Wednesday, December 30, 2015

Fed Feeds Feds Funds Update

In December the Fed transferred $27.5 billion to the Treasury from its interest earnings on the securities it purchased.

For the first quarter of Fiscal Year 2015-16 (October 1, 2015 - December 31, 2015), the Fed remitted $41.6 billion to the Treasury.

Like the fraternity song we used to sing in the late 1950s - early 1960s:

"Rolls in, rolls in
My God how the money rolls in."

Tuesday, December 29, 2015

The Federal Reserve Feeds the Federal Government With Free Funds

Since the eruption of the financial crisis, the balance sheet of the Federal Reserve System (the Fed) has increased to a factor of 5.2, from $867 billion on August 8, 2007, to $4,497 billion on December 23, 2015. This resulted from several rounds of Quantitative Easing (QE) in which the Fed bought Treasuries and other securities.  Total assets have remained virtually unchanged in the past 12 months.  The Fed has not reduced its holdings of Treasuries or other securities.

The US Treasury has been a beneficiary of the Fed's accumulation of securities in that the Fed earns interest on them.  Each year the Fed transfers the balance of its earnings to the Treasury after deducting its own expenses.  This sum has grown from $31.7 billion in 2008 to an estimated $98.7 billion in 2014.

The nearly $100 billion is free money for Congress to spend without its having to vote for a tax increase of this magnitude or, under a spending limit, enables the Treasury to borrow $100 billion less.

Some economists fear that the Fed's large balance sheet could unleash inflation when and if it sells off some of its securities into the market. Others fear that the large balance sheet may complicate efforts to stimulate the economy if it falls into recession.  Who knows?  I'll let the monetary economists sort that out.

What is clear is that the Treasury and Congress are happy with the now $100 billion transfers that enable less borrowing or more spending without additional taxation.

Sunday, December 20, 2015

Secretary of Defense Ashton Carter Must Not Have Known About Hillary Clinton's Use of A Personal Email Address To conduct Government Business

Secretary of Defense Ash Carter is a brilliant man.  He has a Ph.D. in theoretical physics, and is well known in scientific and technological circles.  He served three stints in the Defense Department: assistant secretary of defense for international security policy in 1993-1996; under secretary of defense, with responsibility for procuring all technology in 2009-2011, and deputy secretary of defense in 2011-2013.

Now to the email timeline.

On October 6, 2014, Carter was appointed a Distinguished Visiting Fellow at the Hoover Institution of Stanford University and the Payne Distinguished Visitor at the Freeman Spogli Institute for International Studies.  His office was located on the first floor in the Lou Henry Hoover Building (just a few doors away from my office).  Above him on the second floor are the offices of Hoover's cyber security program headed by Dr. Amy Zegart, which is part of Stanford's wider $15 million cyber security program.

On December 5, 2014, President Obama nominated Ash Carter for secretary of defense.  He was confirmed by the U.S. Senate on February 12, 2015.

Dr. Zegart was instrumental in arranging a White House Cyber Summit at Stanford on February 13, 2015, at which President Barack Obama gave the keynote address.

In the wake of the presidential summit, Carter returned to Stanford on April 23, 2015, to unveil the Pentagon's new cybersecurity strategy. He called for a renewed partnership with Silicon Valley to create an unbeatable pact between military strategy and technologists.

On December 16, 2015, the New York Times reported that Ash Carter conducted a portion of his government business using a personal email address in direct violation of the department's rules.  In response to the story, a defense department spokesman said, "After reviewing his email practices earlier this year, the secretary believes that his previous, occasional use of personal email for work-related business, even for routine administrative issues and backed up to his official account, was a mistake."

Huh?!

If it's all right for the secretary of state to use personal email in the conduct of government business, it must be all right for the secretary of defense, even though it's against departmental rules.

One wonders how widespread the use of personal email addresses is throughout the highest echelons of the federal government.


Wednesday, December 16, 2015

Kudos to EconLog

EconLog is among the top economics blogs and among my favorites.  I open it daily and sometimes several times a day.

Its bloggers are smart and provocative:  Bryan Caplan, David R. Henderson, Scott Sumner, Alberto Mingardi, and other guest bloggers from time to time.  They are willing to take on establishment economics with wit, logic, and evidence.

What distinguishes EconLog from several hundred other economics blogs is that its authors are willing to debate each other, sometimes vigorously.  This is refreshing.  One cannot predict exactly how any given topic may be analyzed.  This blog is economics conversation at its best.

Which led me to thinking.  Are there any other economics blogs or think tanks that put their internal intellectual disagreements out for the public to read?  Are their fellows reluctant to criticize each other lest they displease their bosses and donors?  Have think tank papers and posts become predictable due to age and donor bias?  Is bigness itself an enemy of innovation and disruption in the world of ideas?


Thursday, December 10, 2015

Update: America Has No Arab Allies

On December 9, 2015, Secretary of Defense Ashton Carter testified before the Senate Armed Services Committee. 

His comments state the reality of so-called Arab allies.

Carter acknowledged a missing element in the campaign: a more assertive role by Sunni Arab allies from the Gulf in the effort against Islamic State, a Sunni extremist group.
He said the United States had spoken to Gulf Cooperation Council leaders at a Camp David summit in the spring about creating a "Sunni Arab combined force" to help in the fight.
"That has not materialized among them," Carter said.
He suggested Sunni forces might not need to occupy territory but instead work at "enabling local forces."
That's a strategy that the United States moved decisively toward in October, when it announced it would send dozens of special operations forces to Syria to coordinate with rebels.
The United States last week announced plans to deploy elite American military teams to Iraq to conduct raids against Islamic State there and in neighboring Syria.
Carter told the Senate hearing that he was in touch with coalition partners to ask them to contribute special operations forces, including from the Gulf. The United States also sought other capabilities, like strike and spy aircraft, weapons and munitions.
"I too wish that particularly the Sunni Arab nations of the Gulf would do more," Carter said.

Red Alert! Red Alert!

This is Jean-Luc Picard, Captain of the Starship USS Enterprise.  In fifteen minutes, we will be landing in Beijing.  Please wear your oxygen mask on leaving the ship and keep it on during our stay in Beijing.  You may remove it when you reboard the Enterprise.

Repeat.  This not a call to battle stations.  It's to warn you that breathing Beijing air, like cigarets, is dangerous to your health.

Tuesday, December 8, 2015

Swedish Banks Are Government Informants

Sweden is the leading example of a "cashless" economy.  Currency in circulation has been steadily declining in recent years, reaching a low of SEK 68.9 billion on October 15, 2015.  That amounts to SEK 7,153 (US$ 844) per person.  (Coins add another SEK 5.3 billion in circulation.)  New electronic payment systems are accelerating the move away from cash.  

Note the requirement imposed on banks that still deal with cash.  Any person conducting a cash transaction in such a bank will have to declare how he (she) acquired the notes and coins, and the bank in turn has to report the information to the police.

In comparison, the value of U.S. currency in circulation, $4,300 per person as of December 31, 2014, continues to rise each year (although more than half is estimated to be held abroad).  In accordance with the Patriot Act, U.S. banks are required to report to the Department of Homeland Security all transactions exceeding $10,000, although some will report transactions exceeding $5,000.

Still, Americans are relatively free to conduct cash transactions between themselves and between themselves and financial institutions. Swedes are not.  Welcome to the Scandinavian version of Brave New World.




Monday, December 7, 2015

Who are America's Arab Allies? Do we Have Any?

Those Democrat and Republican presidential candidates that propose to defeat ISIS by putting 10,000-20,000 troops on the ground to advise and assist our Arab allies repeat over and over again that our Arab allies will have to bear the brunt of the load in supplying troops.

None of these candidates has yet named our Arab allies.

Do they include Saudi Arabia?

The Emirates?  Kuwait?  Qatar?  Iraq?  Iran?  Egypt?  Yemen? Libya? Tunisia?  Morocco? Jordan?

Aren't these the same Arab allies that have been supposedly in the forefront of  helping the U.S. rid the region of Al-Quade and now ISIS with little success?

How about asking each candidate who wants the U.S. to build a coalition that relies on our Arab allies to tell us who they are?  Why would it succeed this time when it has failed since the emergence of ISIS?