Inflation and Robert Frost - John Mauldin Newsletter

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The Curve in the Road
By John Mauldin | April 8, 2011


In this issue:
The Curve in the Road
Capacity Utilization Is Rising
Inflation Expectations
The Transmission Mechanism
Portland, New York, and Home for a Few Weeks


TWO roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;

Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,

And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.

– Robert Frost

“I shall be telling this with a sigh,” and it is with a sigh that I write about the twisting, uncertain roads of inflation and deflation. Long-time readers know I have made hard arguments for first deflation and then inflation in the US. But the data says the Fed is not seeing around the bend in the inflationary road all that well. Their signs are not giving them warning, and they are in danger of falling behind the curve. This week’s letter is a thought game in which we entertain the possibility of rising inflation in the US. (It will print a little longer, as there are a lot of charts!)

Quickly, Endgame is doing well, and I want to thank those of you who have read the book and given me feedback. I appreciate it. You can read the reviews at Amazon.com . And now to this week’s letter.

The Curve in the Road

Back in 2002 (or so) I was writing about the curve in the road. In fact, that was the working title for Bull’s Eye Investing as I was writing it. The concept is that one cannot see around the curve in the road, so it is very important to read the signs and have good maps as you go along.

Bernanke (and Dudley) have been testifying that inflation is not an issue. But what signs and maps are they reading? Bernanke specifically invokes inflation expectations as being most important, and he contends they are low. They both note that the “output gap” (more on it later) is still high and that wage inflation is unlikely in a period of high unemployment. But, as Greenspan recently said, “The problem is, none of these indicators will tell you when inflation is about to take hold.”

The Economic Cycle Research Institute wrote what I think is a very powerful editorial about the problem with Fed policy and inflation. I will quote some of the more important paragraphs, but you can read the piece in its entirety at http://www.businesscycle.com/news/press/2137/.

“By using good cyclical indicators, you can – and we do – correctly forecast when inflation is about to take hold.

“And it’s precisely because the Fed – first under Mr. Greenspan and now under Mr. Bernanke – adamantly believes that inflation turning points can’t be predicted, that the current U.S. recovery stands in danger of being snuffed out prematurely.

“ECRI’s future inflation gauges – which, unlike econometric models, monitor the evolution of self-feeding cycles in inflation – are designed to do just what Mr. Greenspan says can’t be done. Specifically, they are more direct measures of underlying inflation pressures that signal the timing of upcoming inflation cycle turning points. In fact, they also anticipate inflation expectations.

“… The Fed’s ongoing reliance on inflation expectations, along with core inflation and the output gap – which Mr. Greenspan agrees don’t work – strongly implies that they have no workable tools to decide when to pull back on stimulus. Their incoherence about policy timing is rooted in the belief expressed by Mr. Greenspan that forward-looking indicators of inflation can’t tell when inflation is about to take hold.

“Mr. Greenspan and his successor, Mr. Bernanke, are top-notch economists in an echo chamber where they are surrounded by other economists, who all tend to believe, deep down, that the best forward-looking information must be found in market prices. This is an economist’s mistake. Even in the face of compelling evidence that markets aren’t the best predictors of what’s around the bend, it’s really hard for economists to abandon their basic world-view.

“This keeps the Fed chronically behind the curve. The “insurance” taken out by the Fed has been far from costless, especially in terms of the collateral damage from unintended consequences. Yet, damaging as it might have been in the past, the sheer size of the Fed’s current balance sheet makes it more critical than ever to improve the timing of monetary policy shifts.

“Central bankers need to stop clinging to policy orthodoxy and pay attention to proven cyclical leading inflation indicators that can actually tell them when inflation is about to take hold. Otherwise, if a well-meaning Fed stimulates the economy for too long, it will let inflation and/or asset prices get out of control, fostering boom-bust cycles that keep long-term unemployment at elevated readings as each short boom ends with a bust that pushes the jobless rate back up.” (emphasis mine)

Capacity Utilization Is Rising

First, let’s look at that “output gap.” The output gap, or GDP gap, is the difference between potential GDP and actual GDP, or actual output. The Congressional Budget Office makes an estimate that looks like this:



This “gap” coincides rather nicely with our old friend, Capacity Utilization. And while CU dropped to all-time lows during the last recession, it is up over 10% from the bottom, which is a much sharper recovery than during the previous recession.

The Institute for Supply Management (ISM) numbers are still good, both manufacturing and service sectors, although beginning to show some signs of price increases. Yes, there is still an “output gap,” but it is shrinking. If the chart below is any indication, that gap could be much smaller in a few years, assuming we do not experience a shock to the economy (more below).



Employment is (finally) looking better. Slowly, we are seeing initial unemployment claims come down from the record highs of a few years ago. The Fed sees the total number of unemployed and says there is no pressure on wage inflation. I think it may be more subtle than that.

Let’s look at a graph from chapter 4 of Endgame: What it shows is that employment is very skewed, as is income. This was as of the end of 2009, but the principle is the same.



The clear problem in the United States is this: If the highly skilled have 2.5 percent unemployment, how do you reduce that? You can’t. That is probably the natural frictional rate of unemployment, that is, people naturally moving between jobs or geographies. Faster economic growth or more money supply won’t bring down a 2.5 percent unemployment rate.

There are clear trends developing. Those who have attained a higher level of education are not suffering to nearly the same extent as those at the lower end of the educational scale. Indeed, conditions for certain highly skilled workers could be described as tight.

Furthermore, those who find themselves out of work are on average out of work longer now. The average time of unemployment has sharply increased from less than 20 weeks only two years ago to more than 30 weeks now—a 50 percent increase. Those unemployed for shorter lengths of time now make up much less of the total than they used to.

The majority of unemployed workers are instead primarily those in a chronic state of joblessness. Such people find it ever harder to get back into employment as their skills become rusty. This phenomenon is not confined to the United States. A similar pattern is developing in the United Kingdom and throughout the developed world. The stories of chronic unemployment in Portugal, where fewer than 30% have high school degrees, have been everywhere of late, as Portugal becomes the latest of the euro-area countries to need funding help.

There are two main types of unemployment: structural and cyclical. In this downturn we have seen fewer hours worked and lower pay; these are cyclical. More ominous, though, has been the structural decline in the civilian participation rate. There has been an extreme rise in the number of long-term unemployed, who now make up almost 3.5 percent of the labor force. Because the U.S. economy needs to shift from consumption, real estate, and finance toward manufacturing, many of the unemployed will not return to their old jobs.

“As U.S. economic growth begins to revive, the long-term jobless rate, which is still around record highs, remains a festering sore. However, it’s obvious from a scrutiny of past cyclical patterns that only a long economic expansion – like those in the 1980s and 1990s – can heal that wound.” (ECRI)

“Only a long economic expansion” is the right answer. Another recession would obviously not be good for employment.

Inflation Expectations

As noted above, the Fed pays a great deal of attention to inflation expectations and says that today such expectations are low. Let’s look at two charts (courtesy of Scott Grannis, http://scottgrannis.blogspot.com/2011/04/monetary-policy-update.html) which suggest that such a benign outlook may not be in our future.





“The message of both charts is the same: inflation expectations are rising significantly. Fed supporters would be quick to note that this could just be a rational reaction to the recent and continuing rise in oil prices. But Fed critics have more ammunition: the very weak dollar, the broad-based rise in commodity prices, the all-time highs in precious metals, and the substantial rise observed to date in the producer price indices and the ISM prices paid indices. There is no shortage of evidence that monetary policy is extremely accommodative and inflation pressures are building. The last refuge of the inflation doves (the Phillips Curve theory of inflation) is being dismantled almost daily, as prices all over the world rise even as there remains plenty of slack in the U.S. economy.” (Scott Grannis)

I wrote a few weeks ago:

“And core inflation may soon be under pressure. There were two articles yesterday, one from Yahoo and the other on Bloomberg. Both related to rising pressure on rental costs. (My recent lease renewal increase was significantly above core CPI!) (From http://realestate.yahoo.com/promo/rents-could-rise-10-in-some-cities.html)

“Already, rental vacancy rates have dipped below the 10% mark, where they had been lodged for most of the past three years. ‘The demand for rental housing has already started to increase,’ said Peggy Alford, president of Rent.com… By 2012, she predicts the vacancy rate will hover at a mere 5%. And with fewer units on the market, prices will explode.”

Look at this graph showing their projections:



Here’s what to pay attention to. Notice that since 2002 (or thereabouts) rental costs have been flat, and down of late (inflation-adjusted). If Rent.com projections are anywhere close, we could see a rise in rents of 15% by the end of 2012.

Let’s remember that 23% of the CPI and 40% of core CPI is Owner Equivalent Rent. If they are right, that adds about 3% to total CPI and 6% to core CPI! Will the Fed be telling us to focus on core inflation in 12-18 months? And those prices will start to show up steadily.

The Producer Price Index is rising at an annualized rate of 20%. This is starting to show up in consumer prices. Wal-Mart CEO Bill Simon recently stated that he sees “serious inflation” on the horizon, as US consumers face a sharp rise in inflation in the coming months for clothing, food, and other products. “Inflation is going to be serious. We are seeing cost increases starting to come through at a pretty rapid rate.” (Variant Perception)

The latest data we have on inflation shows that the trend is clearly up. In particular, notice the rise in the last three months since the beginning of QE2. Inflation is running at over 5% on an annualized basis. Companies like Kimberly (diapers, etc.), Colgate, P&G, and others all announced 5-7% price increases this week. These are companies that provide staples we all buy. Those prices matter. Even Wal-Mart will have to pass those increases on. To say that food and energy don’t matter misses the point. These items have real economic impact.



One last chart on inflation, and this goes back to the Future Inflation Gauge mentioned by ECRI. There is a clear correlation between the FIG and inflation, which suggests that we will soon see rising inflation.



The Transmission Mechanism

Everyone knows the Fed is going to finish this cycle of quantitative easing (QE2). But how does that translate into actual inflation?

It’s not showing up in the money supply as measured by M2. After a liquidity-induced jump during the recent crisis, M2 is growing roughly at the same rate as it has for years.



In fact, the excess money is showing up back at the Fed in the form of reserve balances with the various reserve banks.



So how is inflation showing up in commodities, oil, and food? Let me posit a few thoughts, although I am open to readers enlightening me further.

One, emerging markets are being forced to take on huge foreign reserves if they do not want to see their currencies rise. This means they are adopting the loose or easy monetary policy of the Fed, which means they are now being forced to deal with inflation. Stratfor reported today that Vietnam, for instance, has 14% inflation. China’s is in that range, notwithstanding the “official” numbers. That means they will have to allow their currencies to rise, but it also means that food and energy, which are close to 50% of their consumer spending, are very impactful. It means rising wages and higher costs, which the CEO of Wal-Mart says are now being passed on.

This easy-money policy means a lower dollar, which is another way of saying rising commodity costs, especially for oil.

And most importantly, this policy is in fact building in inflation expectations, which is most worrisome. Right now there is no fundamental reason the economy should roll back into recession in the near future. There is no need for QE3, although I have written about the potential problems when we stop the current QE2. But that being said, the US economy should be growing at almost 5% in this part of the recovery cycle, not 2.5%. This is a very weak recovery by historical standards.

What happens if there is an “exogenous” shock (something outside of the system)? What happens if there is a true sovereign debt banking crisis in Europe? That is in the realm of possibility, as I have discussed. So is another oil shock. That large weapons cache in Nigeria is worrisome. What would $150 oil do?

(Anecdotal comment. My middle son came to visit tonight on his motorcycle. “I only use the car now to go to pick up the kids at the day care. Gas is almost $4. Who can afford that? What the hell is that about, Dad?” I know some of you think I am insulated from the real world, but I see it in my childrens’ lives and those of their friends, almost every day.)

If the Fed felt compelled to “provide liquidity” through a dose of QE3, I think the markets would rebel. The dollar would certainly fall, driving up prices more, along with interest rates, if the last round is any indication.

I maintained at its outset that QE2 was bad policy, because it wasted a bullet that we might need one day. I worry about what happens if we continue to do that. Hopefully, we don’t have that shock and will have a long and sustained recovery, the government will bring the deficit down, and employment will rise. One can hope. But hope is not a strategy. We are in a hole and we seem to want to keep digging, at both the Fed and the US government. And we are exporting our problems of bad management to the world.

We have chosen deliberately to take the inflation road. We have not traveled that road for some time. The Fed may think they know what is around the curve and what to do if inflation comes back, but no two crises are the same. I worry about these things. If the Fed and the US government wanted a weaker dollar, the return of inflation, and the potential for yet another boom-bust, they could not have designed better policies than the ones they’re pursuing.

Portland, New York, and Home for a Few Weeks

I head for Portland tomorrow for a speech on Monday, back early Tuesday, and then off to New York for meetings on Wednesday. There, Tiffani and I will attend a charity event as the guests of Dr. Mike Roizen, for the HealthCorps®’ Fifth Annual Gala (the charity of his multi-bestselling co-author, Dr. Mehmet Oz). This year’s even, called “Fresh from the Garden Gala,” will raise funds to fight the child obesity and mental resilience crises and expand the organization’s groundbreaking in-school health educational and mentoring program. I understand there may be a few tickets left. Join us!

I will guest host on Bloomberg TV with Betty Liu from 9 to 10 on Thursday morning. I was on her show this week, and we had a lot of fun. You can watch at http://www.bloomberg.com/video/68351042/ . I then hop a plane back to Dallas to be with my friends at JGAM and treat their clients to a Texas BBQ at my home. Martin Barnes of BCA will also be there, and it is always good to be with him, as well as my partner Steve Blumenthal. And that starts a 13-day run of being home, which I am ready for!

I will be in Philadelphia Tuesday May 24 to moderate a panel and listen to a serious line-up of speakers at the 29th Annual Monetary and Trade Conference, where the topics are "Is Housing Ready for a Rebound?” and “QE2, Housing and Foreclosures: Are they Related?” Philly Fed president Tom Hoenig, Chris Whalen, Michael Lewitt, Paul McCulley, William Poole, and Gretchen Morgensen will join us, among others. To find out more you can go to http://www.interdependence.org/Event-05-24-11.php.

It is time to hit the send button. I started this letter intending to quote only a few lines from the poem by Robert Frost, but it is so short and so wonderfully done that I decided we could all use a little uplift. Enjoy your week.

Your worried about the cost of inflation on our kids analyst,

John Mauldin
John@FrontlineThoughts.com

Copyright 2011 John Mauldin. All Rights Reserved

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"Jobless Recovery" ?!? - No Recovery At All Then

The economy isn't recovering if people don't have jobs. Because as much as you cut workers to become profitable, if that same thing is happening all over the country, the amount of goods and services purchased will be reduced overall because no one will have the money to buy anything.

It will become a cycle of cutting. Demand for goods and services will go down, not just because people are out of jobs, but because fear of losing a job will tamp down demand. Then more workers will have to be fired to make businesses profitable again.

What really counts is employment, not the numbers on Wall Street or overall business profitability.

A lot of upset people out of work means political and social upheaval. Get ready.

Obama Speech at Notre Dame: Greed and Traditional American Values

President Obama decried the short-sighted greed that landed the United States in this economic mess, and prior to the mess, "left millions behind" during the period of economic boom during a speech at Notre Dame.

Please remember that traditional American values do not include debt or flashy expenditures. Traditional American values are hard work for an honest days pay, and Americans were naturally suspicious of easy money or making money off of the sweat of others. That's traditional American values.

In a call to reject the "greed and short-term thinking" the President asks us to actually return to the values that once defined America. I guess we all just forgot that's what America used to stand for. Remember the phrase "Greed is Good" from the Eighties? It signaled a change in how Americans viewed themselves and their values. The emphasis shifted from working hard to materialism.

The American Dream wasn't in the material wealth we could accumulate. It was in the opportunity to worship freely and the chance to work hard and get ahead based on our own honest efforts.




Barack Obama, Credit Card Industry, Credit Cards, Credit Crisis, Economic Crisis, Economy, Elizabeth Warren, Financial Crisis, Obama Administration, Obama Economy, Real Time With Bill Maher, Ryan Grim, Usury, Politics News

The Tacky Index by Rob Long

That's the thing about the National Review. They really hit the mark once in a while. That's what Rob Long did in his article on credit card companies.

It seems that credit card companies have started looking not just at an ability to pay, payment history, employment - all those tangible things - and have started looking at whether you are shopping at cheaper haberdasheries and doughnut shops. Because if you are (and who is not) you are now part of a new class of consumer: pre-deadbeat.

Yes, that's right. You, by glancing at panicked headlines and your 401K statement and reacting rationally, are a deadbeat in the making. Why else would you start scrimping? Why else question those $200 haircuts? You must be on the downward slide! Quick! Let's reduce the credit limit on his cards! Ha!

Mr. Long refers to the credit card prayer we have all done: please let it go through.

Leisure Lad and myself went cash-based four years ago. I found myself apologizing to dentists and mechanics, saying "I am one of those weird people who only gets things done when she has the money. I'll call you."

The cash-based lifestyle is kind of freeing. My entertainment is YouTube, Netflix, gardening and writing. I really don't need anything other than survival money. We don't have a t.v. anymore and we don't need one. We don't have cable and I must say that our quality of life has improved a lot since we got rid of it.

I used to have antiques shipped over from China all over my house. I made money on most of them when I sold them. Once, in a carpet store on Connecticut Avenue, I bought a huge armoire they had in the store for twenty years. It was magnificent. All inlaid wood, hand-carved, antique beveled glass, it was six hundred pounds of ego. Leisure Lad described it as obnoxious because it took up a lot of space and everyone always made such a fuss over it. "I hate the thing, but I have to admit, whenever a woman comes over she gushes over how wonderful it is."

I sold it. It did mean a lot to me to have my antiques admired by visitors. True. But in the end I would rather have the cash. When push comes to shove, that's what you find out: the person with the finest furniture does not win.

Planting Peanuts

So your soil is sandy and awful. Plant peanuts! They have pretty yellow flowers and no one will know to dig up the roots and get the food. At least in Columbia Heights there are problems with people stealing vegetables from gardens. I saw a tomato thief at work at 10th and Monroe Sts, NW last Fall. He actually had the nerve to bring a colander with him to hold the stolen tomatoes. I still wish I had gotten his picture on my phone.

So your losing your home or can't get a job. There's always some kind of peanut you can plant.

We are renting out rooms in our house, planting a garden, taking on odd jobs in dog care. We already sold most of our antiques a few years ago. I don't miss them at all. If we had to, we could get rid of the car because we live in DC.

What scares me most are the people who would rather see their children dead than living with someone else. Please reconsider. At least whoever gets them will care enough not to kill them. If worst comes to worst, send them to me. caxsmith@aol.com


gardening, therapy, economy, Economic Collapse, wall street, DC, Columbia Heights, killing your family, help, debt, recovery

Bad News for the Economy

I don't want anything. The last several weeks have been spent wrestling with the idea of a new car. In the end, I decided my old car was just fine.

My car is a little beat up, but is functional. My house is fine, except for a little weather stripping on one of the doors. I could use a few more suits, but should probably first dry clean the ones I have had in a bag for months. It's amazing. Whenever I finally get it together to dry clean clothes, it feels like my wardrobe has doubled. Usually it has. I am going to start an indoor garden any month now.

My consumer droolings are now limited to seeds for my garden this year and a water filter for the top floor. I don't even want a t.v. What for? We haven't had a t.v. for about a year or so and we don't miss it at all. And, frankly, YouTube original videos are far more interesting. My favorites are sxephil, the amazing atheist and drinkingwithbob. Their videos never fail to cheer me up if I'm feeling a little sad.

Back to my consumer desires. Perhaps others are like me and suddenly realize they don't need a whole lot of things they thought they did. If that's the case, consumer spending will not pick up in 2009. After our spending orgy, Americans may not need anything for a while. (Check out the YouTube video on gardening with trash. It shows you how to use trash as gardening containers. What a story to tell your grandchildren one day! And you might start walking to school with no shoes on for good measure.)

That's bad news for the whole world as our relentless appetite has fueled everybody else's economy as well.

A newsletter I subscribe to called John Maudlin's Outside the Box E-Newsletter described the consumer situation in terms of capacity. Americans have no more capacity for goods because their capacity is used up with all the stuff they have already. In other words, we really don't need anything when we take a good look at it.

Since now we have a President inspiring of hope, I have made changes for the betterment of the whole: composting and buying American. If we all buy American products, at least we can pull this country out of the hole. Together.

Jerry Troop's Bailout Plan - Best One Yet

TRILLION DOLLAR MAINSTREET BAILOUT PLAN* ($1,000,000,000,000,)
*actual cost to taxpayers, $60,000,000,000, sixty billion, (cost of Iraq war for X days)


The basic Idea is simple, make Fed Guaranteed short-term loans of $10,000 available to individuals. (about a hundred million of them)

> The rate is 10% per annum and the first year's interest is waived on any money repaid within 1 year.
> Ideally, these loans are intended to be repaid within 1 year and the money used to increase income, decrease expenses, energy usage, or other waste so that there is a lasting net gain after loan is repaid.
>Loans are written with repayment plan of $1000/month beginning payments 1 year from initiation of loan. 2 years interest are included as payments. Payment schedule will be rewritten for new balance on money not repaid after 1 year.


>>>>>>>>>>>Loans will be issued in stages over a 4 year period.<<<<<<<<

STAGE ONE, taxpayers with excellant credit.
This amounts to a gift to America's most solid citizens.
People with AAA credit, whose taxes are paid will be offered, without having to ask , a sort of a "Revolving charge card". The understanding being that the first year's interest on all charges is gratis, IF the bal. is paid in one year. These people could easily get loans at moderate rates, but are smart enough not to. They will spend the money wisely and pay it back before interest begins. I want to see these loans out by Xmas.

STAGE TWO --- PEOPLE WILL HAVE TO APPLY.
Their applications will include the questions "What do you want to do with the money?" and "How will you repay it?"
Loans will be granted based on Quality of application. Applicants denied will be referred to stage 3.


STAGE THREE ---
APPLICANTS MUST COMPLETE TRAINING PRIOR TO APPROVAL

THESE ARE PEOPLE WHO HAVE WEAK FINANCIAL MANAGEMENT SKILLS.
SBA and such offer business and personal financial mgt. courses.
Graduation is a prerequisate for approval for this level of participant.


STAGE FOUR----- Applicants who don't qualify for stage 3
These are the habitual poor.
To lend them $10k would likely do them more harm than good.
They would qualify for $1000 initial loans, knowing full well they are likely to need "second chance" loans as soon as the first loan payments become due. Those payments would be due beginning in one month."Third chance" and "fourth chance" loans would also be available. If they prove themselves responsible by making their payments on time, completing required courses, and submitting an acceptable financial plan, they may qualify for full $10,000 loan.


FAQ

#1 WHO'S GONNA PAY FOR THIS?
The loan principle ($250,000,000,000. Each dollar will be lent 4 times over 4 years), will be raised by selling T-bills paying 6%+-.
The interest will be paid out of the taxpayers general fund. Please note that this will NOT raise your taxes, other than the usual result of increased income. Yet treasury will increase because of a higher GNP.

#2 WHAT IF I CANNOT REPAY?
Like a student loan, this loan will not be eradicated by bankruptcy. They continue to accumulate interest until the borrower dies. Delinquent borrowers will be contacted by people very experienced in helping people help themselves. And those same people want that money back in the program to help other people. The interest paid will more than cover the debt written off.

AOL Time Warner and What's Wrong With America

Yes, I'm still going on about this. AOL Shopping had a pictorial warning older women not to dress too sexily. Cougar, indeed. My initial anger has given way to deeper thoughts 'on this crisis.' (Don't you love that phrase? Will anybody give me $700 billion dollars now?)

Patriotic American electrons are being manipulated, in the form of the Internet, to tell women that they have to buy certain clothes. It's all part of the media machine telling the public to consume, consume, consume.

Remember after September 11? We were not advised to enlist, nor to become a paramedic, but to buy, buy, buy. We have built a culture and an economy based on relentless consumerism. What a surprise it didn't last.

I will be denounced as naive for observing that content is being skewed to sell things. It began so long ago.

But after the financial collapse on Wall Street, hasn't the message filtered down to AOL Time Warner web site staff? Americans can no longer buy-buy-buy. In fact, we will have to stop buying whether we want to or not.

Britain is Repossessing the U.S.A.

A Message adapted and updated from Mr. John Cleese:

To the Citizens of the United States of America:

In light of the strong possibility you are about to elect an elderly gentleman with a bad temper and a lady who thinks she can run foreign policy because she can see Russia from her house, as President and President-In-Waiting of the USA and thus to risk Life As We Know It for everyone else on the Planet, we hereby give notice of the revocation of your independence, effective immediately.

Her Sovereign Majesty Queen Elizabeth II will resume monarchical duties over all states, commonwealths, and territories (except Kansas , which she does not fancy). She won't actually be in charge, but she'll greet foreign leaders as necessary and not put her foot in it or vomit on anyone at dinner.

Your new prime minister, Gordon Brown, will appoint a Governor for America without the need for further elections. He will choose someone who does not have his or her hand in the till and has significant experience in running Big Things. You have not had one of them for almost a decade and trust me, it is a big plus.

Congress and the Senate will be disbanded. They have given away too much of your money already to rescue incompetent business executives and soon your American Dollars will resemble Zimbabwean Dollars in total worthlessness. There is no free lunch you know. Although we originally let you get away with secession because King George was robbing you blind, recent events demonstrate that your present leaders are doing much worse things and unfortunately you have not noticed.

A questionnaire will be circulated next year to determine whether more than half of you still believe Saddam Hussein was behind 9-11. Information to the contrary will again be provided by the rest of the world and we request you read it this time and refrain from invading the wrong country ever again if you possibly can.

To aid in the transition to a British Crown Dependency, the following rules are introduced with immediate effect:

You should look up "revocation" in the Oxford English Dictionary.

1. Then look up aluminium, and check the pronunciation guide. You will be amazed at just how wrongly you have been pronouncing it.

2. The letter 'U' will be reinstated in words such as 'favour' and 'neighbour.' Likewise, you will learn to spell 'doughnut' without skipping half the letters, and the suffix -ize will be replaced by the suffix -ise.

Generally, you will be expected to raise your vocabulary to acceptable levels. (look up 'vocabulary').

3. Using the same twenty-seven words interspersed with filler noises such as "like" and "you know" is an unacceptable and inefficient form of communication.

There is no such thing as US English. We will let Microsoft know on your behalf. The Microsoft spell-checker will be adjusted to take account of the reinstated letter 'u' and the elimination of -ize. You will relearn your original national anthem, God Save The Queen.

4. July 4th will no longer be celebrated as a holiday. But we have a lot of Bank Holidays you will enjoy instead.

5. You will learn to resolve personal issues without using guns, lawyers, or therapists. The fact that you need so many lawyers and therapists shows that you're not adult enough to be independent.

Guns should only be handled by adults. If you're not adult enough to sort things out without suing someone or speaking to a therapist then you're not grown up enough to handle a gun.

6. Therefore, you will no longer be allowed to own or carry anything more dangerous than a vegetable peeler. A permit will be required if you wish to carry a vegetable peeler in public.

7. All American cars are hereby banned. They are crap and this is for your own good. When we show you German cars, you will understand what we mean.

8. All intersections will be replaced with roundabouts, and you will start driving on the left with immediate effect. At the same time, you will go metric with immediate effect and without the benefit of conversion tables.
Both roundabouts and metrication will help you understand the British sense of humour.

9. The Former USA will adopt UK prices on petrol (which you have been calling gasoline)-roughly $9/US gallon. Get used to it. Your driving armoured cars to buy groceries is unnecessary, boorish and killing the planet.

10. You will learn to make real chips. Those things you call French fries are not real chips, and those things you insist on calling potato chips are properly called crisps. Real chips are thick cut, fried in animal fat, and dressed not with catsup but with vinegar.

11. We will require that people running things, like your government, are at least moderately competent and not related by blood or bribes to those who benefit from their decisions. We know it makes you more cozy when your leaders know as little as you do, but, honestly, it is short sighted: you need doctors who know more about medicine, pilots who know more about flying and leaders who know more about leading.
12. We respectfully request you give up this notion that Politics is Entertainment, and that very complicated things can only be explained to you in less than fifteen seconds. If you wanted to have a democracy, honestly, you'd really need to have taken the time to understand things a bit more before you voted. And may I suggest the startling notion that politicians don't need to look good to do a good job? And it really is acceptable if they are a bit boring, so long as they do their homework. It's especially important if evidently you have not done yours. Poor old Al Gore. Poor old John Kerry. And by the way, are you happy now you chose a Governor for California based on his teeth?

11. The cold tasteless stuff you insist on calling beer is not actually beer at all. Henceforth, only proper British Bitter will be referred to as beer, and European brews of known and accepted provenance will be referred to as Lager.
South African beer is also acceptable as they are pound for pound the greatest sporting Nation on earth and it can only be due to the beer. They are also part of the British Commonwealth - see what it did for them.

12. Hollywood will be required occasionally to cast English actors as good guys. Hollywood will also be required to cast English actors to play English characters. Watching Andie McDowell attempt English dialogue in Four Weddings and a Funeral was an experience akin to having one's ears removed with a cheese grater.

13. You will cease playing American football. There is only one kind of proper football; you call it soccer. Those of you brave enough will, in time, be allowed to play rugby (which has some similarities to American football, but does not involve stopping for a rest every twenty seconds or wearing full kevlar body armour like a bunch of nancies). Don't try Rugby - the South Africans and Kiwis will thrash you, like they regularly thrash us.

14. Further, you will stop playing baseball. It is not reasonable to host an event called the World Series for a game which is not played outside of America. Since only 2.1% of you are aware that there is a world beyond your borders, your error is understandable. You will learn cricket, and we will let you face the South Africans first in their country. The six out of ten of you who don't own a passport will need to get one first.

15. You must tell us who killed JFK. It's been driving us mad.

16. An internal revenue agent (i.e. tax collector) from Her Majesty's Government will be with you shortly to ensure the acquisition of all monies due (backdated to 1776). Although this will raise your taxes, remember that the Neoconservatives will no longer be robbing you blind and so your Dollars will stop shrinking. Didn't you know that inflation and government bailouts of huge companies were really paid for by you? We must do something about your educational system. What on earth is going on over there? Are you oblivious to the crushing debt you are leaving your children? You might as well throttle them now.
17. Daily Tea Time begins promptly at 4 pm with proper cups, never mugs, with high quality biscuits (cookies) and cakes; strawberries in season.

God Save the Queen. But at least God won't instruct your President to invade any more wrong countries.

Adapted from John Cleese.

Implications of Bailout

How are the Republicans going to advocate less regulations from now on?

Never again will the cry of "free, unimpeded markets" be the answer to the lack of health care. The teeth of the Republican "no government" stance have been pulled out and tossed away. Liars. Hypocrites. They never meant it to begin with, and the Wall Street gamble paid off.

We have learned through experience that greed is not good for everyone. And the greedy will not take the hit on the chin when they lose because, well, they're greedy cowards.

Now that America KNOWS that they own Wall Street, it's time to start making demands.

A cap on executive salaries with NO golden parachutes.
Compensation tied to performance.
Hiring graduates from state schools.
Diversity.
All investment bankers must run up and down Wall Street once a year in their underwear while people throw eggs at them.

Hey, I bet we could make them do it, they'd sell their own mothers for money, why not volunteer to get eggs thrown at themselves?

Now That We're a Socialist Country ...

Hooray! We're Socialists now! All this "free market" pretense can be dropped forever. Never will I have to listen to drivel about how the marketplace rules. Never will the argument be made about survival of the fittest, sink or swim.

At least for the next week or two.

So, as Socialists, we should expect certain things:

Free basic health care
Very cheap college
Rich get taxed a lot more than the poor.

Join the Bailout Protest on Saturday!!

NO BANKER LEFT BEHIND !!

FedUpUSA and tickerforum.org members are organizing a protest of the No Banker Left Behind legislation being rammed through Congress.

When: Saturday, Sept. 27 - 9am til 6pm Where: Washington, DC at or near the Capitol steps Who: Everyone who can get there, PLEASE HELP!

Fight the Downturn Yourself

Buy American. Buy local. Cut up credit cards. Plant a garden to grow some of your own food.

If everyone in America decided to only buy American, it would be a large, focused economic power that we really need right now.

FIGHT for energy independence.

Throw eggs at investment bankers. I've been promising a lot lately to my readers, but this last one I think is the kicker. We need to find those greedy bastards and ATTACK!! No deadly force, just a few ruined suits and the sounds of breaking egg shells. If I think for a moment, I could come up with some way the egg throwing could be deeply symbolic. Ah, well.

Dog Walker, Hilary, Obama - The Dog Walker's Handbook

Econo-Girl has a dog walking business now and it is great. I'm outdoors all day long which I enjoy even in bad weather. It began in mid-January with one dog, and now there is 10. The dogs themselves are fun, too.

What this career shift has given me is NO DESIRE for following the Presidential race. The little tales of one-upmanship are too much for me to care about for the next two years.

Intellectually, I know that it is important who becomes President. But how can you get wrapped up in it this early in the game? Most of these guys are going to be gone in a year.

But really, when you snuggle those furry creatures every day, when you wipe their feet and feed them treats, it gives me a grounded and settled perspective on things.

Read about the dog walking business in The Dog Walker's Handbook.