JBS CEO Art Thompson's weekly video news update for December 5-December 11, 2011.
After years of contentious feuding, Boeing and the machinists union announced Wednesday that they’d reached a tentative four-year contract extension on a collective bargaining agreement. If finalized, the deal would boost wages for union workers, issue bonuses, improve pension benefits, and likely preserve operations at a new $750 million plant in Charleston, South Carolina, a right-to-work state where Boeing jumpstarted a new production line for its 787 airplane.
Acting on a complaint by the machinists union, the National Labor Relations Board (NLRB) cast a politically charged lawsuit at Boeing in April, contending that the aerospace company usurped labor laws by launching the production line in South Carolina, rather than Washington state. The agency alleged that Boeing had introduced the line to punish union workers for past strikes, which the NLRB deemed illegal retaliation against workers exercising their right to strike and bargain collectively.
Also part of the Boeing-union deal is a guarantee to manufacture a new, more fuel-efficient airplane, the 737 Max, at facilities in Renton, Washington, which is located near Seattle. Union leaders said they are pleased with the deal and have issued assurances that if it reaches final approval, the union will ask the NLRB to drop the case. "If this agreement is ratified, we will engage the government in discussion and inform them that our issues with the Boeing Company are behind us," assured Tom Wroblewski, president of District Lodge 751, which represents 28,000 workers in the Puget Sound area.
Thursday was a big day for the U.S. Senate, which stayed in session later than usual to attend to a few significant items, such as the controversial National Defense Authorization Act, which passed, and two competing payroll tax cut bills, both of which failed. The payroll tax cut bills marked a role reversal for the two parties, as it was the Democrats pushing for the cuts and the Republicans who stood in opposition to them, demanding that the cuts be paid for without raising taxes.
The votes on the tax cut bills were apparently symbolic ones so that politicians from both parties can laud their own efforts and lambaste their opponents in the upcoming 2012 election.
The Democratic plan would have both extended and expanded the payroll tax cut, reducing the Social Security payroll tax to 3.1 percent, even further than the present tax cut that is due to expire, but Republicans opposed the plan because it required a new tax to be imposed on the "wealthy" in order to cover the $110 billion in lost revenues.
The Democratic measure lost by a vote of 51 to 49. As observed by the Christian Science Monitor, “For the first time, a Republican, Susan Collins of Maine, voted to support the millionaires’ surcharge.”
When Newt Gingrich was asked in the November 9 CNBC presidential debate what he did to earn $300,000 from mortgage giant Freddie Mac, Gingrich claimed: "I said to them at the time, this is a bubble. This is insane. This is impossible." But the Wall Street Journal reported December 1 that Gingrich had not only praised the Freddie Mac model in a 2007 interview on the mortgage giant's website but said that "these are results I think conservatives should embrace and want to extend as widely as possible."
The interview with Gingrich is no longer available on the Freddie Mac website, but it is available on several Internet archive websites that capture what websites used to post.
The Wall Street Journal story noted that "The interview was published by Freddie Mac as part of a regular campaign to educate the public — and Washington — about its brand." And by "educate the public," the Wall Street Journal meant promote the continuance of its policy of accelerating the housing bubble.
In the April 24, 2007 interview with Gingrich, the former House Speaker had the following praise for Freddie Mac and the whole GSE (Government-Sponsored Enterprise) concept:
Although the socialists took a beating in Spain’s election on November 20 — in which the conservative Popular Party won a majority of seats in Spain’s parliament — the Spanish Socialist Workers Party (PSOE), with its lowest vote in 34 years, vowed to put real pressure on the new conservative government.
The polls had predicted the victory of the conservative Popular Party, which prompted the leftist candidate, former Interior Minister Alfredo Pérez Rubalcaba, to promise that he would make the rich pay higher taxes. (Where have we heard that before?) He tried to scare voters by claiming that the conservatives had a secret program to cut the welfare state and attack unions and workers' rights. (Echoes of Madison, Wisconsin.) But only 40 percent of the people who had voted for the PSOE in 2008 said they would vote socialist again.
Economist and TV personality Larry Kudlow explained that the decision on Wednesday by many of the world’s central banks made it easier for European banks to borrow dollars from the Federal Reserve.
He made it clear that “nothing has been solved in Europe. The Europeans are not yet helping themselves. Why should the ECB (the European Central Bank) write a trillion-dollar check to near-bankrupt governments?” The real problem isn’t liquidity. There’s plenty of money sloshing around in the banks of the world. The instant problem is the type of money. The banks want to hold dollars, not euros, and the costs of holding dollars was rising to levels not seen since the collapse of Lehman Brothers in 2008.
And the reason dollars were getting increasingly expensive? One main reason was that American money market funds were pulling their dollars out of European banks: Between May and October those funds reduced their holdings in European banks by 42 percent, while their holdings in French banks were cut by two-thirds.
When demands were made on those banks for dollars, the banks had to sell euros to get them. As Capital Economics explained:
As the economic crisis in the European Union grows day by day, there is a proportionate degree of speculation around the world about the final extent of the damage that will be done by the looming collapse of the euro. According to Daniel Mitchell, a contributor to Forbes.com, many individuals among the wealthy elite in Europe are already planning to flee their respective countries for safe havens in nations such as Costa Rica or Australia. Meanwhile, the British Foreign Office is making plans to evacuate Britons from the Continent in the event of widespread rioting.
Here’s a story that’ll tickle your McRibs. On December 1 a law seemingly banning McDonald’s Happy Meals went into effect in San Francisco. The “Healthy Meal Incentives Ordinance” prohibits restaurants from giving away toys with meals that do not meet with the city’s approval — namely, meals with too many calories, too much salt or fat, or insufficient fruits and vegetables. Just a few days before the ordinance took effect, SF Weekly reports, McDonald’s announced it had found a simple way around the statute: Charge customers extra for the toys.
Now in order to obtain a Happy Meal toy, parents will first have to buy the meal and then pay an additional 10 cents, which will be considered a donation to Ronald McDonald House charities. With Burger King’s announcement that it will implement a similar policy, the Happy Meal ban has thus effectively been neutralized.
However, for the nanny-state types who thought they were protecting children from dangerous fast food, there is even worse news. Prior to December 1, McDonald’s stores in San Francisco actually allowed patrons to purchase a Happy Meal toy by itself for $2.18 rather than having to buy the meal to obtain the toy. Now that the Golden Arches are going to charge extra for the toys, they are discontinuing the toy-only policy. Henceforth, any parent wishing to purchase a Happy Meal toy for a child will be forced to buy the meal, too. This, the Independent Institute’s Anthony Gregory points out, is “another unintended consequence of a bad law, since now, on the margin, customers will sometimes opt to buy the greasy food targeted by the law just so they can get the toy, when before they would have not bought the food.”
As central banks around the world unleashed a coordinated deluge of new money to deal with the economic crisis swamping Europe, critics expressed outrage that the Federal Reserve System — and all holders of U.S. dollars by extension — would be bailing out profligate European governments and the troubled euro currency. And furious American lawmakers are again demanding congressional oversight of the Fed and a restoration of sound money.
On November 30, the Fed announced in a press release that it was cutting the cost of temporary dollar liquidity swaps almost in half. The rate was slashed from about one percent to slightly over 0.5 percent, making it much cheaper for foreign central banks and the financial institutions they fund to borrow a practically unlimited supply of newly created U.S. dollars.
The news was met with outrage by Congressman Ron Paul, whose subcommittee deals with monetary policy and the central bank. Paul is once again calling for, among other measures, an audit of the Fed and the eventual restoration of honest money.
“The Fed's latest actions in cooperating with foreign central banks to undertake liquidity swaps of dollars for foreign currencies is another reason why Congress needs enhanced power to oversee and audit the Fed,” said Rep. Ron Paul (R-Texas), the Chairman of the House Domestic Monetary Policy and Technology Subcommittee. “Under current law Congress cannot examine these types of agreements.”
Cato Institute senior fellow Jim Powell wrote in Forbes magazine about the inevitable and predictable decline of rich nations that debauched their currencies in order to pay their bills. Powell said that politicians’ urge to promise and then to spend is almost overwhelming, calling it “a visceral urge to spend money they don’t have. They can’t control themselves. They’ll weasel their way around any efforts to put the lid on the cookie jar.”
The Roman Empire was on a gold standard, minting and using the aureus from the 3rd century B.C. until the 4th century A.D. The aureus initially contained 10.9 grams of gold, which was worth about 25 denarii, or about a month’s wages. As the empire devolved into promising more and more services (grain subsidies, public entertainment, and a huge bureaucracy and military establishment) it soon exceeded revenues generated through taxation. To make up for the difference, the aureus was steadily debased so that by 50 B.C. it contained 9.09 grams of gold, 8.18 grams by 46 B.C., 7.27 grams by 60 A.D., 6.55 grams by 214 A.D., 5.45 grams by the year 292, 4.54 grams in 312, and 3.29 grams by 367.
Paper money was more easily debased, as the Chinese discovered. Powell noted that seven different Chinese dynasties issued paper money to pay their bills and all of them eventually collapsed or were defeated by others that issued their own paper currency.