Special Blog Post: The Message I Sent Today

To the Democratic Members of the United States Senate:

I send you this facsimile to ask that, in the matter of the confirmation of Mr. Samuel Alito, Jr., in appointment to Associate Justice of the United States Supreme Court, you vote "No." I furthermore ask that you support the Honorable Senator John Kerry, who has expressed his intention to extend debate on the matter.

Article II Section 2 of the United States Constitution vests the power of appointment of Supreme Court Justices in the President of the United States with the advice and consent of the Senate. Neither the President nor the Senate is conferred an absolute right by this charge: the President's prerogative is the privilege, the Senate's is a duty; and neither acts without the bounds of representing the will of the People of the nation. That you may be concerned with your vote representing the will of the majority at some particular time in the course of the affairs and time of the country is not at issue: your vote in this and all matters must be to the will, good, and benefit of all citizens for all times and certainly not only and merely for the here and now.

Parliamentary procedures are established to ensure that the minority in representation is heard while the will of the majority carries; but such procedures are altered in the form adopted by the U.S. Senate, and I would submit to you that the divergence is particularly to the purpose of ensuring that a mere majority in representation may not use that position in tyranny over any group whose interest may for a time be in the minority.

Yours is the charge of the ages: what you do in your time of strength or weakness in service to this Republic will reverberate down the chamber of history for generations to come and affect men, women, and children yet even to be born. Let them, no less the us, say of you that you stood on this day for principle unpopular with those who would unduly circumscribe rights and liberties we and our ancestors shed blood, reputation, and treasure to attain.

This, I ask of you in the name of our great nation and no less in the name of the People, those living, those who have come before us, and those yet to live in this bright land of a free people.

Special Analysis: The Inconsequential Citizen, the Inconsequential State

The most recent Open Thread here at The Dark Wraith Forums has generated an extraordinary if complex and at times contentious discussion spanning dozens of individual comments. At length, the conversation turned to the matter of the individual state—the fundamental unit of account in sovereignty—that benefits or suffers from the actions of the several other states in their collective and unilateral actions. Is it then moral or is it immoral in absolute principle for a state or group of states to impose will upon another state or group of states; or is "morality" irrelevant when the only actionable mechanism of imposition is through power?

I offered in the comments of that Open Thread, and herewith provide in augmented form, a perspective that uses the social contract between the individual and a free society as the analogue of consequentiality of the state in a world of many sovereignties.

Within the ranks of what could be described as the "liberal societies" of the past several hundred years are found several distinct threads with regard to the relationship between the state and the citizen thereof. In one mode, a democratic construction leads to the full expression of the person within that state. The dilemma comes when deciding whether that person as an individual is relevant: in other words, does the individual exist wholly separate from his state, or is he infused of and animated fully by it?

Jean-Jacques Rousseau proposed that, were the individual allowed his or her free reign—including as that would the right of private property, etc.—the state would degenerate into a fanfare of individual greeds, the most powerful interests of which would rule, and the remainder of which would consume one another in an endless progress of avaricious devices.

Unfortunately, a prescription fulfilling Rousseau's thinking was proposed by Karl Marx, who was unabashed in the relevance of the whole at the expense of the dispensation of each person within it.

Unfortunately, again, the alternative—the one of which Rousseau warned—was the dominance of the individual at the expense of the permanent subordination of the state. Henry David Thoreau, if in rude and callous fashion, expressed unwaivering opposition to any form of government that moved to express power over him. His became one of many touchstones to the mode of modern states that recognize individual power and, more importantly, the individuation that naturally arises from a state so circumscribed. Mahatma Ghandi, for example, would surely not have endorsed an anarchic state of equilibrium virtually endorsed by Thoreau, yet Ghandi quoted him and described him as inspirational. At its face, that seems impossibly contradictory, since the father of modern India certainly anticipated the power of the state being brought to bear on ancient, brutish institutions of classism. The resolution comes in imagining that a powerful form of the liberalism of modernity is expressed in its expectation of and effort to achieve a state that is directed solely to the end of ensuring personal liberty and freedom of action within a minimal shell of common and statutory laws that ensure not much more than civil order and domestic tranquility.

That, however, might not be enough. In this configuration, the state really does exist as an entity—subordinate though it may be—separate from the individual governed by it. And therein lies the knot: to function effectively within a larger sphere of states, some of which might have constructive relationships to their own citizens entirely other than ours, the liberal state must act. Regardless of how it conducts its affairs of state, it must act separately from its citizens, even if it is acting upon their will, as expressed through democratically elected representatives, through recent revolution, or otherwise. It must still act, and that's where the disturbing idea of "inconsequentiality" of citizens as individuals, as groups with common interests, and even in some circumstances as aggregates with voting power comes into play.

I address this matter as a fierce individualist. Part of that individualism is a repudiation of the state as having the right to unduly harm inalienable rights I was conferred by birth within its borders. I must then come to terms with my inconsequentiality, and I do so as such: the state must fully, at all times, and in all matters recognize the rights I am granted by the Bill of Rights and by such interpretations rendered thereupon by the Courts of the land. In exchange for freeing the state of the burden of having to carry out duties requiring that it use its treasure to control, compel, or otherwise demand of me that which would expend its treasure, its time, and its attention, the state may then regard me as inconsequential as an individual. By extension, I anticipate that the state will in all of its affairs external to these sovereign borders work to the end of recognizing the same configuration through whatever devices by which it comes to have power over other peoples of the Earth.

This way of statecraft is at peril: neo-conservatism—what has been called "neo-liberalism" in some quarters—takes this all as ample and sufficient justification for adventurism abroad and the unavoidable consequence of repression in the homeland. That such malevolent misapplication of principle is the neo-conservative's first and exclusive tendency is not an indication of conceptual flaw in liberalism, but rather a sharp beacon of caution to the danger of allowing any person without deeply humanistic grounding to ever be allowed power beyond his or her crippled ability to grasp its proper, just, and effective use.

That having been noted, be the affection through commerce, militarism, or other project, if the state will at every turn respect and recognize that each affected individual throughout the world merits the trajectory toward and achievement of the expansive rights idealized by liberalism, the state will have not only the respect of the peoples of other lands, but will also be the envy of other states as they in their components, alliances, and aggregate find that they, like we, are inconsequential to the greater goal, which is the sovereign state at peace with its own; and thus by virtue of inconsequentiality, both the nations and the peoples of the world become free.

The Dark Wraith has spoken.

The Written Peace: Open Forum of January 23, 2006

As your host catches his breath before beginning some new new articles and projects, this Open Forum is offered. Recent threads have had good commentary on a clutch of related matters, and that broad, running discussion might be worthy grist for the mill of this thread, as well.

Welcome is extended to several new and actively commenting visitors to The Dark Wraith Forums. Donviti has his own blog called De la where. It's a nice treat, originating as it does from... come to think of it, I'm not sure; I thought it was the coming from Delaware, but it might be coming from Pennsylvania. I should have checked on that before I started babbling here.

Anyway, one blogger who doesn't comment here but still merits my hearty recommendation is Stealth Badger. His is a strong, meaty blog with a nice, black background.

If I haven't mentioned it already, the blog called Night Bird's Fountain is a delicious read, and one of its contributors, Lizzy, comes over here to provide solid commentary. A number of readers from Night Bird's Fountain now visit The Dark Wraith Forums, and one of them named Lily even went so far as to post a darned decent comment on the thread for the last post. I am hopeful that more of those visitors will be moved to comment over here, given that a pretty sharp crowd hangs out over there. (I might also point out that, if you do visit Night Bird's Fountain, you'll notice a rather familiar name in the masthead on the sidebar.) As far as other blogs and bloggers are concerned, I welcome the Chief from Chief Sez, who just offered what I think is his first comment here, and it was a good one at that.

And as always, if you haven't checked The Dark Wraith BlogRing lately, there have been some additions over the past couple of weeks, and they're all good: a nice, nice Philadelphia blog called Phillybits; a refreshingly troubled blog called Evil Li-brul Overlord; and a blog called fizhog 101, which is authored by someone everyone else seems to know from another blog, but whom I can't identify for the life of me.

Finally, if you haven't been over to the Big Brass Blog lately, I am in the midst of doing some enhancements over there: the visual part is pretty much complete, and now I'm under the hood working on some less obvious components.

Now, if you haven't noticed it yet in the Advertisements section of the sidebar, here, the third bumpersticker in my series of four is available until the first part of February. And in other superfluous promotions, I thought the Internet radio station was ready to go, but I discovered that a load of more than maybe 20 listeners would blow the bandwidth right past Toledo and straight on to Hades. I'm working on an alternative means of broadcasting. Based upon what could reasonably be projected as a peak load of listeners well past the range my current configuration could handle, I'll have to reach into the professional-level service providers. Starting the radio station is a major objective, so it will get done. It's just going to be a little more complicated than I thought.

Then again, that kind of unpleasant surprise happens quite often.

On the somewhat more pleasant side, the Koufax Awards nominees are now being posted for voting. As of tonight, The Dark Wraith Forums has been listed (along with approximately a zillion other blogs) for the blog Most Deserving of Wider Recognition. Should nominations of this blog in other categories be forthcoming, I shall dispense with my preference to silence on such matters of recognition and make an announcement.

Now for some meat on which to chew. The securities markets are still running sideways. The run-up that had occurred before the end of last week gave solace to Mr. Bush's supporters and apologists, but the small leap was quickly brought back to Earth on Thursday and Friday as the major market indices again ensured that it is not yet time for the objective capital markets to broadly cheer this Administration's economic performance. This is, of course, part of a long-term disaster: recent articles here have pointed out that the federal budget deficits are not being reined in, personal savings are being eaten up to supplement current income for many Americans, and the Treasury debt markets are drifting closer and closer to displaying the dreaded inverted yield curve of which your host here at The Dark Wraith Forums has been warning for months.

This is not a good situation; and the looming problems will make their partisan origins to some extent secondary. The Bush Administration, together with its allies in Congress, will certainly deserve all the condemnation sure to spill forth in the few years ahead, but other than for the growing prospect that the condemnation will lead to the rascals being thrown out of Congress, the problems we are not yet as a nation facing will need solutions, and the solutions are not going to be easy nor painless to implement.

As an example, the "controversy" over Social Security has now died down, but the neo-conservatives won a major victory: the adjustments that should have been made several years ago—adjustments that have been made before in a timely, responsible, and bipartisan manner—have not been executed this time around; and every year, every month, in fact every day the adjustments aren't made, the corrections required to maintain the long-term solvency of the trust fund will have to be more dramatic and more painful. This makes the corrections ever more vulnerable to that insidious breed of extremists who are so adamant that a government program is wrong that they will wreck it just to prove their spiteful point.

In other news, the world is coming perilously close to the brink of a war, and this time it is not a war of opportunity as much as it is a war of failed opportunity. Iran is not the first country to have had designs on becoming a nuclear state. The desire of small states to become powers on the nuclear stage is as old as the Atomic Age, and it had until the present Administration been managed in such a way as to keep the so-called Nuclear Club rather exclusive. To the extent that states like India, Pakistan, and Israel managed to enter this group, they did so at worst with the complicity of certain nations and at best with the malfeasant inattention of the West. Now comes Iran, complete with a wholly operational fuel production program, the Shahab-3 delivery vehicles to hit Israel and other sovereign states of the region, and the relatively near-term capability to produce a Mark IV-class upgrade—a Shahab-4, as it were, although it may be called a Shahab-3B—to strike into Eurasia. And whereas the West is adamantly opposed to Iran becoming a nuclear power, Israel is militantly preparing to prevent it from happening.

Unlike false wars—built as they are upon lies underpinned by lies—this one looming in front of us, this one barely mentioned right now by the American media and the Bush Administration, is very likely the real thing. For all of the neo-con dreams of "tranformation" of the Middle East, and for all of their machinations to set the stage for a confrontation of this calibre, they have suddenly become rather the quiet people, standing paralyzed by the crippling debilitation of our war-making engine and the throttling exhaustion of our nation's treasure.

The 21st Century is thus well underway.



The Dark Wraith invites and awaits your comments.

Analysis: Index Portfolio Performance for the First Five Years of the Bush Administration

Five years ago today, George W. Bush took office as the 43rd President of the United States. For the entirety of those five years (save for a brief period in mid- to late-2001 on the technicality of a Republican-turned-Independent), both Houses of Congress have been under the indisputable control of the Republican Party to which Mr. Bush belongs, and economic policy has therefore indisputably been in the care, custody, and complete control of George W. Bush and the Republican Members of Congress, who have worked hand-in-hand without any recourse by which the party of opposition or its constituents could alter the direction, character, or quality of that policy, either in its scope or in its details.

January 22, 2001 was the first day of trading after Mr. Bush became President. Three major indices stood at the following levels at the close of trading on that day:

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

At the close of trading today, January 20, 2006, these same three averages stood at the following levels:

     Dow Jones Industrial Average: 10,667.39
     Standard & Poor's 500: 1,261.49
     NASDAQ Composite: 2,247.70

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

     Dow Jones Industrial Average: +0.84%
     Standard & Poor's 500: —6.06%
     NASDAQ Composite: —18.50%

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

     Dow Jones Industrial Average: +0.17% per year
     Standard & Poor's 500: —1.24% per year
     NASDAQ Composite: —4.01% 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 January 2001, when the CPI stood at 175.1, and for December 2005, when the CPI stood at 196.8, to adjust the current value of each portfolio to its January 2001 equivalent, 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: —2.15% per year
     Standard & Poor's 500: —3.53% per year
     NASDAQ Composite: —6.23% 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 a loss in real value of the portfolio of more than two percent per year, which compounds to a loss in purchasing power of the portfolio over the term of the Bush Administration of 10.28%; the investor forming a portfolio tracking the Standard & Poor's 500 over that period would have suffered a loss in real value of the portfolio of more than three and a half percent percent per year, which compounds to a loss in purchasing power of the portfolio over the term of the Bush Administration of 16.43%; and the investor forming a portfolio tracking the NASDAQ Composite index over that period would have suffered a loss in real value of the portfolio of close to six and a quarter percent per year, which compounds to a loss in purchasing power of the portfolio over the term of the Bush Administration of 27.50%.

From a well-balanced portfolio of the common stock of reasonably low-risk, very large public corporations to an equally well-balance portfolio of the common stock of relatively riskier, small-cap public corporations, equity (that is, "stock") has offered significantly negative real returns over the tenure of absolute Republican control of the Legislative and Executive Branches of the federal government. This is the objective assessment of the stock markets of the United States and reflects a number of shares traded in the quadrillions and value transferred in the process of far more.

Whatever representations the Bush Administration can make concerning the success of its economic policies, and despite the sustained, corrosive, and concerted effort of the Federal Reserve to support this Administration through what it described as "accommodative" monetary policy, by any rational standard the results herein set forth paint a broad and scathing picture of an Administration, a political party, and an entire program of economic policies that have been no less than disastrous on the equities markets and the hundreds of millions of people both here and abroad who rely upon those markets to accumulate value both in nominal and in real terms.



The Dark Wraith leaves to the American voters judgment of the malfeasant stewards of this fiasco: the Electorate may yet decide finally and resolutely that bluster and venom are no replacement at all for intelligence and responsibility.

Analysis: Yield Curve Inversion 2006

While the White House is predicting solid growth for the American economy this year, and as the Federal Reserve in its most recent Beige Book is describing the U.S. economy moving into 2006 on strong economic activity, the closely watched yield curve continued to partially invert today in the intermediate-term government debt instruments. The yield curve measures the term to maturity of various government Treasury instruments against their yields, as explained in the recent article, "Yield Curves 2005," here at The Dark Wraith Forums. That article noted the precipitous flattening of the yield curve through last year, pointing to the growing possibility of the inversion that has now begun. As explained in the article, "Of Crystal Balls and Yield Curves," the past five recessions have been forewarned by an inverted yield curve, arguably making it the most accurate intermediate-range predictor of economic downturns, although in several instances the yield curve has inverted without full-blown recessions following.

Based upon data provided by the United States Department of the Treasury, the graphic below presents the yield curve as of the evening of Wednesday, January 18, 2006.


The yield data since the first trading day of 2006 is presented below.


Important to note is that the data for January 18 shows a slight yield suppression. This may be the result of equities sell-offs that occurred in the stock markets of some countries and even affected stock prices in the United States during trading for the day. Investors reducing holdings of stocks to some extent move the proceeds from sales into the safety of government debt instruments; such demand pressure pushes bond prices up, causing yields to fall as a mathematical consequence.

The broader trend in the yield structure is evident, however. The yields on short maturity Treasury instruments are rising, whereas the yields on longer term instruments are easing. Without a marked change in this trend, a full inversion of the yield curve could be seen by this Spring, pointing to the possibility of recession by the fourth quarter of the year. This would, of course, put a downturn in U.S. economy right in the time frame of the November elections, thereby placing members of the ruling party—in this case, Republicans—directly in the path of widespread voter dismay at the ultimate consequences of five years of absolute control by the party that could not manage to hold onto the federal budget surpluses, the peace and stability, or the respect for the rule of law of the last Administration.


The Dark Wraith will provide further information on the yield curve as it moves toward full inversion.

Special Blog Post: The Five Weird Things about Your Host Challenge

The Fat Lady Sings, in pursuit of retribution for being tagged in the last challenge, has tagged your host here at The Dark Wraith Forums with the small task evidenced by the title of this post.

No problem. No problem at all.

Five weird things about the Dark Wraith.

◊  He can sleep no more than four and a half hours at any given time.
    ·  There are too many things to do before death.
    ·  There are not enough things to do afterward.

◊  He drinks anywhere between 30 and 40 cups of coffee a day.
    ·  Coffee should always be brewed strong enough to compromise weak ceramics.
    ·  Cheap coffee is always the best.

◊  He was once removed (read that as 'extracted') from a jail by the Red Cross.
    ·  Perhaps someday, readers will be told a little about that whole fiasco.
    ·  Someday is not today.

◊  He has made a living (more or less) at the following jobs (among others):
    ·  grocery stock clerk
    ·  busboy
    ·  business consultant
    ·  cook 
    ·  director of a school
    ·  dishwasher
    ·  oilman
    ·  optician
    ·  owner and principal of a penny stock brokerage firm
    ·  paid human test subject for medical studies
    ·  preacher
    ·  professor
    ·  singer
    ·  soldier
    ·  stand-up comedian
    ·  stockbroker
    ·  teacher in a K through 12 private school
    ·  writer

◊  His nose points about 25 degrees to the right.
    ·  Rule 1: Do not try to straighten your own nose when it gets broken.
    ·  Rule 2: See Rule 1 about thinking you can fix the first mess the second time your nose gets broken.


Mindful that some bloggers do not like to be tagged for these projects, should anyone named below prefer not to participate, apologies are offered in advance. As much as anything else, the tagging is for the purpose of encouraging readers here to have a look at a few good blogs. With that, herewith are the tagged souls:
    ·  Missouri Mule of BlondeSense
    ·  Charles Perez of The Fulcrum
    ·  The Left Behind Child
    ·  deborah at The Moon's Favors
    ·  Mary at One Woman Wrecking Crew


The Dark Wraith has thus met the challenge and moved it to new and fertile blog ground.

Bush Administration Revises Deficit Projection for 2006

After claiming in July of 2005 that the spiraling federal budget deficits hallmarking the Bush Administration since its start would begin to narrow in 2006, the White House is now forecasting red ink exceeding $400 billion for the current year. In July, the Administration claimed expenditures would exceed revenues by $341 billion, but Joel Kaplan, the deputy director of the White House Office of Management and Budget, now says the deficit will be more than $400 billion, putting it in the range of the record-breaking deficit of 2004.

The White House claims the revision had to be done because of the costs of Hurricane Katrina. In what appears to have been a statement coordinated with the projected deficit revision, President Bush on Thursday said in a speech in the 8,000-member community of Bay St. Louis, Mississippi, that the federal government would spend a total of $85 billion on rebuilding projects along the Gulf Cost and that $25 billion had already been spent, leaving an additional $60 billion yet to be used. That $60 billion is exactly the amount by which the new projected deficit exceeds the previous forecast.

The new estimate of red ink comes on the heels of budget cuts already enacted by the Congress, and it challenges the vow of Administration officials to press for continuation of tax cuts—most of which were originally set to expire before 2010—put into place by the Republican-controlled Congress and the President during Bush's first term. As recently as last Saturday during his weekly radio address, Bush called for making the tax cuts permanent and went on to encourage legislators to cut the deficit by "...passing the first reduction in the growth of entitlement spending in nearly a decade." Seemingly dismissing the deficits his Administration and allies in Congress have overseen, he said, "The bigger challenge to our budget is long-term deficits driven by mandatory spending or entitlements." Some media and Democratic assessments describe the deficit reduction measures already well on their way to becoming law as election-year posturing to "burnish the credentials" of Republicans as deficit hawks.

In Congressional Budget Office projections updated November 4, 2005, the budget deficit for 2006 was forecast to be $314 billion, which is approximately $86 billion less than the White House is now indicating only two and a half months later. The graphic at left presents the November CBO figures for 2005 through 2010, augmented with the revision that has been provided by the Bush Administration, which is still claiming—although the CBO figures do not reflect this—that it will be able to halve the current deficit levels by the year 2009.

With continuing large federal budget deficits likely to put additional upward pressure on interest rates, and with the Republican-controlled U.S. government unwilling to pull back from tax cuts that even a government analyst testified were fueling shortfalls of federal revenues, the American economy is likely to experience a difficult year, particularly if the Congress uses the deficits to enact further cuts in programs unpopular with the neo-conservatives who now dominate policy making in Washington. And if the President continues to have natural disasters occur on his watch, he will have further opportunities to excuse massive federal budget deficits without mentioning the alternative, which would be to maintain the fiscal discipline of his immediate predecessor in the White House, whose budget surpluses could sustain the inevitable drawdowns for which a responsible government should plan before it contemplates tax cuts for its favored political constituencies.



The Dark Wraith will report further revised forecasts of government fiscal irresponsibility as they become available.

Net Personal Saving Negative over First 11 Months of 2005

Net personal saving among Americans fell in November of last year for the sixth month in a row. Dropping by an annual, seasonally adjusted rate of —0.2% in the second-to-last month of 2005, the negative value marked the seventh month of last year that personal consumption exceeded income. According to Keith Leggett of the American Banking Association, if the December figure comes out to be negative, as well, 2005 will be the first year since the Great Depression that personal spending exceeded personal income on average over the course of an entire calendar. In other words, should the trend hold for December, it would be the first time since the the 1930s that Americans on average had spent more than they earned through an entire calendar year.
The graph above, derived from data provided by the Federal Reserve Bank of St. Louis illustrates the erosion during 2005 of consumers' ability to sustain spending with income. Since the second quarter of the year, Americans were drawing down savings or they were borrowing to keep the economy growing at what appeared to be a blistering pace that reached a feverish 4.1 percent in the third quarter. Some of the excess of consumption over income was no doubt coming from homeowners borrowing on the equity in their property, a situation that could prove most unfortunate should home prices begin to fall as some economists expect for the current year. Essentially, the homeowners who are taking out second—and in some cases third—mortgages are converting a highly illiquid asset, which has been the basis for their rising net worth, into a more liquid form that could be used for current buying.

The erosion of net personal savings is dramatically illustrated in the graphic at left, which presents the data for both 2004 and the first 11 months of 2005. From consistently, relatively strong in 2004, the ability of consumers to sustain consumption with income lost steam in the fourth quarter of 2004. In fact, were it not for the anomalous spike in September of 2004, the decline would appear to have begun somewhat earlier. There is no doubt, however, that the -0.2% figure in November of last year is part of a long term trend that has seen households borrowing and drawing down long-term savings to maintain to the extent possible consumption patterns and lifestyles not consistent with real incomes. Although some believe that a high personal savings rate is desirable for the American economy, any rise in the amount of income consumers save would at this point only exacerbate an already difficult situation: about two-thirds of GDP is devoted to consumption, meaning that any added savings at the expense of consumer spending would lower gross domestic product. More importantly, because of the so-called "multiplier effect," any reduction in the marginal propensity to expend (the fraction spent of the last dollar of income), would magnify a pullback in GDP caused by increased personal savings.

With inflation pressures building in the economy, interest rates rising, and persistent federal budget deficits preventing the government from using fiscal stimulus to soften the effects of an economic downturn, the outlook for this year is not at all bright.

Despite the Bush Administration's continuing focus on good news figures about the health of the American economy, evidence is mounting that the short-term successes being touted have been achieved at the expense of long-term corrosion of underlying structure, as consumers drain their savings for the future in an effort to hold onto consumption patterns and lifestyles that will slip away with their net worth that is eroding. The extent to which citizens appreciate this may help them determine whether or not they wish to return to power in the mid-term elections of this November the political party that has brought about this nearly irreparable situation.


The Dark Wraith will provide more news on Depression-era economic data as events merit.

Special Blog Post: The Seven Things Lists

Kenneth Quinnell at T. Rex's Guide to Life has invited your host here at The Dark Wraith Forums to do the Seven Things List. I cannot refuse; the challenge it presents is too great to ignore.


Seven Things To Do Before I Die
1. Go a whole semester without making an arithmetic mistake in a math class.
2. Go a whole day without making an ass of myself (see above for an application).
3. Write a book that sells more than a hundred copies.
4. Be conversant in two dozen distinct languages.
5. Publish a post that has no grammatical errors.
6. See competence return to the Presidency.
7. Host a radio show.

Seven Things I Cannot Do
1. Stay in close quarters where a radio, stereo, or television is running.
2. Leave teaching as a profession.
3. Watch the same movie twice.
4. Sit in full lotus position.
5. Straighten my nose.
6. Sleep for more than about 4 hours at a stretch.
7. Accomplish all that I need to accomplish in a timely manner.

Seven Things That Attract Me to Blogging
1. It develops my writing skills.
2. I meet very interesting, informed people.
3. I can inform others and myself about a variety of subjects.
4. Blogging seems to annoy extremists (who almost never have the temerity to counter me here).
5. I can weird people out with references to myself in the third person.
6. Blogging gives me a focal point for developing my Website architecture skills.
7. It gives me something to do while I watch over my online classes.

Seven Things I Say Most Often
1. "Uh..."
2. "It's Bill Gates's universe; I'm just a hacker in it."
3. "Anyway..."
4. "Well, that was different."
5. "Good morning." (or "afternoon" or "evening," as the case may be)
6. "Gawd-aw-mighty!"
7. "Am I having a small stroke, or did somebody just turn the reality dial?"

Seven Books That I Love

   
      
      
1. Bradbury Stories: 100 of His Most Celebrated Tales, by Ray Bradbury
2. Cambridge History of Medieval English Literature, Edited by David Wallace
3. Complete Works of Geoffrey Chaucer Part, Vol. 1 & Vol. 2, by Geoffrey Chaucer (Edited by Walter W. Skeat)
4. The Faerie Queene, by Edmund Spencer
5. History of English, by Jonathan and Jona Culpeper
6. Fundamental Methods of Mathematical Economics, by Kevin Chiang
7. World Poetry: An Anthology of Verse from Antiquity to Our Time, Edited by Katharine Washburn et al.

Seven Movies That I Watch Over and Over Again
I cannot watch a movie more than once anymore. Before I got to this point, I watched some movies two or three times. These are the ones I recall seeing more than once:
1. Bladerunner
2. The Hunger
3. Highlander
4. The Seventh Seal (Det Sjunde Inseglet)
5.-7. The Evil Dead Trilogy


Seven People I Want To Join In Too
1. misty at expostulation
2. PoliShifter at Pissed on Politics
3. Liz at BlondeSense
4. The Fat Lady Sings at The Fat Lady Sings
5. Ms. Julien at Julien's List
6. Canuk at Canadian Perspective
7. Lizzy at Night Bird's Fountain


The Dark Wraith has thus responded to and passed on this challenge.

Inflammatory Opinion: A Brief Reminder about the Color of Whitewash

On a slow news day, it is altogether right and proper to return to readers' minds the fact that the name and work of a non-official cover (NOC) American spy was revealed in the Summer of 2003. This matter was the subject of a three-part series entitled "The Valerie Plame Scandal" and a follow-up commentary here at The Dark Wraith Forums.

As of the date of publication of this article, January 7, 2006, it has been 908 days since Robert Novak in an op-ed column revealed that Valerie Plame was a non-official cover spy involved in tracking international trafficking in weapons of mass destruction.

It has now been 739 days since then-Attorney General John Ashcroft announced at a news conference that he was recusing himself from the investigation of who leaked Ms. Plame's identity to Mr. Novak and possibly other journalists. At that news conference, held on December 30, 2003, Mr. Ashcroft announced that political appointee and Assistant Attorney General James Comey would be put in charge of oversight for the investigation. Mr. Comey announced at that news conference that he was putting career federal prosecutor Patrick Fitzgerald in charge of the investigation.

Six hundred sixty-eight days after the announcement of the appointment of Patrick Fitzgerald, he announced that a grand jury in the nation's capitol had returned a five-count indictment against I. Lewis "Scooter" Libby, who was at the time a top adviser to Vice President Dick Cheney.

Mr. Fitzpatrick hinted that his investigation would continue, even though he said explicitly that, for the most part, "...the work of this investigation is concluded." For a time after that news conference, hopes were high that Mr. Fitzgerald would take evidence before a new grand jury, and there were even reports that he was preparing to do so. Nothing more than that has occurred, however: no official announcements, no further indictments, no more surrenders of top administration officials.

As an additional, perhaps revealing, piece of information, the General Accounting Office finally took the opportunity to release a cost figure for Mr. Fitzgerald's investigation as of September 2005. Contrary to the speculation in Part III of "The Valerie Plame Scandal" here at The Dark Wraith Forums that "possibly millions and millions of dollars" had been spent by Mr. Fitzgerald, it turns out, according to the Government Accounting Office in a September 2005 report, that Mr. Fitzgerald's investigation had cost only $723,000, for a daily average of less than $1,100. This can be considered in comparison to, say, the investigations of Independent Counsel Kenneth Starr, who racked up a whopping $70 million in costs to investigate President William Jefferson Clinton: for example, in the six-month period surrounding the impeachment of the former President, Mr. Starr spent $7.2 million, for an average daily expenditure of $40,000.

As of today, then, with statutes of limitations beginning to loom for prosecuting crimes committed in the outing of a non-official cover American spy, Mr. Fitzgerald has secured the indictment of a man whose nickname is "Scooter."

That's what Mr. Fitzgerald has accomplished.

Period.




The Dark Wraith has offered readers reason to feel good about the rule of law in this land.

Analysis: Yield Curves 2005

In the continuing efforts of The Dark Wraith Forums to provide information on the performance of U.S. financial markets in the era of the neo-conservative economic policies of the Bush Administration, this article presents and briefly discusses the Treasury debt yield curves for the beginning and end of 2005.

A yield curve plots on the horizontal axis the term to maturity of select U.S. Treasury debt instruments and on the vertical axis their associated yields. A yield on a bond is the effective interest rate its holder earns, given the price of the bond, any coupons (periodic payments) provided, and the face value of the instrument.

Before discussing the yield curves, a brief introduction to bonds will help clarify the meaning of the term "yield." The easiest instrument to use is a one-year Treasury bill. The concept of yield extends from this debt security to other types in an entirely straight-forward manner.

Technically speaking, money is borrowed when a lender buys a promise from a borrower. The promise is usually embodied in a piece of paper called a bill, a note, or bond, the particular name generally being associated with the term to maturity of the loan: a short-term loan is contracted through the bill; an intermediate-term instrument is contracted through the note, and a long-term instrument is contracted through the bond.

Most of the time, these terms are used quite strictly in financial markets. For example, when a person gets a notice that he or she owes money, that person might say, "I got a bill." This is a common use that carries the underlying implication that the obligation represented by the notice is due pretty soon. On the other hand, a person planning for retirement might buy some kind of corporate or government bond, which means the obligation will come due in quite a few years.

Along the way, most bonds and notes pay coupons, which is to say that they periodically pay interest on the face value of the debt instrument. The coupon payment is usually stated in the original agreement as a percentage of that face value, which for corporate and government debt obligations is usually $1,000. So, a bond might carry a coupon rate of, say, 5½%, meaning that, every year, the holder of the bond will get a check for 5½%×$1,000, or $55.00, until the bond matures, at which time the holder will receive the face value of the bond, $1,000, plus one last interest payment. (In reality, most bond issuers make the payments semi-annually, or perhaps on some other schedule; so in the preceding example, the bondholder would most likely get an interest check for $27.50 every six months.)

The problem is that the coupon rate isn't the same as the yield on a bond because the prevailing interest rates in the market might vary from the rate of the coupon. Think about it this way: suppose you were holding a bond that had a coupon rate of 6%. At the time you purchased it from the issuer, that was exactly the interest rate on instruments of similar risk. But what happens if interest rates on similar-risk instruments being issued later go up to, say, 8%? You're stuck getting coupons at 6%. If you decide you want to dump this dog, you'll discover that the financial markets don't want it either. When the prevailing interest rate environment was at 6%, that bond was selling for exactly $1,000 (it was selling at par of $1,000), and this was because the 6% coupon payments would exactly service the debt over its life. But now that your bond is paying a below-market interest rate, no one's going to pay you $1,000 for it anymore. In fact, to unload the bond, you'll have to sell it at a discount (to par). In other words, the financial markets adjust the prices of bonds, notes, and bills over their terms to maturity to reflect how their interest rates are comporting with the prevailing interest rate environment. Going back for a moment to the example of that 6% bond, if prevailing interest rates had fallen to 4%, you'd have a bonanza on your hands: the financial markets would have to offer you a premium (again, to par) to have any hope of inducing you to sell your bond before it matures.

The way the price of a bond, note, or bill comports with its stream of coupon payments and its face value (the payoff at the end) determines the yield on the bond. Now, when coupon payments are involved, calculating the yield is a lot like work, but financial calculators and spreadsheet applications can do it without even batting an eye. The essential idea, however, is contained in debt obligations that don't have coupon payments. These are called "discount" instruments; and the way they work is that the lender buys the debt instrument from the issuer at some price considerably less than the $1,000 face value, then he or she gets the $1,000 at the date of maturity. In other words, the difference between what the lender pays and the one thousand dollars is the total interest the lender earns. This is how one-year Treasury bills work: an investor buys one for less than a thousand bucks, then gets a thousand bucks a year later. This makes the yield on the instrument pretty easy to calculate.

Let's take two examples. First, let's suppose that an investor buys a one-year Treasury bill from the United States government for $965.00. This means that the investor is lending the federal government $965.00 for exactly one year, at the end of which time the government must return to that lender the sum of a grand. Here's how to get the yield: the lender kicked in $965.00 and got back $1,000.00, which means the lender earned $35.00 of interest on a loan of $965.00. The interest rate earned is, then,
$35.00 ÷ $965.00 = .0363 = 3.63%
This 3.63% is the yield on that 1-year Treasury bill.

Here's the second example: the same scenario as the first, except that, this time, the investor buys the one-year Treasury bill for $950.00. The investor is still going to receive $1,000 in exactly a year, but he or she didn't have to fork over as much money. In this case, the lender kicked in $950.00 and got back $1,000.00, which means the lender earned $50.00 on a loan of $950.00. The interest rate earned this time is, then,
$50.00 ÷ $950.00 = .0526 = 5.26%
So this time, the yield is 5.26%.

Notice that the yield on a debt instrument is inversely related to its price: the less that is paid for a security, the higher the yield (or the higher the expected return when it's some kind of security that isn't such a sure thing like bonds).

This is a hugely important, fundamental concept in finance: the lower the price, the higher the expected yield; the higher the price, the lower the expected yield.

Now, moving on to yield curves, which is the topic of this article, every debt instrument has a yield. Government bills, notes, and bonds are the bedrock debt instruments upon which the interest rates of the economy are to some extent driven. A yield curve is a plot of the terms to maturity against the yields of various maturities of government obligations. Short-term government debt instruments—what are usually called "T-bills" for short—have lower yields than intermediate-term debt instruments, which in turm usually have lower yields than the long-term debt instruments. This has mostly to do with the fact that, in normal economic times, investors need more inducement to lend money for a long time than for a short time. In other words, investors demand a higher interest rate on money they have to give up for, say, 20 years versus money they have give up for only a year.

Thus, in those "normal economic times" noted somewhat wistfully above, a yield curve should have a nice, upward arch to it.

Below are the yield curves for the first day of trading of 2005 (purple) and for the last day of trading for 2005 (light blue).


As is evident from the graphic above, the yield curve flattened dramatically during 2005. At the beginning of the year, it had a shape very typical of yield curves for the U.S. economy during periods of growth. By the end of the year, however, it had flattened and was approaching what is called an inverted yield curve, wherein the yields on Treasury instruments of long maturities are lower than yields on short maturity instruments. As was explained in detail in the article, "Of Crystal Balls and Yield Curves," each of the past five recessions in the United States has been preceded by an inverted yield curve. The causal link between an inverted yield curve and a subsequent recession is the steepening cost of shorter-term capital to businesses and households, which face higher rates of borrowing on everything from inventory to durable goods as interest rates rise. In fact, even though the rates on the very longest Treasury instruments dropped slightly from the beginning to the end of the year, this did not translate into particularly lower rates on loans like long-term, fixed-rate mortgages.

Adding to the difficulties facing some consumers, adjustable rate mortgages are frequently tied to the rate on a short-term Treasury instrument or index of instruments. As rates on such government debt rose through 2005, the rates being paid by homeowners with adjustable rate mortgages went nearly in step, meaning higher monthly payments for such mortgagees, who would then have less free income net of their mortgage payments for other purchases. The graphic below, derived from data provided in the Freddie Mac Weekly Primary Mortgage Market Survey, shows the path of fixed and adjustable rate mortgages for 2005.


Returning to the issue of changes during 2005 in yields on government debt instruments, the graphic at left presents the percentage rate changes for the various Treasury instruments' maturities presented in the first graph, above. For example, at the beginning of 2005, the yield on a Treasury security with one month to maturity was 1.99%, but by the last day of regular trading for the year, the yield on that same instrument had risen to 4.01%, representing a stunning change of (4.01-1.99)÷1.99=+102%, meaning that the rate on the shortest Treasury instrument more than doubled (i.e., rose by more than 100%) from the beginning to the end of the year. In fact, all rates but that on the longest Treasury bond rose: that 20-year bond fell, but only by a very modest 5 percent. The table below presents the data used for the yield graphics presented in this article.


The conclusion is that the policies of the Bush Administration, despite continuing reports of robust overall economic growth, have led to long-term losses for index portfolions in the U.S. stock markets and are now on the verge of producing a recession some time in the current year. The timing, severity, and length of this possible recession are a matter that may be analyzed in future articles here at The Dark Wraith Forums, but the yield curve as it now stands is a significant warning that neo-conservative economics is moving the United States to the brink of an economic downturn. This recession would be occurring in an era when the federal government, which since the time of Franklin Delano Roosevelt had used both fiscal and monetary counter-cyclical policies to soften the blows of recessions on ordinary citizens, is no longer willing or able to use vast resources of the government to swiftly pull the economy out of the clutches of a downward economic spiral.

The only comfort comes from the fact that any impending recession will likely begin to reveal itself before the 2006 mid-term elections, at which time a number of those who found the Republicans so worthy of being allowed to control not just the Presidency but also both Houses of Congress may finally be unwilling to return to office those from a political party so prone to corruption, mean-spiritedness, and downright incompetence.



The Dark Wraith can only hope for such a silver lining in what is otherwise a looming, bleak economic period for the country.