*** FUTURE POSTS WILL ALSO APPEAR AT 'NOW AND NEXT' : https://rolfnorfolk.substack.com
Wednesday, February 25, 2009
How long will the bear market last?
Wednesday, February 11, 2009
Crime and punishment
Congressman Michael E. Capuano does his job today, flaying the banks (htp: Jesse). I tried to email congratulations to him, but I haven't got a Massachusetts zip code.
And Karl Denninger also:
If the law enforcement agencies in this nation do not start prosecuting the fraudsters in our banking and investment industry that caused this economic collapse (and "token prosecutions" like Madoff will not cut it), and our lawmakers (and President) do not stand up darn soon and call for this prosecutorial action in public there is a very real risk that a repeat of those sordid affairs will soon arrive...
This much is clear to me - high-dollar white-collar crimes, certainly those with an impact greater in aggregate than we currently value a single human life (which various estimates put somewhere between $5 and $50 million each) are deserving of punishment equivalent to murder, meaning either (depending on state law) life imprisonment without possibility of parole or a sentence of death.
We need to put this change into the law as a deterrent against such acts in the future.
They're coming round to my point of view, as expressed e.g. here.
Friday, February 06, 2009
Restoration, not revolt
Inflation is The Mogambo Guru's bete noire, and he gives us another comedy riff on that today. His principal cure for it is gold, the stock in trade of another ranter, Jim Willie, who sees the price of the yellow metal breaking out in various currencies (it's soared in sterling, for example).
Both men habitually connect gold, the US Constitution and the decayed professional morals of the politico-judicial elite, and try to stimulate the people to restore the old, good order. In short, they are prophets, and there's plenty more out there at this time.
For it is a sign of societal stress that ranters, dreamers and revolutionaries begin to drag out their soap boxes and declaim to passers-by. We had it in the Old Testament, the English Civil War, the American Revolutionary War and most other times that the world was turned upside down.
If buttercups buzzed after the bee
If boats were on land, churches on sea
If ponies rode men and grass ate the cows
And cats should be chased to holes by the mouse
If the mammas sold their babies to the gypsies for half a crown
Summer were spring and the t’other way round
Then all the world would be upside down
There is a difference between civil war, and the revolt of colonies from their distant parent. Having said that, the crisis is now cracking the cement between the States and the Federal Government, as we see in New Hampshire and elsewhere. America, remember history and avoid secessionary talk.
The results of revolution are rarely pretty. Norman Cohn's famous book , about the horrifying aftermath of prophet episodes in the Middle Ages, shows that once the mix is brought to the boil, it becomes very volatile. The outcome is often not what the prophet expected; and always, the people suffer. Rather than overthrow our rulers, it would be far better (if possible) to make them see the danger to us all of continuing their course, and have them turn back.
But can they see it? Do they know the difference between price and value? Will they permit the theft of real wealth by inflation? Or is it, worse still, their intention?
The best we can hope for, is that our leaders are not cynics, and so do not need correction from dangerous idealists.
Monday, February 02, 2009
IN- vs. DE- and an upcoming opportunity
You now have our investment gameplan for what is likely to be the rest of Jesse's life.
No, no "Jesse"; live long and prosper.
Saturday, January 31, 2009
Not Chicken Little: the sky could really be near falling
Like I said, you've had your warning. Prepare for the worst, hope for the best.
Saturday, January 24, 2009
A turning point in the market?
Tuesday, January 20, 2009
Inflation and gold
Gold is a currency and Phillip Manduca is proving this once and over again.
He seems to have gambled his entire professional reputation on gold, reaching the $2,000 threshold by the end of 2010.
He is well worth listening to. His words are illuminated by a previous outstandingly successful record.
The high gold price seems, for the time being, to have reached a plateau, but Manduca of Titan Investments sees a price of gold at $1,000 a troy ounce as a distinct possibility in the near future. He said so a few days ago.
China is now moving part of its massive dollar reserves from the dollar into the euro and gold.
Madoff can be said to have harmed Wall Street, but he has certainly helped the prospects of a booming gold price. The money the Fed is pumping into the economy is proving insufficient to reignite it.
(2) Article from the Economic Times on our options (htp: Jesse, again). It thinks there are three: writeoffs/bankruptcies, increase GDP, inflation. The first is politically unacceptable, the second cannot be achieved by monetary means alone, so it's to be the third:
The stage is set for a long period of slow growth as debts are worked down and a rise in inflation in the medium term.
Sunday, January 18, 2009
Hi yo, Silver
UPDATE (re silver): Tim "Mess that Greeenspan Made" Iacono thinks so, too.
Tuesday, January 13, 2009
ABC of inflation
Monday, December 29, 2008
Debt forgiveness, inflation and welching
In a simple handwave estimate, one might say that the debt will have to be discounted by at least half. That includes inflation and selective defaults...
... something has got to give. The givers will most likely be all holders of US financial assets, responsible middle class savers, and a disproportionate share of foreign holders of US debt.
While the debtors hold the means of payment in dollars and the power to decide who gets paid, where do you think the most likely impact will be felt?
I give below the US Treasury's data on foreign holdings of their government securities as at October 2008, but I also reinterpret it in the light of each country's GDP, to show relative potential impact (please click on image to enlarge).
Mind you, even a complete repudiation would only take care of $3 trillion. Funny how not so long ago, $1 trillion seemed a high-end estimate of the damage, and now it's something like seven times that. And that still leaves a long haul to get to Hodges' $53 tn - equivalent to, what, one year's global GDP?
Monday, December 22, 2008
Why banks?
Satyajit Das (htp: Jesse)
Nope. Banks need destroying, as does all this bank-created debt. The mistake is to try to keep things as they are. How did we come to buy houses "on tick", then cars, and now our clothes and groceries? Why is there any lending for consumption, seeing how it only means reduced future consumption? Why should banks be kept going, requiring a significant proportion of our earnings, so that wages have to be high for us to live on what's left, making us uncompetitive with the developing world?
I am reminded of the pitiless response of the Comte d'Argenson to the satirist, Desfontaines:
Desfontaines: I must live.
D'Argenson : I do not see the necessity.
Sunday, December 21, 2008
The lesser of two weevils
In an apocalyptic - but carefully-reasoned - post, Karl Denninger says that when the deficit expansion stops, US government spending will have to be cut by 50 - 60%, unless there is to be a "general default" on debts.
I have no idea what a general default would look like, but in a closely-interwoven and distant-from-nature modern industrial society I can only fear it might prove utterly destructive. So we're back to contemplating the lesser, but still vast disaster.
I also have no idea how much worse it might be in the UK.
Someone else please read this unberobed OT prophet and tell me where he's wrong.
PS
While the Obama Administration cannot take a 'weak dollar' policy it is the only practical way to correct the imbalances brought about by the last 20 years of systemic manipulation. It is either that, or the selective default on sovereign debt, most likely through conflict, a hot or cold war.
Saturday, December 13, 2008
Two cheers for deflation
Jörg Guido Hülsmann, on the Mises site, says deflation does not ruin the economy as a whole, but destroys the parasites who exploit the potential of fiat money. Parasites like (alleged) Ponzi-style fraudster Madoff and his clients, who deserve what they've now got, Mish judges.
Jesse says that "financial capitalism" seeks to use the money system to develop a dictatorial New World Order, and will be defeated when the dollar fails as the world's reserve currency.
Brad Setser wonders whether the dollar has reached its zenith; which implies that it may begin heading for its nadir.
Desperately holding back the inevitable is the US Federal Reserve, says Jim from San Marcos, who (although the Fed is refusing FOI requests) suspects that its $2 trillion in emergency loans is equally divided between support for banks, credit cards and the stockmarket. (I wondered what was being used as the robust cloth on the Dow's trampoline, and covert official support may be the answer.)
As I argued yesterday, the straightest path would be to destroy fraudulent, oppressive debt and those who introduced it into the system. For so many families, the bank is the fattest kid at their kitchen table, and nobody knows who invited him.
For a long time, I've been recasting financial issues as issues of power and freedom. If Jesse is correct, we are reaching a turning point in the battle. I hope we may soon say, as Churchill said of El Alamein, "A bright gleam has caught the helmets of our soldiers and warmed and cheered all our hearts." It would be worth the blood, toil, tears and sweat.
Friday, December 12, 2008
History repeats itself - because it's getting old
As my select and distinguished readers now know, I'm an optimist (by the standards of unfolding reality), and I say, not so. I say, maybe 4,000 - 5,000, adjusted for CPI.
The comparison I'd urge is not with 1929-32 (stockmarket deflation exacerbated by monetary strictness), but (in inflation-adjusted terms) from January 1966 to July 1982: stockmarket deflation prolonged and partially disguised by monetary inflation; I said so here and here, last month. I maintain that the bear market began in 2000 and the symptoms were masked by the terrible extra debts taken on over the last 8 years. Karl Denninger showed us yesterday that these debts account for all the US GDP growth since the New Millennium, plus $9 trillion.
The debate about inflation and deflation continues, though from a British perspective we've seen practically the whole of the rest of the world become one-third more expensive in sterling terms, in only five months. However, Einstein's theory of relativity rejects the notion of any absolute standpoint, and we shall see next year which other currencies mimic sterling's vertiginous fall.
In these shifting times, it becomes very hard to discern real value; but however hard to measure, it exists nevertheless. There is a real bill to pay for our excesses, and I think 2008 will be seen in retrospect as the year that the global balance of power underwent a sudden tectonic shift, from West to East. Yes, the East will suffer for a while, too, but it has long been acquiring the means of production and developing its local markets, and will emerge from the crisis ahead of us.
And there will also - must also - be an intergenerational shift of power, within our Western societies. As globalization continues and real income and real house prices decline, existing debt (set in fixed terms) will become proportionately greater, until the weight is too great to bear; and the worst of it falls on the people who are also struggling to raise families and save something, however inadequate, for their old age. They cannot be crucified in this way. How can savers be taxed at 20% and workers at (effectively, on margin, including National Insurance) 40%? Real wealth must flow from one to the other, just to maintain civilization. I think either savings must be taxed more (perhaps the removal of tax exemption for some savings products will be the start), or inflation must come, though I don't know how long the play will go on before the denouement.
We did have another option, and I was only half-joking: cancel mortgage debts on a massive scale (bankrupting the banks and the bankers, and serve them right). Then, with our productive populace relatively unencumbered, it would be possible to let Western wages and prices fall to much nearer Eastern levels, and we could begin to compete.
Thursday, December 11, 2008
Bookends: deflation and inflation
What went wrong? A post-match analysis of the Credit Crunch
1. Reagan's nomination of Alan Greenspan to replace Paul Volcker as Fed Chairman
2. The Repeal of Glass-Steagall and the Cult of Self-Regulation
3. Bush Tax Cuts for Upper Income Individuals, Corporations, and Speculation
4. Failure to Address Rampant Accounting Fraud Driven by Excessive and Flawed Compensation Models
5. Providing Enormous Bailouts to the Banks without Engaging Systemic Reform for the Underlying Causes of the Failure
Wednesday, December 10, 2008
Barefoot businesses
(htp: Jesse)
Here we go
Now then, cheat China (pop. 1.3 billion, army personnel 2.3 million)- or the UK (pop. 61 million, army personnel 100,000)? Tough call...
Sunday, December 07, 2008
The free market and redistribution of wealth
Okay, if we also have some other system of supporting our workers through the change, instead of import tariffs and other protectionist measures. You can't drop masses of people from a great height and expect society to remain stable.
A lot of our present arrangements - health, education, welfare - seem to me to be a fairly inefficient way of transferring wealth from the upper strata to the lower, less the cost and inconvenience of all the system servicers in between.
Why don't we get honest and open about the need for wealth redistribution, balanced with the need to encourage enterprise? Could we get rid of weaselly taxes and insidious benefit traps? All we need is some way of levelling the playing field between groups of workers in very different parts of the world, in such a way as not to force the game to be abandoned by either side. Can anyone propose a system of financial support - could some form of the Citizens' Basic Income be made to work?