MCAD Industry View - A May 2006 Update



August 11

As many predicted, the Federal Reserve on August 8 suspended its two-year crusade of raising interest rates, a policy shift based on the investment community's astonishing "hope" that a painful US economic slowdown will eventually subdue inflation. After 17 consecutive increases at every Fed meeting since mid- 2004, the central bank voted this week to hold its benchmark interest rate steady at 5.25%. In a rare display of uncertainty, the Fed committee was not unanimous in its decision. One reason is that today, inflation is still far from subdued. Core inflation is running about 2.9% higher than one year ago, the biggest year-over-year jump in 11 years (and core inflation excludes rising food & energy costs!).

Speaking of pain, Laurence H. Meyer, a former Fed governor and now an economic forecaster at Macroeconomic Advisers, predicted that it would take a truly significant economic slowdown to actually reduce inflation. For that to happen, he said, unemployment would have to rise for a sustained period. For example, to reduce inflation by one percentage point, the US unemployment rate would to rise by about two percentage points for a full year. Too bad for those laid off!

Indeed, if the Fed cracks down harder on inflation, it risks throwing the US economy into an actual recession, not just a slowdown, which would leave workers whose wages have hardly kept up with price increases in still worse shape. And with energy prices up sharply, many workers, whose pay increases have lagged far behind productivity gains, already have far less disposable income for other purposes.

And, as the Labor Department also reported on August 8, productivity already slowed to an annual rate of increase of 1.1% in the April-June 2006 quarter. Productivity is the key factor determining living standards. Strong growth in worker productivity, which occurred often during the last five years, should allow businesses to pay their workers more (although businesses seldom did so in the last five years; most of the benefit went to corporate profits) without raising the prices of business products (which they have been doing, especially recently, causing inflation).

Meanwhile, on August 10 Wall Street withstood the news of a terror plot targeting commercial airlines. But European markets tumbled as British authorities said 24 people were arrested in a widespread plan to destroy numerous international flights, and reacting, the US raised its terror alert to the highest levels ever for air travelers.

While airline stocks fell on August 10, overall US stock averages nonetheless went up that day! Wall Street also benefited from lower crude prices, which fell on the belief that reduced travel in the coming months might curtail demand for fuels. A barrel of light crude settled at $74 on August 10, down $2.35.

Of course, that was just a day after the oil company BP announced that a corrosion problem was forcing a shutdown of its pipelines serving Alaska's Prudhoe Bay. Oil prices immediately shot up, with oil temporarily gaining more than $2 a barrel, to nearly $77, and gasoline rising five cents a gallon in some cities. Why BP was so negligent in its inspection protocol is not yet revealed. Not surprisingly, Republicans were quick to use BP's travails as yet another reason to whip up hysteria to drill more in the US. But of course, everyone but the right wing knows that even all-out drilling everywhere in the US and off our coasts would never dent America's oil appetite. The US has only 3% of global oil reserves, yet we consume 25% of the world's oil. Only alternatives to fossil fuel will save us.

But maybe most Americans don't, in fact, know facts. A large number of Americans remain apathetic or just plain ignorant about geopolitical issues, and these sad-for-democracy conditions do not seem to be getting better. As recent as late July 2006, a Harris Poll reported that 50% of Americans now seem to believe that Iraq had weapons of mass destruction after all when the US preemptively invaded over 1200 days ago, up from 36% who thought so in February 2005. Meanwhile, 64% still believe that Saddam had strong links with Al Qaeda. Part of the reason, of course, is the current administration's incessant propaganda. In many cases, facts are either labeled "junk" science or simply lied about: stem cells, global warming, tax cuts, income inequality, Iraq, etc.

Alas, there was some good news this past week. The defeat of Senator Joe Lieberman at the hands of Connecticut businessman Ned Lamont should send a message that voters are at long last angry and frustrated over the US presence in Iraq. Lamont said he ran against Lieberman because he was offended by Lieberman's continuously cheerful (and inaccurate) descriptions of what was happening in Iraq and Lieberman's sanctimonious denunciations of Democrats who have criticized the administration's handling of the Iraq war.

And other good news: the unlikely duo of Tony Blair and Arnold Schwarzenegger this week agreed to collaborate on cleaner-burning technologies and to explore an emissions-reduction program to attack global warming that would combine mandatory controls on greenhouse gases with market incentives. For his part, Blair claimed he was not really defying his good friend George Bush. The "governator" was more forceful, saying that the Bush administration and Republican Congress have shown no leadership on the issue (gee, there just might be an election coming up in CA). The Blair/Schwarzenegger agreement again dramatizes how badly the current administration in Washington lags both Britain and California with Bush's lame program of "voluntary pollution reductions".

And finally some good news regarding Israel, Lebanon and Hezbolla: late in the week, the United Nations Security Council finally produced a formula to end the fighting in Lebanon. Of course, while the diplomats dithered, hundreds of Lebanese and Israelis died, one-third of Lebanon's population was uprooted, and new layers of anger and fear were sown on both sides of the border. (Remarkably, after Bush initially gave Israel the green light to keep attacking, and later supplied additional smart bombs to the Israeli air force, Bush didn't even speak on the phone to the Israeli prime minister till August 11, more than a month after hostilities began).


August 18

On August 17, the Congressional Budget Office said that unanticipated tax receipts so far this year will likely allow the 2006 federal deficit to come in at … hold on ... "only $260 billion". But the deficit will begin to rise again next year and will continue to balloon further unless Bush's string of past tax cuts for the wealthy is allowed to expire on schedule. Otherwise, even the most optimistic assumptions, including no more major disasters and reductions of US forces in Iraq and Afghanistan -- reveal a stream of red ink that would create still another $2.5 trillion of debt (above the current debt of $8 trillion) over the next 10 years and average at least $254 billion a year, according to budget office calculations. (Recall that when Bush first took office in 2001, the US was running yearly fiscal surpluses). Indeed, budget office figures showed that the administration's spending is increasing by 7.7% this year alone, easily outstripping US economic growth. In fact, even in the best case, the federal budget will likely hang around 20% of the country's gross domestic product through the bitter end of the Bush presidency, up from 18.5% of GDP when Bush first came to office. Some conservative!

Also on August 17, a federal judge ruled the Bush eavesdropping agenda to be both illegal and unconstitutional. She wrote that Bush has violated the 1978 Foreign Intelligence Surveillance Act (FISA) when he told the NSA to spy without a warrant on international phone calls. She offered a cutting condemnation of Bush's attempt to place himself beyond the reach of Congress, judges or the Constitution. "There are no hereditary kings in America and no powers not created by the Constitution," wrote Judge Anna Diggs Taylor of the United States District Court in Detroit. She noted that the 1978 FISA law was passed to disallow this type of abuse of power and provided ample flexibility for collecting intelligence. Instead of simply abiding by the 1978 law after this ruling, Bush's lawyers are now trying to have the suit thrown out on national security grounds. In this case, the administration told Judge Taylor that merely arguing its case would expose secret information. The Judge said this argument was "disingenuous and without merit." No sooner had her ruling been issued, than Bush's crowd in Congress began calling for new laws to defeat the Judge's objections. Republicans pointed out that Judge Taylor was appointed by Jimmy Carter. (Judge Taylor's decision was a sequel to the Supreme Court's decision in June 2006 in Hamdan v. Rumsfeld that struck down the administration's plans to try detainees held in Guantánamo Bay, Cuba, for war crimes). The Republicans' ridiculous efforts to undermine the August 17 eavesdropping ruling will unquestionably proceed, but for now, one solitary judge has done what the US Congress has studiously avoided doing.

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  • October 09, 2008
    Reviewed by 'Randy Bigs'
    I agree that the authors did not clearly tie in the overall state of the economy with the topic at hand: The MCAD industry. But, based on this week's Wall Street stock meltdown, and the worry about increased inflation, It's obivious that we've got big trouble right here in River City, and it will not only negatively impact our economy in general but the MCAD industry specifically. I applaud Russ and Jack for their in depth financial analysis, but I also would like to see their US and geopolitical comments weaved into the central theme, and I hope when things turn around they'll continue to present an objective viewpoint.

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  • October 09, 2008
    Reviewed by 'Mac'
    Where's the beef? As I read the article hoping to get an update on the MCAD industry, I quickly realized that this article was just another political aid without any data that could be interpreted without a secret MCAD decoder ring. I find it ridiculas that instead of giving us a real opinions on state things in the MCAD space, the authors just threw up graphs and charts and ambigious explantions about what those caharts and graphs meant. At the end of the article, I could only grin as I kept wating for some information that might actually provide me with some insight on the state of affairs in the MCAD space, but it didn't happen.
    I guess I will have to keep on collecting data myself and come up with my own opinions as I am not on someone's pay roll and have no political agenda. Here's a noval idea, lose the jibber jabber talk (Denny Crain) and call it like it is for once.
    Mac

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  • October 09, 2008
    Reviewed by 'S. Wertel'
    This article is quite detailed and well written, but what does your political view on the current administration have anything to do with MCAD?
    The entire Economic & Geopolitical Factors section is filled with tripe and misleading statistics pulled from sources biased to anti-Bush sentiments. Is this the only medium Henke and Horgan have available to prevail themselves as some sort of economic masterminds? Please keep your political drivel to yourselves, or at least place them in a forum suited to that topic. If I were to have written something as perverse as this, my high school social studies teacher would have accused me of having diarrhea of the mouth and sent me back to perform an unbiased analysis showing both side of the story and how they relate to the topic at hand - the state of the MCAD industry. No where in the Economic & Geopolitical Factors section was there a tie between the rubbish on the page and how it relates to the topic of MCAD. Please go back to high school.
    In the future, please contain the Industry View to just an Industry View, or at least tie in the Economic and Political Factors with how they affect MCAD.

      One person found this review helpful.

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  • October 09, 2008
    Reviewed by 'Brian T.'
    What can I say, this article is not a News/Commentary article on MCAD. It is a Liberal Propaganda Tool which I will no longer subscribe to. This is my third comment on these out of place personal comments in a otherwise informative article. When the last article was being reviewed, the last I checked 6 out of 7 responses to that last article agreed with my review, then it was removed from the mcadcafe page. I guess this would be expected, that poll might not swing their way, so cut it short before it looks bad. I have never seen this report taken off this site before. These views are included in a bias manor. Some of the same information could be included with out the Liberal Bias View or the quotes from the Like Sources. Enough Said, another media tool that can't seem to go down the middle.

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