in his latest column

Kudlow writes

What’s a yield curve and why is it so important?

Well, the curve itself measures Treasury interest rates, by maturity, from 91-day T-bills all the way out to 30-year bonds. It’s the difference between the long rates and the short rates that tells a key story about the future of the economy.

When the curve is wide and upward sloping, as it is today, it tells us that the economic future is good. When the curve is upside down, or inverted, with short rates above long rates, it tells us that something is amiss — such as a credit crunch and a recession.

The inverted curve is abnormal, the positive curve is normal. We have returned to normalcy, and then some. Right now, the difference between long and short Treasury rates is as wide as any time in history. With the Fed pumping in all that money and anchoring the short rate at zero, investors are now charging the Treasury a higher interest rate for buying its bonds. That’s as it should be. The time preference of money simply means that the investor will hold Treasury bonds for a longer period of time, but he or she is going to charge a higher rate. That is a normal risk profile.

The yield curve may be the best single forecasting predictor there is. When it was inverted or flat for most of 2006, 2007, and the early part of 2008, it correctly predicted big trouble ahead. Right now it is forecasting a much stronger economy in 2010 than most people think possible.

Kudlow chooses his words imprecisely when he states “When the curve is wide and upward sloping, as it is today, it tells us that the economic future is good”. No, what that signals is that the market expects future interest rates to be higher. Which usually foretells an increased demand for money (a good future economy) to be the driving factor.

But these aren’t usual times, and Kudlow’s article doesn’t address the supply side. This year, the Fed took the (cough) unprecendented step of buying US Treasurys with fiat money at Treasury auctions. Until this year, US Treasurys–the legal right to be paid in dollars from future government (tax) revenues–were auctioned in the free market. If the US government needed $50 billion, it would take bids on yields, and following the auction, the lowest $50 billion bids were issued a Treasury at the rate bid by the last ($50 billionth) bidder.

For the first time, this year the Fed stepped in to suppress/manipulate yields. Rather than allowing the free market to fill the $100+ billion monthly auctions, the Fed stepped in to cap yields by “printing money” to artificially fill the last portions of those auctions at an artificially low interest rate. By creating extra claims (dollars), one would usually expect the value of a single dollar to decline, i.e., one would expect inflation. (And in fact, the value of the dollar as a claim on world wealth has decreased via currency exchange rates.) But at the end of 2009, the chasing of goods with dollars is slow, and banks are hesitant to lend, so inflation (in US dollars) has yet to hit.

But at some point, the extra dollars will start chasing goods at closer to normal vigor. At this time, Bernanke will have two choices: 1) leave the extra money out there, leading to inflation, and higher rates. (I don’t expect him to follow this path, because it permanently would discredit the dollar.) Or 2), take back all the money the Fed bought by fiat via US Treasury auctions above and beyond those normally scheduled. For example, if the Treasury needed to auction off $150 billion monthly to finance an annual $1.8 Trillion deficit, it would instead auction off, say $175 billion to reclaim some of that formerly “printed” money. And the rate required to attract $175 billion versus $150 billion? Higher.

And this is why I am discounting Kudlow’s reading of the yield curve as a predictor of “strong growth” ahead.

Will: Why are we still in Afghanistan?

Each call regarding whether to continue to pursue a war or not is its own animal. Will got the call in Iraq horribly wrong when he deemed it ill-advised after learning that the expected WMDs were not to be found in Iraq.

Unless the D’s snatch defeat out of the jaws of victory in Iraq–which is very possible given their soft foreign policy stance–the makeover of Iraq from a dictatorship to a democracy will pay dividends for years. Iraq has a relatively well-educated population and a wealth of natural resources. The pre-conditions for a sustainable democracy are there. To hear the D’s talk about it, you’d think that the world would be better off if the 50 million Iraqis were still under the brutal, repressive dictatorship of Saddam. They just can’t seem to make that connection.

Not so in Afghanistan. And this is where Zero™ and the D’s got it so very wrong when they claimed that the US had taken it’s eye of the ball (Afghanistan) by invading Iraq (blinded by BDS and an urge to see mistakes in all Bush decisions). The population in Afghanistan is very poorly educated. The land offers not much other than rocks and difficult-to-navigate mountains. What is so strategically important about Afghanistan itself?

Did we have to invade Afghanistan after 9/11 to deliver a punch in the nose to the area and the Taliban that supported the 9/11 terrorist training? Absolutely. No question. A failure to respond with force would have been a clear signal that terrorism pays.

But there are declining marginal returns to fighting in Afghanistan. Is Afghanistan more important today than the possible capture of nuclear weapons in Pakistan by the Taliban? Is Afghanistan more important than the emerging nuclear threat in Iran?^*

Will closes with

Genius, said de Gaulle, recalling Bismarck’s decision to halt German forces short of Paris in 1870, sometimes consists of knowing when to stop. Genius is not required to recognize that in Afghanistan, when means now, before more American valor, such as Allen’s, is squandered.

Again, Will got the call wrong in Iraq. But I think he is at least asking the right question in regards to Afghanistan. Why?

^*I know, N Korea is out there, too, but there are neighbors of N. Korea that need to stand up backed by our assistance. The N. Korea problem is firstly their’s.

With the election of 2044 a mere 423 months away, multiple Republican prospects — almost certainly including Piper Palin — are gearing up for the run for the Oval Office.

For a party anxious to move past 2008, it’s not too soon to start thinking about “the next, next, next, next, next, next, next, next, next time,” as the pros call it.

Now officially, of course, any talk of a presidential run is verboten.

“Oh no!” protested Richard Perry, grandson of former VP Dick Cheney, when asked about 2044 and specifically his own interest in a possible presidential run. “I’m going to tell you something. One of the worst things that can happen to the Republican Party in our effort to rebuild is for a bunch of kids to start running for president. Anybody harboring that ambition needs to squelch it until after 2040. … Anybody out there running for 2044 president is undercutting what’s important. You do this against your own interest.”

Following Grandson Perry’s admonition, every likely candidate asked the same question by Politico demurred in all the time-honored ways politicians demur about such questions.

Frontrunner Piper Palin, daughter of former Alaskan Gov. Sarah Palin: “That’s way too far away.”

Slade Ryan Jindal: “The most important thing I can do is let my dad be the best governor of Louisiana.”

Blake Sanford: “Fricken South American women.”

Mara Pawlenty: “My day care is an honor and a privilege to attend, and my focus is here.”

That is, according to the holy “don’t-get-beyond-the-next, next, next, next, next, next, next, next, next-cycle” writ of presidential politics, what they must say.

But don’t watch their mouths — keep an eye on their feet.

Palin, winner of the 2008 Wasilla Elementary Hall Monitor election, will begin hawking her new book, “What I Did on My Summer Vacation.” The book, she said, “makes the connection between the dots. Literally.”

Sanford, who is making his campaign trek on a tricycle with his baseball cards clothespinned into the spokes, is also slated to make stops in five adjacent classrooms in his school in South Carolina. The Palmetto State is typically home to the first-in-the-South GOP primary and has been a reliable indicator of who will get the party’s nomination in every primary since 1980.

Adapted from GOP Gears Up For 2012

Sorry, Jetson, you lose. The story contains no mention of The Party That Must Not Be Named.

Mary Easley is fired; Oblinger resigns

N.C. State Chancellor James L. Oblinger resigned and former first lady Mary Easley was fired Monday in a stunning new round of fallout over her job at the university.

After weeks of flat out denial, Oblinger’s lies denying any use of influence were outed by the university.

Oblinger’s resignation came minutes before the university released documents showing that he had conferred with (Easley-crony McQueen) Campbell and members of then-Gov. Mike Easley’s staff to secure a job for Mary Easley in 2005.

Oblinger originally maintained that he wasn’t involved. He said in a resignation letter Monday that he had simply forgotten his role and had not intentionally done anything wrong.

Facial expression experts have long noted, that while issuing the denials, Oblinger was moving his lips, a telltale sign of deception amongst those of The Party That Must Not Be Named.

His (Oblinger’s) resignation came after days of shifting explanations about a buyout deal he struck with (Provost Larry) Nielsen the day before the provost quit.

In 2005, Nielsen, then the interim provost, hired Mary Easley. He gave her an 88 percent pay increase last year that took her annual salary to $170,000. The raise violated UNC-system policy, and later the system’s Board of Governors had to review it, and then voted to approve it.

Records: Mike Easley (?) involved in hiring

And, yes, the McQueen Campbell named above is that McQueen Campbell, a key member of the influence peddling circle of former NC Governor Mike Easley (?).

Ho-hum.

This time it’s Mike Easley, former Democratic Governor of North Carolina from 2001-2009.

From Raleigh’s left-leaning, but no punch-pulling (here) News and Observer,

…Interviews and records, some kept secret while Easley was in office, show that the Easley family reaped many rewards from its relationship with (McQueen) Campbell:

• Inside access on the Cannonsgate land deal. Campbell,
    familiar with plans for the development, was able
    to get the governor a choice lot.

• Free flights on planes Campbell owned and piloted,
    including a vacation fishing trip to Florida
    that the governor did not disclose on ethics reports.

• More than $50,000 in campaign contributions
    from Campbell and his brothers, mother and father,
    placing the family among Easley’s most generous donors.

• Support and help for Mary Easley when she was first hired
    at N.C. State in 2005, as well as Campbell’s endorsement
    of her job amid controversy over a big raise she got last year.

• Campbell held key positions on the NCSU board
    when actions were taken on Easley’s job.

• Campbell got help from the Easley administration.
    He got quick action on the Cannonsgate development permits.

• He twice won dismissals of investigations
    of his vehicle inspection station from the Division of Motor Vehicles,
    part of the Easley administration. DMV agents
    documented serious violations and in one case
    ordered the station closed. Once Campbell began appeals,
    both inquiries ended with little explanation.

• And Easley twice placed Campbell on the board of trustees
    at Campbell’s alma mater, N.C. State,
    a plum appointment as he was developing contacts
    in business and real estate.

Neither Easley nor his wife would agree to an interview for this report.

Ah, so much for the illusion of the all-benevolent government.

For those interested, more on the story can be found here, including a link to this snarky piece from Barry Saunders

And another one bites the dust.

…Although maintaining that there was nothing untoward about the 88 percent raise then-first lady Mary Easley received to book speakers at NCSU or the apparently unreported flights taken by Gov. Mike Easley, Easley friends are dropping like bowling pins.

In addition to Cameron McRae, a Bojangles chicken franchisee, another transportation board member, Mac Campbell, quit just as The News & Observer investigation into Gov. Easley’s travels geared up. Last week, two N.C. State officials — provost Larry Nielsen and board chairman McQueen Campbell, Mac Campbell’s son — gave up their posts.

The question now becomes when will Mary Easley give up the ghost?

Her reluctance to voluntarily step down from a job paying her $170,000 is understandable, especially in this economic climate. They’d have to threaten me with the release of pictures of underage farm animals and me sipping piña coladas on the beach in a Speedo at sunset before I’d voluntarily go quietly — and broke — into that good night…

UNC President Erskine Bowles said she should resign, but only her own decency can compel her to step down without making the university fulfill the entire five-year, $850,000 contract.

Gov. Beverly Perdue, displaying none of the leadership that allowed her to become the state’s first female governor, responded forcefully when asked about the issue, saying she hopes the whole thing just gets resolved quickly…

Cynics among you may ask “What is the use of having well-heeled friends if we can’t put the squeeze on ‘em for a free flight or a hefty raise?”

On the heels of Democratic House Speaker Jim Black’s conviction in 2007 over corruption charges, the Tar Heel state may be giving Illinois a run for the money as the corruption capital. (OK, that’s an exaggeration.)

Yesterday, Gamecock documented the expansion of the NC State purview into privately owned restaurants. The smoke-free Mob In spite of the existing self-segregation of NC restaurants into two-thirds smoke-free, one-third, smoking allowed. (Matching the distribution of non-smokers/smokers quite well.)

From Britain, as a sign of where the need for control can go, Gordon Brown’s War on Obesity should give us pause.

But what really ticked me off this weekend is the attitude of the latest “Click-it or ticket” ad.
See

They’re out to get us???? For that horrible crime of an unbuckled seat belt?

Heaven help us if this attitude takes root here in America.

This is what we’re up against. A speech given by Tom Tancredo today (4/15) at UNC-Chapel Hill was shut down by thug tactics.

The speech is interrupted at 2:20. The window is broken at 2:45.

Good job by the video operator/commentator William Green.

Carl Spackler Hired by Spokane Parks

Hello? Anybody home? Hello, Mr. Gopher! Its me, Mr. Squirrel. Just a harmless squirrel. Not a plastic explosive or anything. Nothing to be worried about. Im just here to make your last hours on earth as peaceful as possible. Dont mind this. This is doctors orders. You dont mind if I just pop in there for a few laughs? Thats right. Or in the words of Jean-Paul Sartre: Au revoir, gopher. This is going to be sweet.”

I thoroughly enjoyed Mark Hemmingway’s third person account in the National Review, which provided a forum for Dirk to add some contextual comments such as

Not being able to shy away from such politically incorrect opinions also might have had something to do with his decision to abandon Hollywood for Montana. And Benedict protests that he never had the pathological hunger for fame that characterizes Hollywood’s biggest stars.

…[snip]…

So who does want to be a star, and why? “Hollywood attracts people who want to be famous,” Benedict says. “It attracts people who are insecure in who they are, and their identification comes from pretending to be other people. But it’s really a profession for 14-year-olds in terms of the intellectual demands on an actor — which is why children are so good at it. It’s difficult for adults to grow up and still be a 14-year-old.”

and the concluding paragraph

Given the uniformity of political and cultural opinions in Hollywood, it sounds like Dirk Benedict has reached a place in his life where Hollywood needs him more than he needs Hollywood. But he has other priorities. “The only thing I wanted to do was raise my boys. And I’ve done it. They are a joy to behold, and they are my contribution to the world and I can die happy tomorrow because of what I’ve done,” he says. “They understand this culture that they live in. They’re equipped. I’d rather have that than 25 Oscars.”

Dirk’s original blog post lamenting the moral squalor of the Battlestar Galatica remake can be found here (note: language advisory)

“It is not going to help a lender who knowingly made a bad loan.”

Bagdad Bob Gibbs

Of course it’s not going to help a shady mortgage originator that sold off the cash flows to the aiding and abetting Fannie Mae & Freddie Mac.  That mortgage originator took his or her cut long ago and passed the risk off to Fannie & Freddie, who used us, the taxpayers, as the ultimate financial backstop.  Since the risk lies with the guarantor, it is the guarantor (i.e. Fannie/Freddie) that is in essense approving the loan.  And yet Obama’s Housing Plan covers $200 Billion of these Fannie/Freddie errors.

Quoting Katherine Jean Lopez of the National Review regarding the infamous biased December 21 New York Times article (link omitted intentionally),

the (New York Times) reporters gave glancing attention to the fact that it was this Administration that pushed for strengthened regulation and oversight, greater transparency, and housing reform.

The story also gives kid glove treatment to Congress. While the Administration was pushing for more transparent lending rules and strengthening oversight and supervision of Fannie and Freddie, Congress for years blocked attempts at stronger regulation and blocked reform of the Federal Housing Administration. Democratic leaders brazenly encouraged Fannie and Freddie to loosen lending standards and instead encouraged the housing GSEs to play a larger and larger role in the housing market — even while explicitly acknowledging the rising risks. And while the story notes the political contributions of some banks to Republicans, it neglects that political contributions from Fannie Mae and Freddie Mac overwhelmingly supported Democratic officials — in particular the chairmen of the banking committees. In fact, even in the midst of what by then was a housing crisis, it took Congress nearly a full year to pass specific legislation called for by the President in the summer of 2007, especially legislation to reform oversight of Fannie Mae and Freddie Mac.

There are many more reporting failures in this story — failure to consider the impact of monetary policy; ignoring the regional nature of housing markets; and ignoring the Bush Administration’s historic proposal to overhaul the nation’s regulatory system, for example. But then a review of these issues would wave complicated the reporters’ myopic point of view that only Bush Administration policies could possibly be responsible for the housing and finance crises.