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| http://www.gilder.com/ | Issue 352.0/August 22,
2008
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HEADLINES:
- The Week / Wesbury: Inflation is a Clear and Present Danger
- Friday Feature / Forbes: Truly Toxic
Tax Boost
- Friday Blogger Bonus / Virus-Assembled
Microbatteries
- Readings /
The
Week /
Inflation is a Clear and Present Danger
Brian Wesbury, The Wall Street
Journal (8/19/08): The most painful and
frustrating economic policy blunder of the past 50 years was the Great
Inflation of the 1970s. Painful, because it was the catalyst for three damaging
recessions (1973-75, 1980, 1981-82), all the while eroding living standards and
seriously undermining confidence in America.
It
was also deeply frustrating. Despite the teaching of Milton Friedman -- which
clearly explained that inflation was caused by too much money chasing too few
goods -- a combination of bad economic models, denial and political expediency
allowed it to happen.
One
would think that the odds of a repeat were low, and for 20 years, after Ronald
Reagan and his Fed Chairman Paul Volcker had the courage to get inflation under
control with tight money and tax cuts, this was true. Unfortunately, the
lessons seem to be fading. Today, the U.S. (and through it the world) faces its
greatest threat from inflation in 30 years. And as in the past, this threat is
being met with denial and political expediency.
Today's
problems began seven years ago in 2001, when the Federal Reserve overreacted to
the deflationary mistake it made in the late 1990s. The Fed vigorously pumped
money into the economy in order to drive interest rates down rapidly.
As
is so often the case, after the Fed has acted, but before the typical lag in
monetary policy has fully played out, conventional wisdom argues that the Fed
has become impotent. Back in 2002 and 2003, the logic was that the Fed was
powerless over globalization, and low-cost labor would continue to feed
deflation. In addition, because long-term rates were rising as the Fed cut
short-term rates, many thought that markets were undermining Fed intentions.
But,
as always, when the Fed injects excess liquidity into the system, inflation
begins to rise. As early as 2002, soaring commodity prices and a falling dollar
became the canaries in the coal mine of excessively loose monetary policy.
In
their wake, almost every measure of inflation in the U.S. has moved
significantly higher. In the past year, producer prices have increased 9.2%,
while consumer prices are up 5.6%. Yet, because there are so many measures of
inflation it is possible to focus on some, for instance consumer prices
excluding food and energy (aka, "core" CPI), which remain benign.
This allows many to say there is no inflation.
But
oil and food are absorbing a large part of excess Fed liquidity. When consumers
spend more on energy, they have less to spend in other arenas. This reduces
demand for other goods, keeping prices lower than they would be otherwise. This
helps explain the divergence between overall and core measures of inflation.
This
divergence is now coming to an end. If the recent decline in energy and food
prices continues, that money will be released and other prices will start to
rise more quickly. The July jump of 0.3% in "core" CPI inflation is
likely one of the first signs.
Some
argue that the recent drop in commodity prices indicates lessening inflationary
pressures. But nothing could be further from the truth. Commodity prices had
reached levels that were not justified by current monetary policy. As a result,
their pullback is just a correction, not the beginning of a new trend. If this
pullback had occurred as the Fed was lifting the federal-funds rate, like back
in 1999, it would be a different story. Excluding food and energy from the CPI
is sometimes justified because their price movements are often volatile and
short-lived. But the five-year average annual growth rate of the CPI, which
should smooth out any short run issues, is now 3.6% -- its highest level since
1994. Moreover, the Cleveland Fed's trimmed mean CPI, which excludes the 8% of
prices growing the fastest and the 8% growing the slowest, is also up 3.6% in
the past year -- its fastest growth since 1991.
When
investors hear comparisons of today with the 1970s, they immediately think
double-digit inflation. But, it's not that bad -- yet. It took 20 years of
accommodative monetary policy in the 1960s and '70s to create the Great
Inflation. A more accurate comparison on the inflation front would be the late
1960s, when consumer price inflation accelerated to 6% from about 1%. This
period was the precursor of the 1970s. Except for catch-up after the wage and
price controls of 1971, the actual move into double-digit inflation did not
occur until the late '70s….
It
is this combination of denial of actual inflation, bad economic models and the
political expediency of keeping interest rates low that makes a repeat of past
policy mistakes likely. In the end, inflation can be controlled -- the
Volcker-Reagan strategy of tight monetary policy and tax cuts still holds the
key -- but only if policy makers find the courage.
Read on: http://online.wsj.com/article/SB121910289433951323.html?mod=googlenews_wsj
|
The Gilder Telecosm Forum To
learn how to join this powerful network of talented, tech-savvy investors and
thinkers online daily to debate, discuss, and decode new and emerging
technologies and share valuable and actionable investment advice, visit www.Gildertech.com today. |
Friday Feature / Truly Toxic Tax Boost
Steve Forbes, Forbes.com, “Fact and
Comment”(8/22/08): Democratic party
presidential nominee Barack Obama wants to sharply increase Social Security
taxes on upper-income earners, righteously declaring that "the rich can
afford it." However, the economy can't.
Raising the highest federal tax take on income to over 50% would slam the economy hard by punishing success. High tax rates have been the principal barrier to growth in western Europe. High-tax countries such as Germany and France consider themselves in a boom when their growth rates reach an anemic 2%.
Weakening
long-term economic growth seems a peculiar way to meet Social Security's
gargantuan obligations to the 78 million baby boomers who are just starting to
retire and draw benefits.
Obama's
plan is a destructive form of double taxation. Money he would supposedly
raise from the higher tax will be promptly spent by Washington politicians. The
Social Security system will receive yet another nonmarketable IOU from the
Treasury Department. When the Social Security Trust Fund turns in the IOU, the
federal government will have to find new money to make good on that IOU: more
taxes.
There's
another big problem with Obama's risky scheme: The biggest job creators in the
American economy are small businesses. What Obama and his ilk don't recognize
is that most small businesses are taxed at personal income tax rates. Thus,
their profits will be hit by his higher taxes.
Is
that the kind of change we really want?
Read Steve’s complete column:
http://www.forbes.com/business/global/2008/0901/013.html
__________________________________________
Friday Blogger Bonus / Virus-Assembled
Microbatteries
Lauren Rugani, MIT Technology Review (8/21/08): As electronic
devices are made ever smaller, there is increasing demand for similarly
minuscule power sources. Now MIT researchers have reported an important advance
toward building such microscopic batteries. They used a virus to assemble
anodes on top of electrolyte layers--two of the three main components of a
working battery--and connected them to current-collecting surfaces. The
components, described this week in Proceedings of the National Academy of
Sciences, are only four micrometers wide and could find application in
labs on a chip or other small medical devices, the researchers say.
Building
microscopic batteries has proved difficult in the past because the proportion
of electrochemically active material inside a battery decreases as its size is
reduced. Another trend in electronics is toward patterning devices onto
flexible or curved surfaces, which power sources must be able to adapt to. The
MIT work suggests that small, reliable batteries can be both made on the
microscopic scale and embedded on a variety of surfaces.
“What's
new about this research is both the size [of the battery electrodes] and the
process we used to position them," says Angela Belcher, a professor of
materials science at MIT, who collaborated with colleagues Yet-Ming Chiang and
Paula Hammond on the work. They began by etching columns four micrometers wide
and a few micrometers tall onto a silicon-based surface to effectively create a
stamp. They then deposited alternating layers of two different polymers, which
served as the solid electrolyte and battery separator, on top of these columns.
Next, a virus called M13, which the researchers have employed in earlier self-assembly studies, was used to make the anode. The virus is made of proteins, which can be genetically modified to react with particular substances. In this case, it generated structured arrays of cobalt oxide nanowires on top of the solid electrolyte. Finally, the assembled electrodes were flipped over and pressed onto thin bands of platinum, which were joined to a copper contact in order to collect current from the device.
The
researchers tested the performance of the device using a layer of lithium foil
and found that "the quality of the electrodes is exactly the same as
before," says Belcher, referring to the group's earlier demonstrations of
larger virus-assembled batteries. She adds that the cobalt oxide anode has a
much higher charge storage capacity than the carbon-based electrodes typically
used in lithium-ion batteries, and that it's stable throughout charging and
discharging. It also has a higher density of active material than do
conventional batteries.
Other
advantages of virus assembly include functioning at room temperature and
precise control over the size and spacing of nanomaterials, leading to uniform
and easily reproducible devices. The researchers' next goal is to add a
virus-assembled cathode to create a complete battery. As they have experimented
with different materials and have fabricated cathodes on a larger scale,
Belcher says that incorporating micro cathodes into the printing method is
"definitely possible." In the future, she adds, they will work toward
devices with higher energy density and creating devices that are biocompatible.
More from Technology Review:
http://www.technologyreview.com/
__________________________________________
Readings
/
Verizon, Google
Close To Mobile Search Deal
http://online.wsj.com/article/SB121937308672462691.html?mod=hpp_us_pageone
RAM for Free
http://www.spectrum.ieee.org/aug08/6479
Comcast Does About-Face: Declares Love for P2P
http://blog.wired.com/business/2008/08/a-p2p-solution.html
CD Turns 26 and It Still Won't Die
http://www.maximumpc.com/article/news/cd_turns_26_and_it_still_wont_die
Dell vs. Apple: Why It May Be Personal
http://www.businessweek.com/magazine/content/08_34/b4097022701166.htm?campaign_id=rss_daily
Army
Moves Ahead With Mobile Laser Cannon
http://blog.wired.com/defense/2008/08/army-moves-ahea.html
Telephone TV
http://www.spectrum.ieee.org/jun05/1227
__________________________________________
Friday Letter Editor: Mary Collins George / mcollins@gilder.com
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