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Today's Commentary: 09.05.05
Finding Leaders

The Bush excuse blew on shore last week with the name Katrina. Perhaps that is why no one in the administration seemed too worried about the disaster that was unfolding along the Gulf Coast. Bush cut short his vacation ­ after four and a half weeks, Cheney never bothered ­ reeling in fish from a Wyoming stream is obviously of greater importance and Condi was shopping and catching a play in New York while the Speaker of the House was accusing us of misunderstanding his comments about rebuilding New Orleans. Once the adminsitration got involved, the hurricane provided a frame for all that is wrong with our leadership.

But as I have said time and again, any criticisms about this administration delivered by this columnist is based wholly on their economic policies, many of which have failed the test of time, past present and future.

Pushed to the background by the hurricane and its well-documented aftermath, the Iraq war continues on at the cost of $1 billion a day and is at the heart of every misstep the President has made and will make. That war, if allowed to continue for another four years ­ the current estimate for the President to secure the country and its oil fields, would cost over $1.5 trillion.

While anyone hates to kick a man when he's down - Bush's approval ratings for his second term hit an all time low as his political capital seems all but spent - the man responsible for leading this country into this millenium has left us a bill that future Americans may just take to the next.

Point fingers if you will at the approved project to build a bridge in Alaska at the cost of $231 million and you will find the President, denying more than half of that sized request from the Army Corps of Engineers for programs designed to help handle just such a disaster in New Orleans. While the Federal budget spiraled out of control, Mr. Bush cut the Army's request to $40 million. Offering a penny's worth of protection would have been better spent it seems in hindsight than trying to fix the damage done.

Further insult to injury ­ no, not the miscalculated importance of a San Diego stop over while the flood waters were rising ­ the President suggested that he would not tolerate price gouging at the pumps. His grasp of the basics is once again on display for Americans to witness.

Concerned by the rise in oil prices and the possibility that a region where fuel and natural gas are not only refined but pumped to the energy hungry eastern seaboard, Mr. Bush perceived the disruption as a call for, not conservation, but for price caps to keep demand high in the face of possible shortages.

Supply needs to be reflected in the price, which will in turn control the demand. The President, seeing an opportunity to keep America rolling for the holiday, suggested that prices should be stabilized and those miscreant station ownbers be prosecuted for caving to a law of economics. His counterintuitive thinking flies in the face of economic principles.

Demand for gasoline works best when the marketplace sets the price. Station owners want to keep the pump price at a level that would not allow unnecessary tank hedging, a topping off at every available opportunity while leaving enough gas for those that need it in order to do business. What would be left would be bought by those that feel as though they need to drive no matter the price. The less fortunate would be unable to pay the higher costs and would ultimately lose their mobility. But the flip side of the equation is no gas at all.

If the President has his way, once prices are capped, tanks are kept full while supply diminishes. This leads to spot outages and even some station closures. The end result is a more focused search for fuel with long lines when it is found. If Mr. Bush is so concerned with profiteering, the refiners should be the target, not the end supplier.

At $10 a barrel, refiners make about a buck per barrel in profits. With oil hovering around $70, every up tick in future contracts brings yet another increase at the pumps. The profit margins in this industry are, well, you can do the math.

Mr. Bush had a meeting last week with the politically correct head of the Federal Reserve Board. Although details of the meeting were not disclosed, hints that Mr. Greenspan may be at the end of his measured rate increases may be coming. Greenspan is suddenly focused on housing and risk. Housing is too hot and risk has become less profitable.

Housing has its problems but they have yet to surface in any meaningful way. Wall Street realizes that housing, more specifiaclly the wealth effect of housing coupled with continued liquidity, can't last forever. Once homeowners decide that they can no longer pull the hundreds of billions of dollars from their homes on the back of cheap rates, they will begin to wrap themselves around two very obvious notions. The first is home as a shelter not an investment. The second is the not so savory realization that they are broke.

Once equity tapping begins to level off, borrowing will stop, debts rolled into homes will cease, and homeowners will be left with only one option: stop spending. That could leave these less equity-wealthy individual worried that they may not have enough saved should things get really bad.

Businesses cringe at the notion of a spender who is wary of the future. Once we revert to a nation whose future in based on savings rather than rampant borrowing, unemployment numbers will jump up as growth in service and hospitality sectors slows to a halt. Construction, one of the stalwarts of the recent job gains, would all but dry up. Removing the customer from the equation and we are back where we began four years ago but without any more equity to tap and therefore, no more money to our way spend out of a recession.

Which unfortunately is not the case with the federal government. Emergency appropriation measure for the victims of the hurricane has been approved by Congress for $10.5 billion in aid. But that promise may be too little too late.

The Bush administration should do two things at this point. First and foremost, kill and then redirect all appropriated funds on the recently signed highway bill. The pork lining that ill-fated $231 billion would go a long way to rebuilding the Big Easy and restoring the faith of the American people. The President should not be asking for charity that the government should be providing. Our tax dollars and the tax dollars that will go to the debt service, one taxpayer told me recently, is donation enough. Redirect that money.

Second thing: Mr. Bush should not blame Katrina for the woeful economy he and Mr. Greenspan have provided this storm. Together, seemingly working against each other at times, these two have worn down all of the natural barriers to a safe and predictable economy with fiscally irresponsible spending and a politicized monetary policies.

Katrina will result in a rise in oil prices and a sharp increase in unemployment. However, blaming the storm for the sounding the death knell for an economy that is far too deep in debt for its own good, is not one of them. It will be a slow slide and barely noticeable. Which would be perfect for the first responders in the White House.

BlueMoney Report

The Blue Money Report
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