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Bernanke Presser

We're going to veer a little into markets, finance and economics today, but this is important stuff for those of you wanting to understand what is going on in our cities. The failures of our financial systems are causing monumentous distress at the local level. There is a tendency when we are not fully informed to simply blame "the man" - that opaque conspiracy that is masterminded from some dark room, a plot that is taking from us hard-working people and giving to the elite. The truth is much less sexy, but a lot more shameful. And we're collectively bigger participants than we think.

A coherent narrative of our cities has to start with an understanding that the American pattern of development - a massive, post WW II experiment that you will not find repeated on this scale anytime, anywhere in human history - cannot survive multiple life cycles because it costs more to sustain than it creates in excess capital.

We're roughly two life cycles into this pattern and, having fully leveraged ourselves to keep this thing going, are now left with few options. The entire financial metldown, and the orgy of finance that preceeded it, are simply the last great push of a living arrangement that is coming to and end. How we deal with this reality will be the defining act of our era. Unfortunately, we are not doing a great job so far.

There was a report that was written about and received a lot of play yesterday, that being an IMF statement that indicated that the Chinese economy would surpass the U.S. economy by 2016. The "end of the American era" was the pujorative statement from the IMF that roused our collective bravado, but what is really startling to many is how quickly this change is happening. In 2001, the U.S, economy was three times larger than China's. Think that statistic is startling, ponder the implications of this quote from the article:

Of course, as MarketWatch’s Arends noted, sudden changes or unforeseen events could alter the future economic outlook significantly. If, for example, China were to suddenly dump all or even some of its estimated $3 trillion in U.S. dollar holdings, both countries would suffer huge losses. But while the American economy and the U.S. dollar could be damaged beyond repair, a Chinese recovery could, theoretically at least, rely more on its domestic market and other countries.

Unfortunately, instead of introspection, this is manifesting itself as a fear and loathing of the Chinese, who have done nothing in the preceeding decade but finance our development pattern with cheap loans made possible by the hard work of their people, hundreds of billions of which live in absolute poverty. I suppose we'll claim their predatory lending practices induced us to take on more debt than we can repay and then we'll stiff them by repaying in a devalued currency. That may feel good until we realize that a trip to the grocery store would then cost us $1,000; that is, if we even have the $400 to fill our car up with gas. We can hurt them, sure, if we shoot ourselves in the head. Is that really a coherent response to our current predicament?

There is some interesting theatre that is going to happen at 1:15 today. I will be participating in a Curbside Chat and so will not be able to watch the Federal Reserve Chairman, Ben Bernanke, hold a news conference where he takes questions from the near-mortals that claim to speak for us, that being the national press. I'm fascinated to see and hear all this all goes down. I wonder if you will hear any of the following questions asked:

  • Mr. Chairman, the Tresury Secretary indicated last week that the low interest rates for U.S. debt reflect a strong global demand for Dollars. Do you agree and, if so, why is the Fed spending hundreds of billions on quantitative easing to lower interest rates?
  • Mr. Chairman, why, in your estimation, is the Dollar dropping against the Euro when Euro-zone countries are having such large financial problems?
  • Mr. Chairman, what role did the Federal Reserve play in creating the housing bubble and do you consider this type of asset inflation outside of the Fed's mandate?
  • Mr. Chairman, you indicated in 2008, prior to the Lehman Brothers bankruptcy and the market collapse, that our financial system was strong. Is our system fragile today and, if not, what has been done since 2008 to systematically change it?
  • Mr. Chairman, do you prefer boxers or briefs?

While I threw in that last question as a laugh, unfortunately it is more likely to be asked than any of the others I offer. And if all five were asked, the boxer/brief question would certainly be the headline answer our society would focus on.

For the record, you'll know the end is nearing for us financially when the President, the Treasury Secretary and/or the Chair of the Fed denounce the "bond vigilantes" and other speculators that are "damaging" the dollar. This is not likely to happen today, but keep that little insight in the back of your mind because it may take place soon. 

Of course, it would also be interesting to know what prompted the Federal Reserve to make a $200 million loan to a shell company run by the wives of two Morgan Stanley executives. That is a truly ridiculous story as reported by Rolling Stone's Matt Taibbi, but realize that it is all made possible by the immense power we have given all of these institutions in the name of keeping this whole ship afloat. I bet that question is also not asked, although it should be the first one.

Anyway, watch the press conference and share your thoughts here if you care too. I'll watch it myself Wednesday night and join in the discussion.


Last month we started collecting donations to cover the cost of producing a DVD version of the Curbside Chat. Our goal was to connect with 100 of our readers that would be willing to donate $25 each. We've taken quite a bite out of this so far -- we're down to needing only 70 -- but we still have a ways to go. If you value what you read here or what we produce in our podcast, please do what you can to help us spread this message. We thank you, especially if you are one of our 850+ Facebook connections! It was only a year ago we were still below 200. Thanks for spreading the word. 


Mobility? We were just kidding about that.

American transportation policy post-WW II has placed tremendous emphasis on increasing auto mobility. We have seen this in our examination of benefit/cost analyses, the standard approach which calculates tremendous "financial" benefits for modest savings in automobile travel time. Billions flow annually in deference to this antiquated approach. As we've also discussed, the American development pattern sacrifices a lot in the name of growth and economic development. Besides safety, ironically, one of the things that is most quickly sacrificed is our cherished mobility.

This is the part of the article where we pause and ask you for a donation. You see, the Strong Towns movement is a work of passion for the three of us. We've been doing this blog for over two years now, largely in our spare time. Ditto with the podcast. Additionally, the many Curbside Chats we have put on are also done on our own free time and using our own resources. We're hoping this changes soon and we've reached out to a number of foundations that may be interested in supporting our work. But this is where our many readers here come in. Our readership levels give us a lot of credibility, but not nearly as much as our donor base. And ultimately, to be successful in the non-profit world, we need to demonstrate that we can raise funds. We're not asking for a lot, but would be very indebted to anyone who would financially support our efforts with a modest monthly contribution or a one-time donation. I try to thank everyone here in this space who has done so already - it means so much and it really does matter. Thank you everyone for your support.

Earlier this month we wrote a piece about the evolution of our transportation system and how the changes we have made were done primarily to increase auto mobility (Mobility's Diminishing Returns, April 4, 2011). The primary insight of the April 4 piece is that we, as a nation, have invested untold wealth in improving the first and last mile of each trip, with relatively little return. This misallocation of resources is based on a confused understanding of our experience. Essentially, we bought into the idea that, when it comes to auto mobility, "if a little is good, more must be better".

America circa 1928: A chicken in every pot and a car in every garage.

America circa 1995: A Big Mac in every hand and a paved road at the end of every driveway.

And of course, now that we've gotten used to all of this mobility, we are having a really difficult time imagining a different arrangement, even in the face of increasing fuel prices. Last week in Baudette I asked the audience how many people lived within four blocks of the place we were meeting. A few raised their hand. I asked how many of them had walked to the meeting. All hands went down.

One of my favorite examples of this myopia comes at the expense of some of my closest friends in one of my favorite small towns in Minnesota, the City of Emily. I dine often with a small group prior to planning commission meetings (in my real career, my company is the city planner for Emily). When we get done eating and are headed to the meeting, everyone gets in their separate cars and drives. This is despite the fact that the restaurant where we eat is right next to the city hall where we meet - literally two hundred feet apart. In fact, it takes the others longer to drive than for me to walk. But even after I pointed out this behavioral quirk, they all still do it. It is like their DNA has been reprogrammed collectively.

Another brief digression to make the point... When I was an undergraduate, I lived fourteen blocks from the civil engineering building and walked it each day, even in the Minnesota cold. Wasn't always fun, but it was not a big deal. My first job after graduation was in my hometown. My first day of work I found out I would need steel-toed shoes and so, during lunch, I decided to walk to Mills Fleet Farm and buy some. The office building I was working in was in a suburban area, as was Mills, so when I set off walking I actually had to go along the edge of the street and then down to the end of a long block before cutting back over several hundred feet of parking lot. During the walk, not less than three of my new coworkers generously stopped to offer me a ride, assuming I'm sure that I was some broke college grad without a car. From then on I drove at lunch lest I appear overly needy to my colleagues.

In the April 4 piece, we point out that the height of mobility was really the point in time when we connected towns with highways but had not yet turned our resources on changing that first and last mile. Our towns were now connected, but the atrophy had not begun. (Except where we had taken apart whole neighborhoods in order to build the highways themselves, although that was not atrophy but simply destruction.) At that point, the transportation network basically looked like this:

In an effort to help people clearly see the economic tradeoffs in the current development pattern, I want to demonstrate how, in pursuit of "economic development", we have actually reduced mobility.

Consider a system of three, Midwestern cities. Each is separated by six miles, the standard township grid found west of the Appalachians. When highway departments are designing, constructing and improving the highways that run between each town, they will typically set a performance benchmark for the entire corridor. In one example I recently saw, the benchmark was set at an average travel speed of 50 mph.

In a traditional design - one that centers on the traditional development pattern established around the railroad stop - we would have a highway that mimics the speed and efficiency of the railroad but with the added bonus of flexibility of schedule since you don't have to wait for a train. The highways would be without intersections or other speed-killing type of features and so they could be very fast and still be safe. Conversely, cities would retain their complexity and thus high-speed travel within would be dangerous. So speeds within cities would need to be very low, with a necessary and short traffic calming transition in between high and low speed zones. In our string of Midwestern towns, this is how such an arrangement would look.

Of course, this is not how we've built anything in this country post WW II. Largely in the name of economic development, our development pattern has extended along the highways. This means a lot of intersections and complexity added to the highway system, which means that we need to lower speeds and make other improvements to handle turning traffic. Still, we tolerate a much higher accident rate than we would had we opted to not use our highways for economic development purposes.

When you approach the city, the extended development pattern means that speeds must slow even more. Ironically, states like my home state of Minnesota have mandated minimum design speeds of 30 mph and so, in the center of town, the speed is unable to be adjusted far enough downward for the complexity. This means that the complexity is removed in the name of safety, which is why highway sections don't change as they pass through town but keep their basic highway geometries. Buildings are turned to parking lots, sidewalks go unused and we basically see the atrophy take place as mentioned above.

Added together, our string of Midwestern cities evolves to look something like the following.

Local governments leverage the highway investment as a platform for new inducing new growth and improving economic development opportunities. I already mentioned how this adversely impacts safety - and how we tolerate that tradeoff - but what is perhaps just as amazing is how we are also willing to accept the decrease in mobility from this arrangement. In our theoretical twelve mile stretch, the American Economic Development Pattern model takes 1 minute and 35 seconds longer to drive through than the City-centric Traditional Design.

Here are the calculations:

If we really wanted to improve total mobility - even if we only measure mobility using the narrow statistic of automobile travel time - instead of adding capacity, we would spend our highway dollars closing intersections to improve speeds between towns while lowering speeds in town to restore the traditional complexity that once existed.

The fact that this approach would also saves lives while putting our country in a better financial position would simply be a bonus.


Additional Reading 


Strong Towns - We're a lot like James Howard Kunstler except you can share us with your mom. Check out our podcast on iTunes and, while you're there, give us a rating. If you listen to our podcast, have already given us a rating and would like to do us another favor, go to our donations page and become a supporter of the podcast. If you've done that, then sync up, put in your ear buds, tune in and zone out to our latest podcast; Car Seat Nation.


Friday News Digest

On Good Friday, I find myself catching up on some sleep with the Pack while the girls play. The morning nap on the couch is why this edition is a little tardy - sorry team, was up really, really late working on Strong Towns stuff. But speaking of the Pack, this might be a good day to annouce the newest addition. For those of you that remember my post on our good friend, Misha, and his last hours, you can join me in celebrating the addition of Avalanche to the Marohn household. We rescued him from a shelter. He came to us with the happy Samoyed disposition but with a terrible double ear infection. After three weeks of medications and ear cleanings and following a seriously overdue meetup with a comb, brush and tub of water, he's fitting right in around here. That's him on the left. Koshka, who understands the meaning of relaxation better than most, is on the right.

Enjoy the week's news.

  • I have to start this version of the News Digest by bragging. My wife is a journalist and last year I passed along a tremendous piece of investiagtive reporting (Gambling on Growth) that she and some colleagues had put together detailing the ridiculous schemes cities had undertaken in an embrace of growth and how those bad decisions impact people today. It was brilliant reporting and was recognized as such this past Monday when she was awarded the Premack Public Affairs Journalism Award, the most prestigous journalism award in Minnesota. If you know Kirsti, you know someone really special, so go ahead and give her a congratulations. You can follow her reporting, which deals with environmental, county government and investigative issues, on both Facebook and Twitter. And read the series - it is time well spent.
  • And speaking of excellent reporting, our friend Kaid Benfield on Monday revealed the Environmental Protection Agency's hypocrisy in their move from their current offices in downtown Kansas City, KS, to a rural campus in Lenexa, KS. The story was so impactful and dead-on that it quickly caught the eye of the New York Times, who did a follow up story on Tuesday. Great job, Kaid. I hope that it forces a change in direction.

"[The lease] is totally inconsistent with what the national office has been saying and doing," said Kaid Benfield, director of the smart growth program at the Natural Resources Defense Council, in an interview. "EPA has been a government leader in thinking about sustainability and the importance of cities in relation to environmental issues. For some reason, in this particular case, all of that was apparently disregarded." 

  • More Tactical Urbanism this week, starting with this great piece from the UTNE Reader. Will Wlizlo pulled together various reports on the web into one nice piece and also added a video I had not seen before. I love the actual "bombing" depicted in the clip and how the woman sitting on the street reacts. A shout out to Ryan Newhouse at Make It Missoula as well for his coverage of Tactical Urbanism.


DoTank:Brooklyn - Chair bombing at North 5th and Berry from Aurash Khawarzad on Vimeo.

  • One thing new that has been happening to our content is that it has been showing up in comment threads as a friendly reference and to move the conversation in a Strong Towns direction. An article on a new bridge in the Boise Garden got a reference to our Conversation with an Engineer video. A post by the Urbanophile got hit with a Strong Towns reference (see comment #7), which I've excerted from below. Even the discussion boards at the Kunstler Cast have had a couple of threads about our podcast Not Good Enough and last Monday's blog piece on car seats. This is really incredible. My first reaction is to say "thanks" and, as a follow up, "keep it up". We may have to come up with a word for this phenomenon. Suggestions?

The solution is not “building better suburbs.” An unsustainable model cannot be fixed with a few tweaks. You’ve got to stop hiding behind your “I don’t hate the suburbs” mantra that gets you so many gigs in the Midwest. It’s not helping anyone but you. If you want some guidance in how you can be helping the conversation along by talking about the truly difficult choices our region needs to make, you can visit

  • The last governor in Minnesota (disclaimer: I did not vote for him the first time - voted for Tim Penny - but did cast my ballot for his reelection) had this truly awful initiative called JOBZ. It was truly rote dogma applied insanely. Essentially, if you moved your business from an efficient urban area to an inefficient rural one, we'd give you huge tax breaks in the name of creating jobs. A recent article in the Star Tribune contained some interesting numbers on the cost of this program. I and other fiscally conservative individuals were very critical of the cost/job ratio of the Obama stimulus bill, but if I am doing my math right here, the T-Paw JOBZ program cost $22,620 per job created (or moved). I was involved in applying JOBZ on the ground in many communities and, from the inside view, it was a ridiculaously inefficient approach that will cost us many times over as some serious malinvestment is unwound over the coming years. It is adding to the current pain.

As job creation stalled, the program's subsidies rose to nearly $34 million, the highest ever. The subsidies include breaks on income, sales, property and other taxes. Tax breaks over six years totaled $144 million to 379 companies, including 77 that were eventually booted from the program for not meeting job goals.

"It is further evidence that economic development subsidies cannot defy gravity," said Greg LeRoy, executive director of Good Jobs First, a nonprofit group that tracks business subsidies in Minnesota and other states. "They are not countercyclical."

  • A couple weeks ago we ran a piece that looked at the ability of the U.S. government to sustain its debt (Our Unfaithful Partner - April 11) and in it I pointed out that an interest rate of 5% would be traumatic. If you want to get a feel for what I mean, check out Greece, which is now seeing its 2-year notes trade at 20%. Greek officals, of course, are blaming the ratings agencies, which is a little a student blaming a teacher for a bad math score. Actually, it is like a student cutting class all year and pinning all their hopes on acing the final exam and then blaming the teacher for having concerns that they will be able to pull it off. A quite anti-resilient approach.

George Papandreou in a written statement posted on a government website early Friday said the agencies, instead of elected governments, "are seeking to shape our destiny and determine the future of our children."

Major rating agencies have all relegated Greek bond status to below investment grade amid the continuing debt crisis. The move has angered the government which argues the fiscal benefits of its austerity program are being ignored.

  • Speaking of ratings agencies, everyone caught the news on Monday that S&P finally issued a warning that the U.S. could face a downgrade in its credit rating. If you need further evidence that the credit ratings agencies are a joke, consider this: A country's credit rating is an estimation of its ability to pay back its debt. The United States is in huge debt - $14 trillion and growing daily. Even the most aggressive plan for tackeling this (Ryan plan) only reduces the deficit - there is no plan to pay off the debt except by taking on more debt. On top of that, we are in the process of devaluing our currency, have high unemployment and politically look unable to make any decisions of consequence. China, on the other hand, has no debt, trillions in cash reserves, a growing economy and a huge trade surplus. Yet S&P has given the U.S. its highest rating - AAA - and China is rated only AA-.
  • And as long as I'm calling out hucksters, on what rational basis does our Treasury Secretary suggest that S&P is not going to downgrade the U.S. credit rating? "No risk"? I'm not one given to conspiracy theories, but I don't trust any of these ratings agencies to actually do the job they are expected to do.

Tim Geithner, the US treasury secretary, shrugged off warnings from a leading ratings agency about the US public finances as he sought to reassure Wall Street that the world's biggest economy would be able to maintain its highly prized AAA rating.

In a media blitz following the announcement by Standard & Poor's that it had revised its outlook on the US from stable to negative, Geithner said there was "no risk" of a downgrade.

  • I'll show you how silly this shell game is, here is a quote from Geithner from the Guardian:

Geithner told Bloomberg Television that both domestic and foreign investors are still confident in US debt and the stronger growth prospects of the US economy. "You can see that in the price at which we borrow every day, but we have to earn that confidence," Geith- ner explained.

  • And now here is an article explaining how Ben Bernanke and the Federal Reserve may continue buying treasuries in order to keep interest rates down.

Federal Reserve Chairman Ben S. Bernanke may keep reinvesting maturing debt into Treasuries to maintain record stimulus even after making good on a pledge to complete $600 billion in bond purchases by the end of June.

The Fed chief’s top two lieutenants said this month the economy and inflation are too weak to warrant the start of a monetary-policy reversal. Investors and economists including David Kelly at JPMorgan Funds see that as a signal the Fed will keep its balance sheet at current levels by replacing about $17 billion a month in maturing mortgage debt with Treasuries.

  • So on one hand you have the Fed doing everything it can, including taking revenue from the sale of TARP assets and using it to buy treasuries, to create demand for dollars and thus keep interest rates down. Then you have our Treasury Department pretending that somehow it is the market setting the rates, suggesting that the low rates reflect a worldwide demand for more U.S. debt. I'm not stupid, and neither are you. There may be "no risk" of an S&P downgrade, as Geithner says, but it is not because the ratings agencies are doing their job.
  • And if you want some understanding of how all of this impacts us, just go and fill up with gas. One financial strategist estimates that the weakness of the dollar is a large part of our current gas price problem.

Using a model that combines "subtle rates of change" with movements in the dollar index [.DXY  74.11    0.12  (+0.16%)   ]and commodity prices, [Richard] Hastings [strategist at Global Hunter Securities] figures the low dollar is responsible for about one-third, or $1.31, of the total gas-at-the-pump cost. Regular unleaded Wednesday was $3.84 a gallon nationwide, according to AAA.

  • Of course, we officially have no inflation here in the U.S. But somehow our neighbor to the north - a real banana republic if there ever was one - is experiencing high inflation. Again, I'm not a conspiracy person, but I believe our collective ability to lie to ourselves about what is going on, and then seek confirmation of that lie, is really strong. 
  • Finally, while we'll be observing Easter here over the weekend, I want to express our sincerest wishes to all for an enjoyable, peaceful weekend and a renewed feeling of being as we head into the spring. Peace to all.


If you listen to our podcast and would like to do us a favor, go to iTunes and give us a rating. If you listen to our podcast, have already given us a rating and would like to do us another favor, go to our donations page and become a supporter of the podcast. If you've done that, then sync up, put in your ear buds and tune in and zone out to our latest podcast; Car Seat Nation.