider—a "high level official," mind you—who's been providing Patrick Fitzgerald and the FBI with juicy information from very early in the investigation of the outing of Valerie Plame. So the obvious question is, Who's the new Deep Throat; and does he or she really exist, or is this just more smoke being blown up the American people's collective used-food port by one side or the other?

These and other topics are on the table for comments. As I noted above, feel free to discuss anything.



The Dark Wraith is mindful that he should probably use a word somewhat more specific than "anything," what with the crowd around these parts.

Update:
The code that is the subject of this upgrade will be left in the blog for the next couple of days. It is still creating an error in both Internet Explorer and Firefox if the page is refreshed too soon after it is initially loaded, but the error does not spread beyond the frame where it occurs. You must understand that code that creates a transient error is a most vexing form of mental torture.


The Dark Wraith is on the verge of becoming rather fussy.

Update Addendum:
The source of the error has been found and corrected. Asynchronous Javascript and XML—otherwise known as AJAX—can bite me.


The Dark Wraith is going to bed, now.

And Finally...
The major part of the code upgrade is now complete. I have not yet resolved a minor issue with AJAXing a couple of frames because they carry javascripts inside them, but I'll figure that out over the next couple of days as I refine the code to make it more robust.

I must ask you, the people who come to The Dark Wraith Forums, to tell me to what extent the changes, which should not have altered in any material way the appearance of the blog, have affected the functionality. Does the loading sequence appear substantially different now from what it did before? If so, is it in any way disruptive? Also, have you noticed a slowdown in the speed with which the blog completes the loading cycle? Has it crashed during a load?

It seems to me that end users who have slow modem speeds (below 37 Kpbs or so) are going to find the loading time to be pretty high, perhaps as much as one minute if my estimates are correct. That bothers me, and I shall try to reduce the loading time at least to some extent. At one minute, some of the graphics are going to time out, which will cause the blogScream script to never start running unless the REFRESH button is hit (which will allow the graphics to reload from the point where they stopped). Speeding up the load might entail removing a javascript I put in awhile back, one that would require going back and repairing a lot of posts to rectify the coding in them that's based upon it. If I have to do so, however, I shall. Far too many Webmasters now simply accept the fact that users with slow modems will be unable to access their sites; and this slow squeeze-out of those who don't have high-speed modem connections, DSL, or cable modem is becoming another layer of marginalization of large numbers of people in our collective rush to the "connected" future. I don't want to be too much a part of that: the fact that my writings are available only to those able to access the Internet is about as much as I want to contribute for the time being to cutting myself off from an audience that is already so marginalized that it is easy prey for the radio hate mongers who rely on the listeners' inability and unwillingness to be expansively informed.

As always, I am grateful for the input about what's going on with the technical details. I can see only so much; and sometimes, even though I imagine myself objective, I don't see the problems that could be show-stoppers here at The Dark Wraith Forums.

Talk to me if you will. Tell me what you're seeing that isn't within the range of what is acceptable and expected when you visit a blog.

You might be noticing, by the way, that my humor is considerably better tonight than it was when I finally got the major problem with AJAX resolved. I shall keep that good humor... unless, of course, someone tells me that what I've done in the coding has made the blog a complete mess. In that event, I might get a bit fussy again.


The Dark Wraith still might be a bit on the fragile side from this latest backroom blog work.

Special Blog Post: An Open Letter to Bill O'Reilly

Dear Mr. O'Reilly:

You have received a small share of wrath from bloggers who are appalled and revulsed by your invitation to al-Qa'ida to bomb San Francisco without fear of retribution. That you deserve every angry word that has been published about you is not in dispute: you have earned that animus in its full measure, and you should receive more. Much more. Your right to speak your mind does not include the privilege of a wide audience; you should be fired that you may learn the right of speech carries the accountability for its consequences.

Far more diversity than you imagine may be found in the voices arrayed against you. I am hopeful that you will publish my Website in the list of your enemies: those who might have found some reason to continue their support for you need to see that your simplification of the world is not merely dangerous, but wrong, too.

I was born into a Republican family. I grew up during the Cold War.

Contrary to the facile way that era is now treated by many, the times were complicated and perilous, both at home and abroad; great men confronted the issues of those times. I learned to be what is now sometimes derisively called a "Rockefeller Republican." One of my uncles was a member of the Sierra Club; another was gay. My parents left a church, never to return, the Sunday the preacher thundered against John F. Kennedy. Eisenhower was a great man, but his vice president was something of a toad; and Barry Goldwater was just a little bit "out there" somewhere, more of a mild embarrassment than a contribution. Both of those men, though, regardless of how history and the institutional Left might treat their legacies, came to contribute something to the society. Despite their great flaws, I hold no grudge against either. They were Americans, and so am I.

The enemy back then was Communism, and its armies were to be vigilantly kept in check on a global chessboard, where most of the moves–actually, all of the good moves–were incremental. Nameless Air Force pilots patrolled the cold, night skies to keep us safe; young grunts tried to keep their eyes open through the miserable nights at Checkpoint Charlie; gunners stood watch ready, but never really believing, that those hills way out there on the plains of Europe could one day be a sea of Russian tanks to target in furious hails of artillery bombardment.

Men of long experience and extraordinary wisdom met with others of the same kind in places all over the world to maintain, and once in a great while expand, our sphere of influence. Occasionally, we made deals with the Devil, but we usually told ourselves that one day we'd get rid of him once and for all. That was the incremental vision of a world that we should hand off, generation after generation, a little better than we received it.

At home, we did our best to allow the tide of a liberal society to flow forward through the second half of the 20^the Century, while trying to keep that inevitable process slow and introspective. That part was harder than keeping the Communists at bay: the American society was just bursting at the seams with new ideas, and everyone wanted everything to happen right then and there. Unrepentant kids wanted to tear it all down, and blustering ignoramuses wanted to hang them all in the streets.

Those who managed our world and our government were educated in the best traditions of Western Civilization. They had learned the lessons of history, philosophy, and science; and they were able to infuse into their policies and decisions a secular, rational mindset. They saw themselves as the caretakers of the Age of Reason, without any doubt at all that this was the age for all future ages.

All of that is gone, now. Men and women of your kind now stand prominent and proud in bitter anger at a world that is not exactly as you want it. An influential religious leader like the Reverend Pat Robertson warns that natural disasters will befall those whose beliefs and practices differ from his; an influential former political man like William Bennet says that crime rates would be lower if only we would remove people of color from our society; and you, sir, literally call down the most violent and destructive of our enemies—enemies who hate our nation, our beliefs, and even our very ways—upon those with whom you disagree on politics and social policies.

My God, Mr. O'Reilly, can you not see—can you not grasp—the utter shamefulness of what you said? What tribal, primitive god, or more precisely, what demon in the mask of a god, brought you to what you are?

Were you my boy, I would take a belt to you; and I would do so every time you opened your mouth to spew such filth. You see, Mr. O'Reilly, I'm Old School; and even though I abide to the extent I can the wise words of men like the rabbi from Nazareth, I haven't an eternity to wait for the world to come to my way of seeing things.

Make no mistake, though, sir: were you to be in the way of harm from our common enemies, I would defend you. That is the call of duty. More importantly, however, I would choose to defend you. That is the call of honor.

But should men, women, and children suffer and die because you have delivered them to the murderous hands those enemies, I would take action. Were the civil society unable, infected as it is by men of minds like yours, to decline the obligation to exact retribution upon you, then I would have no qualm in exacting vengeance upon you.

Should you exhort your followers to seek pro-active harm to me, ensure first that they do not read this open letter. You might find that, when they have seen what I have to say, they will find that I am not as you have characterized all who disagree with you; you might find, instead, that they would affirm that you do, indeed, need that belt taken to you. You might find that they, too, are Old School.

And you might find that, unlike you, sir, most Americans are people of honor.



The Dark Wraith has spoken to you, Mr. O'Reilly.

Pulp Economics: A Brief Story of Money, Part 1

This is the first installment in a four-part series on the root of all evil. Actually, the relevant admonition is that the love of money, not money itself, is the root of all evil, but that's more or less a technicality that legal scholars adjudicating eternal damnation cases are more qualified to consider. This special Pulp Economics series here at The Dark Wraith Forums has more modest interests and ambition. The series upon which we are about to embark will take readers from the very basics about money clear through to the elements of how modern central banks use money to manage economies and project one or another political, social, or economic program.

This is a subject of macroeconomics, the study of economies in the large, of unemployment, recessions, economic growth, inflation, and other features that transcend individual consumers, households, firms, and industries. Economics can be an intensely boring and difficult subject to study. Thank God, readers here at The Dark Wraith Forums have the benefit of one of the finest teacher of economics to ever have walked this sad and troubled Earth. Those who don't believe that should first take a course in principles of economics from the typical modern professor of the discipline, where they'll be treated to darkened rooms punctuated by PowerPoint presentations and graphs and charts and all manner of droning incontinence that is more than enough to bring the Bluebird of Happiness to despair and ultimate suicide.

Rejoice, then, as we travel the economics highway across the vast tundra that is the subject of money. In this first installment, the problem of defining money will be handled. That is crucially important, not only to later installments, but to the overall understanding of how economic agents function in a world where, on a daily basis, hundreds if not thousands of transactions can occur just at the personal and household levels. At the national and global levels, money in many and varied forms—some of it not even apparent as money in any common sense way—is flowing in sums and intricate networks that only massive computing power can grasp in scope and depth.

The readers of The Dark Wraith Forums are, of course, not average by any means; and that's why this series is tailor made to the audience here. Readers will laugh, readers will cry; and ultimately, they'll come away from this series with only one question: "I spent a grand on a computer so I could read drivel like this?!"

And with that, we now begin... with a little play. Set in paleolithic times, this is the story of a paleolithic man by the name of Mr. Shakes, a previous incarnation of the man by the same name whose home is the now at the blog Shakespeare's Sister. Mr. Shakes has traveled a good distance to do business with another paleolithic man, Mr. Goat, in his modern incarnation an earstwhile commentator at, among other places, The Dark Wraith Forums. Other characters from the modern era will be incorporated by reference or in cameo appearances, and all actors are herewith acknowledged for their roles in this production.

      [Fade in scene: Bright morning sun rising over rocky, steep hillsides. Caves visible along face of hill.]

      [Sound of man walking, breath labored.]

      [Pan camera onto caveman, carrying big animal skins, walking toward caves.]

Mr. Shakes [hollering, thick Scottish accent]: HELLOOOO! ANYBODY HOOOME? MR. GOOO-AHT! WAKE UP! IT'S MR. SHAKES!

Mr. Goat [emerging from ground-level cave]: Mr. Shakes? Good Lord, man, it's not even six o'clock in the morning. What're you doing out this way?

Mr. Shakes: I got sooome tradin' t'do wit' ya.

Mr. Goat: 'Trading'?! You mean you've actually got something worth trading?

Mr. Shakes [hoisting animal skins above his head]: That I have.

Mr. Goat: Holy Moses! You actually went out and hunted down beasts and got their hides?

Mr. Shakes: Not exactly. You know our old friend, Paul the Spud? Great hunter. Brilliant guy: he could conjugate verbs like a Proto-Indo-European.

Mr. Goat: Yeah, as a matter of fact, I'm expecting him any time now. Last time I saw him was two days ago; we were both getting a cup of morning coffee at Pam's House Blend. He even paid for mine. He said he'd be coming over to my cave to do some business.

Mr. Shakes [breathless, clamboring around boulders to Mr. Goat's cave]: Well, Paul's dead. I found parts of him out on the plains. Looks like he got nailed by a sabre-tooth tiger.

Mr. Goat: YEESH!... Oh, I get it. Those were the hides he harvested.

Mr. Shakes [dropping them at Mr. Goat's feet]: That they were. Scattered around in a field. I scraped Paul's viscera off the ones he apparently used to wrap himself up in. Seems he was tryin' t' look like some kind of fierce animal to the sabre-tooth.

Mr. Goat [kneeling down to inspect the hides]: Hmm. Doesn't look like the strategy worked very well, does it?

Mr. Shakes: Well, it would have worked a whole lot better if he hadn't been so panicked. It looks like he wrapped himself in the zebra skins.

Mr. Goat [shaking his head]: Talk about a bad move. Paul might as well have put a neon sign on his head: EAT HERE!

Mr. Shakes [laughing nervously]: I'll tell ya, this Paleolithic era just sucks sometimes. I really liked Paul.

Mr. Goat [standing back up]: So did the cat, it would seem.

[robust laughter]

Mr. Goat: So you're now the proud owner of five hides, and you want to do business?

Mr. Shakes: That's why I'm here. You're the entrepreneur. You do business with anyone, even the paleo-conservatives.

Mr. Goat: Well, yes, I'll even do business with paleo-cons; but so help me God, I'll go out of business before I'll do a trade with a neo-con.

Mr. Shakes [nodding]: A man with ethics, that's what you are, my friend.

Mr. Goat: You know the standard for hides, don't you?

Mr. Shakes: 'Standard'? There's an exchange standard?

Mr. Goat: Oh, yes. The standard has been around for ages. It was established by the guy who wrote T. Rex's Guide to Life: Kenneth was his name, I think.

Mr. Shakes: The standard has been around since the T. Rex?!

Mr. Shakes: That's the legend, anyway; but it really doesn't matter since everyone accepts it. That's what matters: we all agree on the standard. There's even a list of exchange values put together by a lady named Ms. Julien: everyone called it Julien's List.

Mr. Shakes: Well, if it's a standard, then I suppose I'll have to accept it. I was really hopin' t' get somethin' t' eat for th' family: me and th' wife an' our two little ones.

Mr. Goat: That shouldn't be a problem. I just secured a medium-sized animal that's more than enough to feed a family of four.

Mr. Shakes: Perfect! I'll take it... Uh... What particular species of 'medium-sized animal' are we talkin' about here, by th' way?

Mr. Goat [walking back into the cave]: Dog.

Mr. Shakes [cocking his head to the side]: You mean, like a family pet or somethin'?

Mr. Goat: Actually, I think it was a family pet. It talks.

Mr. Shakes [looking puzzled]: Ya mean I'm gettin' a talkin' dog, an' I'm supposed t' feed it to me wife an' kids?!

Mr. Goat [bawling out, whistling]: FIDO! C'mon boy! I found a new owner for you! [turning back around, talking in whisper] You don't tell your family what they're eating, fer cryin' out loud! And you most definitely don't tell the dog what your plans are for him. He's pretty darned smart.

Mr. Shakes: AH! Yes, I understand.

Mr. Goat [emerging from cave, scruffy brown dog following]: Fido? Meet your new master. He's got kids and a nice cave where you'll be a happy pet. These people will just love you.

Dog [jumping up and down]: Oh boy, oh boy! A family! Let's go, let's go!

Mr. Shakes [looking at dog admiringly, laughing]: Not so fast, there, Fido. I still have t' finish me business with Mr. Goat, here. [hands over the animal skins]

Dog [eyes bugging]: You're giving up five gorgeous animal skins for moi?

Mr. Shakes: That's th' deal.

Dog: You should keep those. You could make a new wrap-around for your loins. That one you're wearing looks pretty tattered.

Mr. Goat: He's got a point, there, Mr. Shakes. That wrap-around is in pretty bad shape.

Mr. Shakes [looking irritated]: It's not a 'wrap-around'; it's called a KILT!

Dog: A 'kilt'? Why do you call it that?

Mr. Shakes: Because some animal had t' be kilt so I could have it. [bursts into roaring guffaws]

Dog: Oh, now I get it! [joins Mr. Shakes in loud laughter]

Mr. Goat [rolling his eyes, muttering]: Great. A Scotsman and now a dog who thinks he's funny.

Mr. Shakes: I think that concludes our business, Mr. Goat. Now, you'll forgive me if I take this fine food... er, dog and head back down th' trail. It's a long journey, an' I want to be home in time to prepare supper... if y'know what I mean.

Mr. Goat: Yes, of course. It's been a pleasure doing business with you; and come back again when you've scavanged some more hides from the dearly departed.

Mr. Shakes [turning, climbing back across the boulders, dog following]: That I'll do, Mr. Goat. C'mon, Fido.

[fade scene; open again with Mr. Shakes and dog on trail]

Fido [panting]: Boy, this is a long walk, but it'll be nice to have a home.

Mr. Shakes: You didn't like living with Mr. Goat?

Fido: It wasn't so bad, except for that head-splitting high-C note.

Mr. Shakes: What do ya mean by that?

Fido: Oh, in the cave next door to his, the Fat Lady Sings every morning at the crack of dawn.

Mr. Shakes: Wow. It makes me glad I have such quiet neighbors. On the one side of me is the Old White Lady, and on the other side is Trailer Trash.

Fido: 'Trailer Trash'?! You mean you live in a mobile home park?

Mr. Shakes: Not exactly. It's just that our cave complex sits right on a fault line, so the whole hill moves around quite a bit every now and then.

Fido: Must be hard keeping good dishes.

Mr. Shakes: It would be if we were using something other than stone bowls. I guess this Paleolithic era does have its advantages, although it still takes up so much of the day just findin' th' food, killin' th' food, dressin' th' food, and then preparin' it for dinner. Economies of specialization will be great in food production once we get into the Neolithic era and later.

Fido: What kind of food do you normally eat?

Mr. Shakes: Most days it's pretty thin fare, but tonight we're eatin' well, I'll tell ya that much. An' that reminds me: we need to pick up our pace; we need t' get back while there's still some light so I can get dinner on the fire.

Fido: I'm with you on that. I'm starving. What're we having?

Mr. Shakes: Er, something special.

Fido: A formal dinner! Should I wear anything, you know, like, formal or something?

Mr. Shakes: Don't worry about that. I'll dress you for dinnner.

Fido [pausing, then laughing]: Ha-ha. That's a funny little play on words, there: 'dress you for dinner'! Sort of like I could take that two ways: you could mean you're giving me some nice clothes to wear, or you could mean that you're going to butcher me and put my dog meat on the fire for everyone else to eat. Ha-ha.

Mr. Shakes [absently as he picks up his pace]: Yes, I could.

Fido [furrowing his brow slightly]: Yes, indeed... You know, I was just thinking about what kind of great guy would trade five hides for a lousy, mangy dog that's going to be nothing more than a family pet. Such a noble act.

Mr. Shakes [still not paying attention]: Yep, Fido, it certainly is.

Fido: And that reminds me, what exactly does the name 'Fido' mean in caveman languages?

Mr. Shakes [breathless, walking a brisk pace]: Protein.

Fido [voice trailing off into the distance]: YIKE! YIKE! YIKE! YIKE! YIKE! YIKE! YIKE! YIKE!

Mr. Shakes [stopping, watching dog run away]: Damn! Me an' me big mouth. There goes dinner. Now I'm going t' have t' collect some mastadon poop chunks an' tell th' family it's giant potatoes again. Sooner or later, they're goin' t' figure that one out. I'll be so glad when they put up a convenience store out here... I'll be able to get a dog already hot and ready to eat... no more dogs freakin' out and runnin' off. [sighs] I miss me dog already.

      [fade to black]
      [production credits]

The Dark Wraith Forums
in association with
Pulp Economics Productions

      [credit role in order of appearance]

· ·  Mr. Shakes of Shakespeare's Sister  · ·
· ·  My Pet Goat as Mr. Goat  · ·
· ·  Paul the Spud of Adventures of the Smart Patrol  · ·
· ·  Pam Spaulding of Pam's House Blend  · ·
· ·  Kenneth Quinnel of T. Rex's Guide to Life  · ·
· ·  Ms. Julien of Julien's List  · ·
· ·  Fido  · ·
· ·  Fat Lady Sings of The Fat Lady Sings  · ·
· ·  Old White Lady and Trailer Trash of It's morning somewhere  · ·

      [CUT]

And so ends our little play, which in its sweeping, nearly epic scope was richly infused of information about the subject of this series of articles.

Money serves three principal purposes. First, it is a store of value. In this function, money holds the worth of goods and services exchanged for it so the value can be transported and used at a later time. In the play, Mr. Shakes carried hides that were worth something not just to him, but also to someone else. He didn't have to use their worth at the moment he secured them. Similarly, Mr. Goat had a dog, which represented the value he received in a previous transaction. Both the hides and the dog held value for later use and at a location perhaps other than where they had been acquired in trade or other transaction.

Second, money is a medium of exchange. Mr. Goat and Mr. Shakes agreed that each had something of value and these items of value could be traded for one another. Just because something has value, however, does not necessarily mean it is particularly useful as a medium of exchange. It would be difficult, for example, although not impossible for Mr. Shakes to have brought his kids to trade rather than the hides. Although usesful, perhaps even valuable to Mr. Goat, he might have been quite unwilling to accept the kids as something for which he would provide merchandise in trade. The kids could be fussy, difficult to sell, and rather gristly to eat.

Third, money serves as a unit of account. Mr. Goat informed Mr. Shakes that hides were a basis for determining the worth of other objects in trade. In the transaction that occurred, five hides was equivalent in value to one dog. No doubt, Mr. Goat's bookkeeper maintained a running account of inventory in terms of hide equivalents.

This use of hides, by the way, was not restricted only to Mr. Goat. Historians Frances and Joseph Gies, in their popular account, Life in a Medieval Village, note that valuation censuses taken in the Middle Ages listed land holdings in terms of hides, too. One hide was equivalent to about 120 hectares of land, although the exchange rate varied from place to place in Medieval England. Interestingly, although land would never have been bought using hides, the hide served quite well as a unit to account in a generally accepted way from one person to the next and from one manor to the next for land throughout Great Britain of the time.

Going back for a minute to the rather grim prospect of Mr. Shakes selling his kids, this brings up an important aspect of money that explains why there can be different kinds of money operating within an economy. Many items meet one or more of the three criteria set forth above; but some kinds of money are much more easily converted into something else. In the play, those hides were quickly turned into a dog. Mr. Shakes' kids, on the other hand, would not have been so readily convertible. Mr. Goat might not have accepted them at all, and Mr. Shakes would then have found himself knocking on every door at the whole cave complex until he found someone who would agree to exchange them for something that could then be sold to Mr. Goat. Even if Mr. Goat had accepted them, he might not have surrendered the dog until he was sure he could do something with the little urchins: he might have told Mr. Shakes to leave the kids and come back the next day for the dog.

The ease and efficiency with which money can be converted into something else of value is called its liquidity. In reference to money used in the United States, a dollar bill is "highly liquid." In the world of big finance, a government Treasury bill—a federal debt obligation that is of no more than a year in duration—is highly liquid. In fact, for banks doing trades with the Federal Reserve, those so-called "T-bills" are almost perfectly interchangeable with dollars. In economics, we would say that the greenbacks and the T-bills are very close substitutes.

Now, think about this. A government T-bill is an obligation—an IOU—issued by the United States Treasury. The terms are essentially such: an investor lends the U.S. government some money, and a year later the government compensates the lender the face value of the security (the T-bill) that represents the obligation. That face value is a thousand bucks. So, if the going price for these newly issued T-bills is, let's say, $965.00 ("96.5" in the notation of bond prices) the investor is going to earn $35.00 ($1,000.00 — $965.00) on a loan to the government of $965.00. That means the investor will have earned an annual interest rate of $35.00 ÷ $965.00, which equals about .0363, or 3.63%.

Consider, on the other hand, an investor making a loan to, say, Guy Andrew Hall of Rook's Rant. Mr. Hall is certainly a credit-worthy individual, so the IOU agreement he writes out on a paper napkin is surely just fine. He, like the United States Treasury, promises to surrender a thousand dollars in one year in exchange for some money right now. One major problem among many with this promise is that an investor cannot simply unload that paper napkin onto somebody else before the year is up. With a T-bill, the instrument can be "liquidated" at any time at any bank; but it's going to be really hard to find anyone who would buy that paper napkin from an investor. That means the amount of money lent to Mr. Hall is going to be considerably less than the amount of money lent to the federal government even if Mr. Hall's credit rating and general trustworthiness are as good as gold. In Mr. Hall's case, an investor might lend him, say, $900. That means, when Mr. Hall pays off the loan in one year, the investor will have earned $100 ($1,000.00 — $900.00) on a loan of $900. That means the investor will have earned an annual interest rate of $100.00 ÷ $900.00, which equals about .1111, or 11.11%.

Notice as a side point, one that will be brought up again in later installments of this series, that the price of a security moves in the opposite direction to its yield: the price of the T-bill was $965.00, and its yield was 3.63%; but the price of Mr. Hall's IOU was $900.00, and its yield was a whopping 11.11%. This is a fundamental rule of all securities: the higher the price, the lower the expected yield; and the lower the price, the higher the expected yield.

Back to the main point, now, Mr. Hall had to pay far more than the government did, and it wasn't really because there was much more risk of default by Mr. Hall, and it wasn't because the investor had to surrender the use of his money any longer for Mr. Hall. The difference in those two yields, about 7.48% (11.11% — 3.63%) was due to a liquidity premium being tacked onto Mr. Hall's borrowing. That paper napkin couldn't be unloaded by the investor without considerable difficulty, whereas the government T-bill could be sold in a second. That's where liquidity comes knocking as an important determinant of what constitutes different "layers" of money in an economy.

In the United States, money is broken down into categories based upon its liquidity. For example, the most liquid forms of money are put in a category called M1. This includes cash and currency in the hands of the public, demand deposits (checking accounts at banks), and traveler's checks. These types of money are either exactly or close to being bearer instruments: essentially, whoever holds ("bears") the paper—be it a ten dollar bill, a bank check, or a traveler's check—has the relatively undisputed claim to the value represented by the instrument.

The next layer of money is designated M2. This includes all the money counted in M1, as well as somewhat less liquid instruments like savings deposits, shares in money market funds, and small-denomination, time-sensitive savings like certificates of deposit (CDs).

Encompassing both M1 and M2, along with even more illiquid forms of money, is the great big L category, which adds all kinds of financial instruments that can't be liquidated instantly or even in short order without a lot of pain. The nearly constant stream of innovations, twists, variations, and tricks makes the definition of L subject to frequent updates. Even M1 and M2 are not really all that fixed: all the time, financial instruments are popping up that have the characteristics of highly liquid money.

Important to note is that M1, M2, and L consider only financial instruments; but we have seen already that money doesn't have to be paper, it doesn't have to be associated with banks, and it doesn't even have to be sanctioned by some government or other official institution. Money has another dimension, another way by which it can be broken down into categories that are only to a certain extent related to its liquidity. This alternate classification system has more to do with the nature of the money and the focus it has on the three purposes, which were described as store of value, medium of exchange, and unit of account.

This different classification system begins with the most "primitive" (for lack of a better word) type: commodity (or barter) money. This is money that has intrinsic value in and of itself as a usable, consumable item. Fido was commodity money: not only could he be used in a transaction, he could also be eaten. A dollar bill cannot be eaten. Barter moneys have existed since time immemorable, and standardized barter moneys have been around just as long. Many are the stories, for example, of cigarettes serving as barter money in prison camps. All manner of domesticated animals serve as barter money in agrarian economies.

Beyond and after commodity money is metal money. Some metals have been widely popular across cultures, times, and continents. Gold and silver are examples. The metal, itself, could theoretically be consumable in production of everything from weapons to household tools, so metal money is in some ways a "less liquid" form of barter money, if liquidity were to be considered in terms of the ease and efficiency with which the money could be converted into a usable or consumable item. Metal moneys can be found in ancient civilizations, and they endure to this day as commemoratives in many so-called "advanced" economies. It was only in 1964 that the United States government stopped using the prized metal silver in coins of denominations greater than that of the nickel. Even the paper one dollar bill, as seen in the graphic at left, was metal money: note the label "Silver Certificate" at the top of the face of the instrument. That wasn't some esoteric promise by the United States government; that one dollar bill could be exchange at any time, on the spot, virtually instantly for four silver quarters or ten silver dimes!

The final version of money under this categorization method is fiat money. This is money that is money by decree of some authority. A purely fiat money cannot be used for anything other than its intended purpose as a store of value, a medium of exchange, and a unit of account. It cannot be eaten, it cannot be readily melted down into an ingot of great value, and its legitimacy rests solely on the power, reputability, and indisputabilty of its issuer. At left is a graphic representation of a modern one dollar bill. At the top it does not represent to be a "Silver Certificate" since the government will not guarantee its convertibility into any set amount of a metal. In fact, although the instrument is backed by the "full faith and credit" of the United States government, the issuer is the Federal Reserve Bank, acting as the agent of the United States Treasury. In other words, that dollar depicted over on the left is a "Federal Reserve Note": an IOU issued by the Federal Reserve Bank.

Readers might be asking, "Okay, but 'I Owe You' WHAT? What exactly is owed for the promissory note evidenced by that dollar bill we use these days?" It's a "note"; that means it's like a loan of some kind. The U.S. government doesn't say it will honor it with an exchange for silver, even though a bearer could use some of those dollars to buy metal in the private markets.

Does this mean that greenbacks since the mid-1960s have been funny-money? Not really. Fiat money serves its three purposes as a store of value, a medium of exchange, and a unit of account to the extent that its users accept its legitimacy in trade. Provided the government that decrees the paper to be money holds its legitimacy, or to the extent that it can otherwise impose its will upon the prospective users of its fiat money, the paper stands as good and worthy money. To the extent that the fiat money is the denominating currency for a sound economy, it will represent in international trade the worth of that economy. The stronger the economy, the more widely respected the currency.

As a promissory note, a United States dollar can be invested in the United States economy. If yields on such investments are robust, that dollar will be highly prized around the world, and manufacturers in others countries will shovel their products into America at low prices just to get their hands on some of those greenbacks, which they can then invest here to get those great interest rates. That, of course, is certainly not all to the good, since foreign manufacturers selling their products at low prices here means that domestic companies get their backsides kicked in international economic competition. That means a balance must be found between interest rates that are low enough to help domestic consumers and businesses borrow money and compete internationally, but not so low that they make the U.S. dollar a laughing stock in terms of its value in international trade. How that balance is achieved, and the forces that frustrate a reasonable point of balance, are the subjects of subsequent installments in this series.

In future installments, the so-called "money multiplier" and the "equation of exchange" will be set forth. These are relatively simple mathematical formulae that can be used to explain interest rates, inflation, and their relationship to short-term and long-term economic growth in an economy. The series will end with a description of how the Federal Reserve uses money to manage the economy. Readers who have made it to the end of this first installment should look forward with much anticipation and no small amount of joy to the not-insignificant intellectual and emotional rewards to come in this Pulp Economics series for the new American century.


The Dark Wraith thus and amply delivers.

Special Post: Judge in Libby Case Favors Protecting Classified Information

The Washington Post and the New York Daily News are reporting that indicted White House aide I. Lewis "Scooter" Libby appeared before U.S. District Judge Reggie Walton for arraignment on five felony charges of lying to a grand jury and to the FBI during an investigation into the public disclosure of the identity of non-official cover (NOC) operative Valerie Plame. The New York Daily News article describes Judge Walton—appointed to lower courts by Presidents Ronald Reagan and George H.W. Bush and appointed to his current seat by President George W. Bush—as a "'long-ball hitter' on sentencing [who] often cows defendants into copping pleas." The article goes on, however, to point out that Judge Walton has recently dismissed a case in which the FBI, itself, claimed that "classified information" would be revealed if the judge were to allow the complaint of official misconduct by a whistleblower within the agency to go to trial.

The case involved former FBI translator Sibel Edmonds, who alleged that information related to the terrorist attacks of September 11, 2001, contained in communications in languages in which she was fluent, was not translated until after the attacks had occurred and that other translations were performed by either by individuals incapable of adequately understanding the nuances of the communiqués or by individuals she had already reported as giving evidence of having been compromised by interests possibly related to organizations and persons in the communiqués. Then-Attorney General John Ashcroft, through Justice Department lawyers, argued before Judge Walton that a "state secrets priviledge" precluded proceeding to trial and moved for dismissal. Judge Walton ruled in favor of the motion and noted in extension that "...the imminent threat of terrorism will not be eliminated any time in the foreseeable future, but is an endeavor that will consume our nation's attention indefinitely."

With regard to the current matter of the charges against Mr. Libby, in a statement released by his attorney, Joseph Tate, Mr. Libby made representations that news analysts interpreted as being the outline of a defense that would involved simple memory lapses that created the impression of incompatibilities among statements made at various times to the grand jury and to FBI investigators. It appears, however, that such outside speculation about how Libby's defense team will proceed is wide of the mark: because the judge who will preside in the case has shown a marked willingness to dismiss cases when "classified information" might be revealed, it is highly likely—in fact, it is almost inevitable—that Libby's counsel will immediately subpoena, and represent as crucial to their defense, information that the White House will decline to disgorged on the grounds that it contains classified information. A motion to dismiss will then be forthcoming from the defense table, and it will be in the hands of U.S. District Judge Reggie B. Walton to decide whether or not, based upon his own previous assertions and precedent, he will rule in favor of the motion.

Time will tell, though.



The Dark Wraith will let the matter drop... for the time being.

Analysis: Index Portfolio Performance During the Bush Administration to Date

In the interest of providing a continuing report on the assessment by United States stock markets of the economic policies and achievements of the Bush Administration, returns on three stock index portfolios are herewith presented.

On January 22, 2001, which was the first day of trading after George W. Bush became President of the United States, three major indices stood at the following levels:

     Dow Jones Industrial Average: 10,578.24
     Standard & Poor's 500: 1342.9
     NASDAQ Composite: 2757.91

At the close of trading today, November 4, 2005, these same three averages stood at the following levels:

     Dow Jones Industrial Average: 10,530.76
     Standard & Poor's 500: 1220.14
     NASDAQ Composite: 2169.43

If an investor were to have formed a portfolio based upon each of these three indices and managed each in terms of composition and balance to track the relevant index properly, the investor would have earned the following total returns on investment:

     Dow Jones Industrial Average: —0.44%
     Standard & Poor's 500: —9.14%
     NASDAQ Composite: —21.34%

Expressing these returns on an annualized (that is, "percentage return per year compounded") basis, the results just presented are as follows:

     Dow Jones Industrial Average: —0.09% per year
     Standard & Poor's 500: —1.98% per year
     NASDAQ Composite: —4.89% per year

The above are nominal (that is, "not corrected for inflation") results. Taking into account the erosion of purchasing power (that is, "the effect of inflation") on portfolio value over the holding period requires adjusting the current portfolio value to its equivalent value on January 22, 2001. Using Bureau of Labor Statistics Consumer Price Index data for the 58 months from Janaury 2001 through September 2005 and projecting the October 2005 contribution from the trend line of the preceding nine months (since the October figures have not yet been released by the BLS), the following real return on investment (that is, "annualized rate of return on investment adjusted for inflation") would have accrued to each portfolio:

     Dow Jones Industrial Average: —2.81% per year
     Standard & Poor's 500: —4.65% per year
     NASDAQ Composite: —7.47% per year

In other words, an investor forming a portfolio tracking the Dow Jones Industrial Average from the beginning of the Bush Administration in January of 2001 would have suffered an annualized loss in real value of the portfolio of almost three percent; the investor forming a portfolio tracking the Standard & Poor's 500 over that period would have experienced an annualized loss in real value of the portfolio of more than four and a half percent; and the investor forming a portfolio tracking the NASDAQ Composite index over that period would have experienced an annualized loss in real value of the portfolio of about seven and a half percent.

From a well-balanced portfolio of the common stock of reasonably low-risk, very large public corporations to an equally well-balanced portfolio of the common stock of relatively riskier, small-cap public corporations, equity (that is, "stock") has offered negative returns in both nominal and real terms over the tenure of absolute Republican control of the Legislative and Executive Branches of the federal government. Because no reasonable analyst could argue that securities markets have a political bias, the figures presented above offer an objective assessment of the effect of the neo-conservative agenda on both the national economy and on investors relying upon the stewardship of the country's leaders in their responsible role of ensuring an environment conducive to capital appreciation. To the extent that individuals and households rely upon that capital accumulation for future income security, the Republican era that has marked the beginning of the 21^st Century has been a failure.


The Dark Wraith does, however, recognize that neo-conservatives would encourage investors to applaud the negative returns Republican policies have fostered.

Special Analysis: On Condemnation of Weakness

Over the past week, I have published two articles addressing current political matters. The article entitled The Color of the Whitewash is an epilogue to the three-part series, The Valerie Plame Scandal. Several days ago, I published the article, The Filibuster, the Quorum, and the Nuclear Exchange, offering some guidance on relevant standing rules of the Senate as they could be used in the matter of the approval of the nomination of Samuel Alito, Jr., as an Associate Justice of the Supreme Court of the United States.

Let us be clear on the consequences of these two stories. In the matter of the outing of non-official cover operative Valerie Plame, a conspiracy was set forth and executed over a period of many months to construct false and misleading information; that information was provided to Congress and to the United Nations in order to induce those two bodies to authorize military action. The conspiracy had as one of its elements a forgery of unknown but suspect origin, and the exposure of that forgery was met by retribution that compromised an on-going intelligence operation that tracked weapons of mass destruction production and trafficking. One official of the Bush Administration was indicted, an official about whom very few people knew much of anything before his indictment. Hints of and allusions to continued investigation subsequent to the disbanding of the grand jury that issued the indictment have been followed on this week by thundering silence from the office of federal prosecutor Patrick Fitzgerald.

In the matter of Samuel Alito, Jr., the President of the United States has nominated a federal judge who has on numerous occasions written opinions, both for the majority and in dissent, that have been specifically addressed by the majority of his courts and/or of higher court, which have rejected and repudiated his reasoning and his unwillingness to adhere to precedent and plain language of the "settled" law. If Mr. Alito is appointed to the Supreme Court, his disregard for the rule of law and statutory construction will mean, among other things, that Roe v. Wade will be swept aside: the trimester test of the state's "compelling interest" in a fetus will be replaced by a direct and overarching compelling interest in that fetus's life, which means the state will have compelling interest in the body of any female (not "any woman"; any female) who has become impregnated or who could reasonably be believed to be capable of such. That will happen. It is not a possibility; it is a fact. Mr. Alito has demonstrated that his beliefs supercede law and has directly challenged both his own court and higher courts on this point. By the standards of careful and tempered wording of court opinions, Mr. Alito's views have been sharply rebuked, with terms like "guts the statutory standard" and "ignores our precedent": this is the language of courts directly addressing a judge whose thinking is incorrect and who needs to be told that his thinking is incorrect.

As if attempting by media power to head off a filibuster in the Senate of the vote on that nomination, CNN.com reports that two members of a so-called "centrist" coalition of Republicans and Democrats have already said that a filibuster is "unlikely"; but absent direct and dramatic action in the form of a filibuster, Mr. Alito will become an Associate Justice of the Supreme Court of the United States of America. Once that happens, this country will materially, fundamentally, and over a period of only a few years change for the rest of our lives.

In response to the article about how a filibuster and a denial of quorum would work, the astute and articulate commentator Lisa Renee of Liberal Common Sense wrote in part as follows:

While I agree with your description of the process, it will not happen.

[E]ven if this did happen? You would not stop Alito from being appointed. The President could use his Recess Appointment powers.

The average american would not understand why the Democrats were stopping the government. The Democrats would be blamed and that could very well help the Republicans gain even more seats. A rather large risk to take.

Lisa Renee is correct that a denial of quorum move is highly unlikely, and it is important to make clear the purpose of the article suggesting it. In modified form, the following was my response.

Although it is highly unlikely, stranger things have happened. It looks like a few leading Democrats are finally getting desperate enough to take the Senate into very unusual territory: the call by Reid to a closed session did not garner anywhere near the backlash that it could have, despite the attempt by some media outlets to give the Republicans more than their fair share of on-air whine-time about the outrage of it all.

A number of Democrats have by now noticed that the incident did not cause them to burst into flames and lift away in a puff of unpopular smoke. That simple observation will give them the incentive and the courage to push further and harder with dramatic (and theatrical) means. It is unfortunate that John Conyers was largely ignored for some of his displays, but he can be rightfully credited for leading the way to what we are now beginning to see as media coverage of the schism that has existed for at least several years in the upper chamber of Congress, known historically for a high degree of civility and a distinctively less rowdy decorum than the House of Representatives.

All of that having been said—and drifting perilously close to talking about the frame within the frame of political discourse—I am laying down in my run of recent posts an insurmountable challenge to the Democrats, giving them evidence of a voice that has become entirely disenchanted of all of them in their political activities. All of them.

Although the rhetoric of my articles can alienate some who believe most of the Democratic elected officials are good people, my purpose is to cut them no slack until they actually cause something to happen that is not on the Republican agenda.

You will have noticed, I am sure, that I have absolutely no use whatsoever for the outcome of Fitzgerald's investigation: perhaps the indictment of Libby contributed to the recent drop into the basement of Bush's popularity, but it did nothing—absolutely nothing—to change his course of action in either tactical moves or in strategic direction: the man went right out of that little Fitzgerald media event and nominated a Right-wing radical to serve as an Associate Justice of the United States Supreme Court. Bush showed no penitence, no sense of willingness to reconcile to a more moderate tone, and no new-found self-control over his obsession with the narrow, mentally unbalanced base of support he has among religious extremists and their sycophants.

After Ronald Reagan's cabal of Poindexter, North, Abrams, et al. was crushed, the greybeards of the Republican Party—a Party that still had reasoned, decent politicians who could command respect—jerked Reagan back from his heady, self-delusional inattention that had twice so infatuated that previous electorate who got a kick out of his simplistic mean-spiritedness. GOP politicians who cared about the Republic set him straight, and the nation was able to emerge from his era relatively unscathed despite the recklessness of his first term and part of his second.

That will not happen with George W. Bush. He is as reckless and incompetent now as he was when he first entered the Oval Office. He will have a phony "shake-up" of his inner circle at the end of this year, but it will be only for show. He is incapable of rectifying his own flaws, and there are no Republicans remaining who have the moral standing to rake him over the coals and make him change.

That leaves the matter to the Democrats, that ineffectual, cowardly cabal of men and women who have stood as some sort of miserable but loyal opposition as the neo-conservatives have wrecked the landscape of the 21^st Century with their unprincipled, ill-informed, Freshman-level social engineering stunt.

Nevertheless, the matter is in the Democrats' hands. It is only when material, overwhelming, unapologetic, very public revulsion to Mr. Bush is displayed from the top of the Democratic Party down that average Americans in undeniable majorities will become comfortable with finally listening to their inner sense that he is now and always has been wrong. It is still far too easy to fear letting that feeling out, even though I am certain that many people who voted for him in 2004 knew very well, deep down inside, that it was a bad, bad move. And I am not talking about big "disapproval ratings" pumped out by polling organizations. I am talking about widespread revulsion against George W. Bush, his entire cadre of fellow travelers, the Religious Right that drools all over the hope he brings of some mythical Apocalypse, and the assorted hate-mongers of social "reform" who fantasize about casting us back to the age of robber-barons and millions living in below-subsistence-wage squalor.

My sense is that, although a number of bloggers and commentators genuinely agree with me to a greater or lesser extent about the miserable weakness of the Democrats, there is a sense that I am on my own for the time being in taking such a hard and unforgiving stance against them.

If, as time goes along, I don't get shot or otherwise have my blog and by butt turned into randomized electrons racing away to the four corners of the universe, then perhaps more people who share my earnest desire for a different future will become comfortable with expressing their frustrations at the entirety of the Democratic Party. When and if that happens, the Democratic leadership will pay very strict attention. I don't think bloggers realize that their sentiments are beginning to be noticed by the big players in the Party. And I'm not talking about attention being paid only to the giant graffiti blogs; I'm talking about attention being paid to what I call Blogosphere Left 2.0, which is getting a whole lot of attention—albeit quiet and from the shadows—of the big dogs of the Party. They're still not sure whether Blogosphere Left 2.0 is going to amount to much, but there are definite indications that they want to make sure that these medium-level blogs are in their corner come 2008. If those heavy hitters in the Party see Blogosphere Left 2.0 turning uniformly sour on them, they're going to react. They can't silence us, so they're going to have to accommodate us. If we're chopping every one of their candidates to shreds for being cowardly, ineffective straight men to the Republican comedy engine of doom, they're going to do what they can to appease us, lest we turn in big droves to a love affair with Green Party or Libertarian Party candidates.

That's how I see it, but I don't see it as a certainty. Blogosphere Left 2.0 might very well fizzle out instead of continuing to rise in importance. Whatever the case, though, we will make ourselves far more compelling if we give the
Democratic politicians a goal they will have a hard and risky time achieving.

We as bloggers sit in an amazing position right now: we still have within our power the opportunity to be as meaningful as we choose to be. We serve ourselves well if we seize that opportunity as a call to change the course of the nation rather than as a duty to stroke their egos on the rare occasions that the Democrat politicians do a neat little trick for the crowds. Those Democrats who want our support simply must find a way to stop the madness that has launched the 21^st Century on its frightful descent of the Republic into Hell that is becoming more and more real for tens of millions of Americans even as our feckless Democrat "leaders" look on wringing their hands.

That, I submit to you, makes this a great moment in history. We can change the future materially, but only if we remain true to just cause rather than faithful to failed leadership, be that leadership of the mean and spiteful Republicans or of the sallow and ineffectual Democrats.


It is not the way of the Dark Wraith to praise the wretchéd.