Libertarians enjoy challenging others' assumptions, and it's invigorating. But it's also time to challenge the assumptions of libertarians: freedom-lovers, make your case.
Here's a couple of shots between the redoubtable Devils' Kitchen and myself, from a couple of posts back. To me, this isn't about drugs, essentially; it's about whether we are, or can be, free.
Devil's Kitchen said...
Sackerson, "How is it reactionary to wish to protect young people from habits that impoverish and enslave them (and this is what black communities object to)? I think perhaps some libertarians haven't really defined what they mean by liberty."
I am all for proper drugs education; however, it is worth noting that I had a considerable amount of it, and it hasn't stopped me from taking just about every drug on the planet*.
And do you know what? I have never had to have any kind of hospital or other treatment; I have never lost a job; I have never even been late for work, after having taken drugs.
I have never assaulted anyone (most drugs, other than alcohol, put you in a frame of mind in which violence is the last thing you want to indulge in), nor hurt anyone, nor even caused a public nuisance whilst on drugs either.
I am not addicted to drugs either, despite heavy usage of a few of them (most are self-limiting, in that the effects begin to wane after a period heavy usage).
I have, on the other hand, laughed like a demon, make some excellent friends, danced, thrilled, been immersed in music in a way that's not possible sober, and had many fantastic times whilst on drugs.
You see, what I chose was to take the education that I was given, and the advice of friends, and my own experience, and indulge in a free and informed choice.
That is libertarianism, and it is still no business of yours what I put into my body, as long as I am willing to pay the consequences. And I am: that's why I am privately insured up to the hilt.
DK
Sackerson said...
DK: thanks for visiting, I'd have drawn a chalk circle if I'd known you were coming.
I agree that alcohol is pernicious and have argued that rather than attempt to ban it, we should reduce its availability a bit - currently you can get it from the supermarket, post office, petrol station etc. And it does make many people horribly aggressive, so there is an incentive for others to band together and act in this way.
I do understand that there are many functioning drug users (as indeed there are functioning alcoholics), and the question of product purity is certainly one of the arguments propounded for legalisation and regulation. Set against that is what might then happen. If the research referred to by Paddington above is correct, the tendency to addiction is genetic, so the principal factor is opportunity. If only 5% have the fatal flaw, and these products become as available as a six-pack of wife-beater from Tesco Express, we could go from thousands of addicts to millions.
So one issue is how do you weigh your wish for a certain kind of pleasure, against the awful suffering of some other people? Is this corner of libertarianism less a struggle to be free of oppression than it is callous selfishness?
And there is a deeper question of the founding assumptions of libertarians: are we really free and rational in any case? If half our behaviour is genetically determined, and much of the rest conditioned by social expectations, drug-taking is not the blow for liberty that it was represented to be from the 1960s onwards. You yourself say "...I chose was to take the education that I was given, and the advice of friends, and my own experience...", which makes me think that your "free and informed choice" was conditioned by the example and advice of your friends, and the opportunity to take part yourself. Indeed, this is how I started on cigarettes and it took me a decade to get back off them, so I have some idea how unfree we really are. You'll see from my next post that I query whether public schools such as Eton had a drug problem as early as the 1960s, and "as the twig is bent, so the tree will grow".
I think we are in an age where the Enlightenment philosophy is as under threat from geneticism (and determinism generally), as Creationism was when evolutionary theory was formulated. Sartre refused to accept Freud's theory of the unconscious, because it fatally undermined his own position on existentialist free will.
So I think libertarians should move from questions of law, taxation, social liberty etc to re-examine the ground they are standing on.
Monday, January 12, 2009
Sunday, January 11, 2009
The public school connection
Gosh, people get fussed when you suggest that complete licence isn't a good idea. Where did that start? Apparently I'm a 95-year-old reactionary, and a 21-year-old "righteous" (same accuser).
In 1969, I went to Cambridge University for an interview, and met my friend who'd just gone up. In general conversation, he told me that a third of the undergraduates at his college were Old Etonians, and that they were (a) a tight clique and (b) well into cocaine parties. This, at a time when I'd only recently heard of "pot", which for me conjured up the mental image of a Marmite jar.
That's 40 years ago now, just about. Eton was criticised a few years ago for taking a tough line on drugs. Wrong issue: their critics should have asked them just how long the problem had existed. What was going on in the study and the common room? Just don't ask Dave.
Drugs: a rope to hang ourselves with
Unity at the Ministry of Truth offers 15,000 words to justify the legalisation of drugs, and is cheered on by Devil's Kitchen and (or am I mistaken?) by James at Nourishing Obscurity.
On the other hand, ex-Birmingham prison medic Theodore Dalrymple points out that no-one has ever died from coming off opiates; de-addiction can be achieved in a limited time; and it's criminals who turn to heroin, not heroin-users who turn to crime.
"Ah, but we only want the same treatment as smokers and drinkers," will be the cry. Well, seeing the damage that fags and booze did to my 20-years-too-early departed parents (and friends and acquaintances, and Looked After Children I've worked with), I'm inclined to agree; but not in the way the libertarians wish.
I'd be interested to know all the costs, expressed financially, of the harm done by "cigareets and whisky". I very much doubt that the tax covers the expense of the disbenefits. Here's an example, relating to alcohol: "For the UK, the external costs are likely to be in excess of the £20 billion figure and indeed taking loss of life into account and using more usual figures to value this loss could bring the total closer to £45 –50 billion for the UK as a whole. This is clearly way in excess of the revenue yield of £12 billion in 2000/01."
Instead of battening on the addictions of its citizens, the government could easily forego the £18 billion revenue on tobacco and alcohol - that's only the same cost as the ludicrously expensive and probably unnecessary NHS IT project, "Connecting for Health". Then, freed from this compromising financial interest, it could begin to tackle the problems seriously - not through the unimaginative approach of Prohibition, but through better education, and limiting the outlets of these harmful substances, as I have already suggested here.
As for other drugs, what is this campaign to encourage us to spend half our lives in a doze, daze or haze? Is there a plan to subvert society, to leave us in the land of the Lotus Eaters? Are we to sleep like the hare, while the Eastern tortoise wins the race? Is the opiate of the masses to be opiates?
B*lls to the Politics of Ecstasy; it's just an excuse for the spoiled end of the middle classes to indulge themselves further, leading (like the Pied Piper) hordes of less safety-netted proles into oblivion.
And why should libertarians support addictions, which imprison the will and distort reason?
On the other hand, ex-Birmingham prison medic Theodore Dalrymple points out that no-one has ever died from coming off opiates; de-addiction can be achieved in a limited time; and it's criminals who turn to heroin, not heroin-users who turn to crime.
"Ah, but we only want the same treatment as smokers and drinkers," will be the cry. Well, seeing the damage that fags and booze did to my 20-years-too-early departed parents (and friends and acquaintances, and Looked After Children I've worked with), I'm inclined to agree; but not in the way the libertarians wish.
I'd be interested to know all the costs, expressed financially, of the harm done by "cigareets and whisky". I very much doubt that the tax covers the expense of the disbenefits. Here's an example, relating to alcohol: "For the UK, the external costs are likely to be in excess of the £20 billion figure and indeed taking loss of life into account and using more usual figures to value this loss could bring the total closer to £45 –50 billion for the UK as a whole. This is clearly way in excess of the revenue yield of £12 billion in 2000/01."
Instead of battening on the addictions of its citizens, the government could easily forego the £18 billion revenue on tobacco and alcohol - that's only the same cost as the ludicrously expensive and probably unnecessary NHS IT project, "Connecting for Health". Then, freed from this compromising financial interest, it could begin to tackle the problems seriously - not through the unimaginative approach of Prohibition, but through better education, and limiting the outlets of these harmful substances, as I have already suggested here.
As for other drugs, what is this campaign to encourage us to spend half our lives in a doze, daze or haze? Is there a plan to subvert society, to leave us in the land of the Lotus Eaters? Are we to sleep like the hare, while the Eastern tortoise wins the race? Is the opiate of the masses to be opiates?
B*lls to the Politics of Ecstasy; it's just an excuse for the spoiled end of the middle classes to indulge themselves further, leading (like the Pied Piper) hordes of less safety-netted proles into oblivion.
And why should libertarians support addictions, which imprison the will and distort reason?
Saturday, January 10, 2009
The next wave of bailouts
It's not just the banks that are short of money. Many US States and local authorities are also suffering financial problems, and this is affecting the trade in their bonds, i.e. their borrowings on the money market. ("What are bonds, exactly?" - see here.)
Michael Panzner reports that municipal bonds ("munis") offer a better yield than US Treasury bonds, but the difference is still not enough to pay for the extra risk. Professional investors are short-selling "munis". i.e. betting that they will fall in price. A steep fall may indicate imminent bankruptcy, and some say this is on the way for many authorities, as Mish reported at the end of December.
So, what will happen when the US Government is seen to be buying everybody's bad debts?
People (even here in the UK, where we tend to wait patiently for our wise rulers to solve all) are beginning to worry about inflation, and are thinking about investing again. An article in Elliott Wave International warns us not to be panicked into parting with our cash, and reminds us:
... there are periods when inflation does erode the value of cash. I mean, look at the seven years leading up to the October 2007 peak in U.S. stocks: big gains in the stock indexes, while inflation was eroding cash. No way did cash do as well as stocks during that time.
Right?
Wrong. Cash outperformed stocks in the seven years leading up to the 2007 stock market high. That outperformance has only increased in the time since.
Since this is the view I took and communicated to clients in the 1990s, you will understand that I didn't make much money as a financial adviser. But it was certainly good advice, even if it was based on strongly-felt intuition rather than macroeconomic analysis.
Not that analysis guarantees results, in a world where the money game's rules are changed at will by politicians with a host of agendas that they don't share with us ordinary types. But my current guess is that the stockmarket will halve again in the next few years, when compared with the cost of living.
Michael Panzner reports that municipal bonds ("munis") offer a better yield than US Treasury bonds, but the difference is still not enough to pay for the extra risk. Professional investors are short-selling "munis". i.e. betting that they will fall in price. A steep fall may indicate imminent bankruptcy, and some say this is on the way for many authorities, as Mish reported at the end of December.
So, what will happen when the US Government is seen to be buying everybody's bad debts?
People (even here in the UK, where we tend to wait patiently for our wise rulers to solve all) are beginning to worry about inflation, and are thinking about investing again. An article in Elliott Wave International warns us not to be panicked into parting with our cash, and reminds us:
... there are periods when inflation does erode the value of cash. I mean, look at the seven years leading up to the October 2007 peak in U.S. stocks: big gains in the stock indexes, while inflation was eroding cash. No way did cash do as well as stocks during that time.
Right?
Wrong. Cash outperformed stocks in the seven years leading up to the 2007 stock market high. That outperformance has only increased in the time since.
Since this is the view I took and communicated to clients in the 1990s, you will understand that I didn't make much money as a financial adviser. But it was certainly good advice, even if it was based on strongly-felt intuition rather than macroeconomic analysis.
Not that analysis guarantees results, in a world where the money game's rules are changed at will by politicians with a host of agendas that they don't share with us ordinary types. But my current guess is that the stockmarket will halve again in the next few years, when compared with the cost of living.
Friday, January 09, 2009
Conspiracy, not c*ck-up
Michael Hudson sees the current crisis as deliberately fomented, and intentionally anti-democratic (htp: Anon, on Nourishing Obscurity). The economic is now shading into the political:
What do you mean “failure”? Your perspective is from the bottom looking up. But the financial model has been a great success from the vantage point of the top of the economic pyramid looking down. The economy has polarized to the point where the wealthiest 10% now own 85% of the nation’s wealth. Never before have the bottom 90% been so highly indebted, so dependent on the wealthy. From their point of view, their power has exceeded that of any time in which economic statistics have been kept.
You have to realize that what they’re trying to do is to roll back the Enlightenment, roll back the moral philosophy and social values of classical political economy and its culmination in Progressive Era legislation, as well as the New Deal institutions. They’re not trying to make the economy more equal, and they’re not trying to share power. Their greed is (as Aristotle noted) infinite. So what you find to be a violation of traditional values is a re-assertion of pre-industrial, feudal values. The economy is being set back on the road to debt peonage. The Road to Serfdom is not government sponsorship of economic progress and rising living standards; it’s the dismantling of government, the dissolution of regulatory agencies, to create a new feudal-type elite.
Meanwhile, Karl Denninger makes his case for the perpetrators of the credit crunch to be penalized under the US laws relating to mail fraud.
What do you mean “failure”? Your perspective is from the bottom looking up. But the financial model has been a great success from the vantage point of the top of the economic pyramid looking down. The economy has polarized to the point where the wealthiest 10% now own 85% of the nation’s wealth. Never before have the bottom 90% been so highly indebted, so dependent on the wealthy. From their point of view, their power has exceeded that of any time in which economic statistics have been kept.
You have to realize that what they’re trying to do is to roll back the Enlightenment, roll back the moral philosophy and social values of classical political economy and its culmination in Progressive Era legislation, as well as the New Deal institutions. They’re not trying to make the economy more equal, and they’re not trying to share power. Their greed is (as Aristotle noted) infinite. So what you find to be a violation of traditional values is a re-assertion of pre-industrial, feudal values. The economy is being set back on the road to debt peonage. The Road to Serfdom is not government sponsorship of economic progress and rising living standards; it’s the dismantling of government, the dissolution of regulatory agencies, to create a new feudal-type elite.
Meanwhile, Karl Denninger makes his case for the perpetrators of the credit crunch to be penalized under the US laws relating to mail fraud.
Stock market could halve again
As you know, I've been doing my own extrapolations recently, based on the Dow since 1928, and the implication is that the low point could be as deep as c. 4,000 points, i.e. another 50% off where it stands today.
Now, "Mish" looks at revised earnings estimates for companies and relates them to stock prices, applying various price-earnings ratios. His conclusion is broadly the same.
As Michael Panzer predicted* (reviewed here in May 2007) there's been a flight to cash, and now (as he also predicted) it looks as though inflation is set to roar. This will disguise what's happening to stocks, but underneath it I see that decline. As in the '60s-'80s. it may take some years after the apparent turnaround before real values increase again.
Provided you trust the government to pay up when due, and to calculate inflation fairly, National Savings Index-Linked Savings Certificates (or US TIPS) may be a valuable weapon in your anti-inflation armoury.
*"He predicts first a credit squeeze, which makes cash king and ruins our credit-dependent lives and businesses wholesale; then hyperinflation, as the government prints money to keep the system from complete collapse.
In this scenario, at first, stocks, corporate bonds, property, commodities (including gold), even government bonds and savings certificates, all decline in value against hard cash as everybody scrambles to settle their own debt, collect what's owed to them and continue to pay the bills. Then the hyperinflation hits and everybody tries to offload their currency."
Now, "Mish" looks at revised earnings estimates for companies and relates them to stock prices, applying various price-earnings ratios. His conclusion is broadly the same.
As Michael Panzer predicted* (reviewed here in May 2007) there's been a flight to cash, and now (as he also predicted) it looks as though inflation is set to roar. This will disguise what's happening to stocks, but underneath it I see that decline. As in the '60s-'80s. it may take some years after the apparent turnaround before real values increase again.
Provided you trust the government to pay up when due, and to calculate inflation fairly, National Savings Index-Linked Savings Certificates (or US TIPS) may be a valuable weapon in your anti-inflation armoury.
*"He predicts first a credit squeeze, which makes cash king and ruins our credit-dependent lives and businesses wholesale; then hyperinflation, as the government prints money to keep the system from complete collapse.
In this scenario, at first, stocks, corporate bonds, property, commodities (including gold), even government bonds and savings certificates, all decline in value against hard cash as everybody scrambles to settle their own debt, collect what's owed to them and continue to pay the bills. Then the hyperinflation hits and everybody tries to offload their currency."
Thursday, January 08, 2009
Snap
Denninger:
JAIL the fraudsters, including those in Congress, Treasury and on Wall Street. Bluntly - if we can find a predicate felony to nail you with in this mess, off you go.
REMOVE all of the overseers. This includes The Fed. Set up a new agency that is charged with enforcing all of the laws related to the financial system including The Federal Reserve Act, and empower them with subpoenas. Direct that they must act and operate "in the sunshine", with everything published on The Web. You do an evil thing, the public sees it. They try to hide it, the public sees it.
DEFAULT all the bad debt. Yes, this "booms" a lot of banks. Tough.
SET UP new banks. Take the remaining $350 billion and capitalize ten banks with $35 billion each. IPO them to the public. By law no officer, current or former, of an existing public bank may serve on these firm's boards. Now we've got the means to replace the credit creation the boomed banks can't do any more.
JAIL the fraudsters, including those in Congress, Treasury and on Wall Street. Bluntly - if we can find a predicate felony to nail you with in this mess, off you go.
REMOVE all of the overseers. This includes The Fed. Set up a new agency that is charged with enforcing all of the laws related to the financial system including The Federal Reserve Act, and empower them with subpoenas. Direct that they must act and operate "in the sunshine", with everything published on The Web. You do an evil thing, the public sees it. They try to hide it, the public sees it.
DEFAULT all the bad debt. Yes, this "booms" a lot of banks. Tough.
SET UP new banks. Take the remaining $350 billion and capitalize ten banks with $35 billion each. IPO them to the public. By law no officer, current or former, of an existing public bank may serve on these firm's boards. Now we've got the means to replace the credit creation the boomed banks can't do any more.
Uncanny. We agree pretty much exactly. Either he's an amateur, or I'm a professional.
The disenfranchised shareowner?
A startling picture of how share ownership has shrunk - pretty steadily, despite the Conservatives' pledge in the 1980s to widen it. Though I can't tell from this to what extent it's down to individuals' purchase of unit trusts, investment trusts and collective pension funds.htp: Patrick Vessey
P.S. I Like the flowers. Man.
Where to turn?
People are starting to run around looking for a haven for wealth. German bond issues partially unsold; US bonds yielding virtually nothing yet at risk of default and dollar devaluation; the UK's economic fundamentals worse than America's (without the advantage of having the world's reserve currency); others saying the PIGS (Portugal, Greece, Italy, Spain) may crash out of the Euro, and that the Euro itself may not see out another ten years.
Marc Faber is predicting that precious metals will outperform equities and bonds; this commentator reckons silver will outperform gold.
Dear me.
Marc Faber is predicting that precious metals will outperform equities and bonds; this commentator reckons silver will outperform gold.
Dear me.
Money Management
As reported in The Hightower Lowdown, the Tribune Company is going under. It was bought last year for $8.2 billion by real estate magnate Sam Zell. Because he didn't have enough cash for the deal, he colluded with the CEO to use the employees' pension fund as collateral for a loan. The crushing interest rates meant that he had to slash payroll to try and make ends meet.
Not only is the deal itself troubling, but I do not see how a company can be bought with borrowed money, and then be profitable enough to pay the loans and make more.
Perhaps the whole idea of large amounts of credit is itself the problem?
Not only is the deal itself troubling, but I do not see how a company can be bought with borrowed money, and then be profitable enough to pay the loans and make more.
Perhaps the whole idea of large amounts of credit is itself the problem?
Wednesday, January 07, 2009
A lesson from China
Shagang, the Chinese steel company owned by self-made billionaire Shen Wenrong, is raising its prices, according to Steel Business Briefing (4 January 2009).
In a manufacturing recession, this is a counterintuitive move by the man who bought what was left of the German "Phoenix" steelworks and shipped it to the Yangtze, reasoning that a ready-made factory would not only get into production faster, but (at the scrap price he paid for it) without the debt burden that would ruin his competitors when (as he foresaw) the next downturn came.
The company may also push ahead with its plan to "go public" and expand its operations.
We could do with people like him, over here.
In a manufacturing recession, this is a counterintuitive move by the man who bought what was left of the German "Phoenix" steelworks and shipped it to the Yangtze, reasoning that a ready-made factory would not only get into production faster, but (at the scrap price he paid for it) without the debt burden that would ruin his competitors when (as he foresaw) the next downturn came.
The company may also push ahead with its plan to "go public" and expand its operations.
We could do with people like him, over here.
Tuesday, January 06, 2009
Time for another Jubilee
Karl Denninger elegantly demonstrates that compound interest on debt will always tend to blow up the economy, if the interest rate x is more than y (the average rate of economic growth) + z (the average rate of default).
Lenders will try to achieve this blessed state of affairs, but if they succeed, they will eventually end up owning everything, and the system will go "pop" long before that point. Which is why the Bible talks about a Jubilee year of total debt forgiveness, occurring every half-century.
Getting governments to take over all bad debts interferes with that reset, and so the "pop" must be louder when it finally, inevitably happens.
Lenders will try to achieve this blessed state of affairs, but if they succeed, they will eventually end up owning everything, and the system will go "pop" long before that point. Which is why the Bible talks about a Jubilee year of total debt forgiveness, occurring every half-century.
Getting governments to take over all bad debts interferes with that reset, and so the "pop" must be louder when it finally, inevitably happens.
They could be right, darn it
The British Government claims it wants to do more for our health.
There's the new Change4Life campaign, encouraging us to eat less fat, take more exercise and live longer; and there are the perennial pushes to give up smoking and (after they've extended the licensing hours and vastly increased the number of licensed outlets) reduce alcohol consumption.
On the other hand, we have the prospect of the State pension system hitting the buffers, thanks to millions of coffin-dodgers; not to mention the cost of care homes and the bed-blocker burden on the National Health Service. And if we all became totally abstemious, we would cost the State its £10 billion annual revenue from tobacco, and £8 billion from alcohol. At first sight, if you wanted to destroy the State, you'd follow its advice - a novel strategy of subversion by civil obedience.
Hence, tabloid-style contrarianism! I haven't found the evidence, but I expect that staying healthy (and working longer) will more than pay for itself, by reducing the costs of chronic ill-health and increasing revenue from taxes on income.
There's the new Change4Life campaign, encouraging us to eat less fat, take more exercise and live longer; and there are the perennial pushes to give up smoking and (after they've extended the licensing hours and vastly increased the number of licensed outlets) reduce alcohol consumption.
On the other hand, we have the prospect of the State pension system hitting the buffers, thanks to millions of coffin-dodgers; not to mention the cost of care homes and the bed-blocker burden on the National Health Service. And if we all became totally abstemious, we would cost the State its £10 billion annual revenue from tobacco, and £8 billion from alcohol. At first sight, if you wanted to destroy the State, you'd follow its advice - a novel strategy of subversion by civil obedience.
Hence, tabloid-style contrarianism! I haven't found the evidence, but I expect that staying healthy (and working longer) will more than pay for itself, by reducing the costs of chronic ill-health and increasing revenue from taxes on income.
Monday, January 05, 2009
Deflation, low interest rates and the poor old saver
The British Government claims it wants to do more for the saver. Actually, it's already done a lot: the Daily Telegraph reports that the Halifax estimates house prices fell by 16.2% in 2008. Putting it another way, someone holding cash in a shoebox has made 19.33% tax-free, measured in house price terms; or 32.22% gross for a 40% taxpayer.
And that's a point: the government doesn't tax you on the gains of deflation. But I'm sure they're keen to rectify that: normal inflation will be resumed as soon as possible.
And that's a point: the government doesn't tax you on the gains of deflation. But I'm sure they're keen to rectify that: normal inflation will be resumed as soon as possible.
Sunday, January 04, 2009
MSM admits keeping shtum
Edmund Conway breaks journalistic ranks to admit he should've said something sooner.
Disaster deferred (and increased), not averted
Karl Denninger goes back to basics, explaining how the reflation is merely paying you-now from you-future's account. Knit faster, we're running out of wool.
Saturday, January 03, 2009
Murky business
Brad Setser does a very interesting bit of detective work and concludes that much of the UK's holdings of US Treasury securities, are on behalf of China. He gives us a graph demonstrating that when the UK's official holding declines sharply (usually in June), China's suddenly rises.
Setser estimates that China owns $1.425 trillion in Treasuries and Agencies, which is equivalent to about 10% of US GDP. ("Treasuries" are debts directly owed by the US Government, "agencies" are debts of the US Government's organisations, as explained in this Federal Reserve handbook from 2004.)
He ends by calling for more transparency in British accounts of these holding - that would be most welcome all round, generally. Half our problems (and, I assume, opportunities for fatcat swindlers) stem from our not knowing the real position of the world's finances.
Setser estimates that China owns $1.425 trillion in Treasuries and Agencies, which is equivalent to about 10% of US GDP. ("Treasuries" are debts directly owed by the US Government, "agencies" are debts of the US Government's organisations, as explained in this Federal Reserve handbook from 2004.)
He ends by calling for more transparency in British accounts of these holding - that would be most welcome all round, generally. Half our problems (and, I assume, opportunities for fatcat swindlers) stem from our not knowing the real position of the world's finances.
Pop
Perhaps the fall will be faster.
In this piece, Charles Biderman explains that the value of a stock is set by marginal purchases, which do not reflect what you'd get if you sold all the company's shares at the same time. He estimates that from 2003-2007 the world's equities increased in notional value by $25 trillion, on nothing more than $1.5 trillion cash, a bit of borrowing and mostly, illusion: "Market cap and money aren't necessarily related."
When the illusion goes pop, so do all the gains. First out gets the most.
htp: zgirl
In this piece, Charles Biderman explains that the value of a stock is set by marginal purchases, which do not reflect what you'd get if you sold all the company's shares at the same time. He estimates that from 2003-2007 the world's equities increased in notional value by $25 trillion, on nothing more than $1.5 trillion cash, a bit of borrowing and mostly, illusion: "Market cap and money aren't necessarily related."
When the illusion goes pop, so do all the gains. First out gets the most.
htp: zgirl
Elliot, Kondratieff, or normal service resumed?
On 26th June I looked at the progress of the FTSE since around 1984 and thought that the next low would be no worse than c. 4,500. Here's what actually happened:
The lows were certainly lower, and we have only recently learned just how close we came to a banking collapse. The question now is, are we where we "should" be - following a trend set by the last 25 years - or are there longer cycles due to make hay of the pattern of the last quarter-century? Elliot wavers and Kondratieff followers say yes.
My guess is that, after the steep stockmarket falls and the horrid crisis apparently averted, there will be a bounce in the next 1-2 years, then a decline in real (inflation-adjusted) terms for maybe another 5 years after that. Your guess?
By the way, I'd also be interested to know your views on why the bankers and brokers have been allowed to Get Away With It. To me, it seems like a big fat moral hazard and unless there is some real squealy punishment for all this bad behaviour, I'd advise any bright, conscienceless youngster to become a banker.
Currently, my preferred fantasy solution is to bust all the overextended banks, leave the shareholders with zilch, sack the senior bank managers and ban them from being company directors for at least 5 years, halve all mortgages, and give the book of business to more prudent operators including well-run building societies. In my view, this was never ever going to happen, because the FSA, the BoE and the government are also implicated. So, not so much "too big to fail", but too well-connected to fail.
But there's a price to pay, anyway: it's now clearly Us and Them. Perhaps, since they are immeasurably more powerful, we should give up trying to rectify the world and merely ape their cynicism and corruption. Moralists will demur; and so this is truly an age when we can say, "Affairs are now soul size".
The lows were certainly lower, and we have only recently learned just how close we came to a banking collapse. The question now is, are we where we "should" be - following a trend set by the last 25 years - or are there longer cycles due to make hay of the pattern of the last quarter-century? Elliot wavers and Kondratieff followers say yes.
My guess is that, after the steep stockmarket falls and the horrid crisis apparently averted, there will be a bounce in the next 1-2 years, then a decline in real (inflation-adjusted) terms for maybe another 5 years after that. Your guess?
By the way, I'd also be interested to know your views on why the bankers and brokers have been allowed to Get Away With It. To me, it seems like a big fat moral hazard and unless there is some real squealy punishment for all this bad behaviour, I'd advise any bright, conscienceless youngster to become a banker.
Currently, my preferred fantasy solution is to bust all the overextended banks, leave the shareholders with zilch, sack the senior bank managers and ban them from being company directors for at least 5 years, halve all mortgages, and give the book of business to more prudent operators including well-run building societies. In my view, this was never ever going to happen, because the FSA, the BoE and the government are also implicated. So, not so much "too big to fail", but too well-connected to fail.
But there's a price to pay, anyway: it's now clearly Us and Them. Perhaps, since they are immeasurably more powerful, we should give up trying to rectify the world and merely ape their cynicism and corruption. Moralists will demur; and so this is truly an age when we can say, "Affairs are now soul size".
Thursday, January 01, 2009
Am I the idiot, or are they?
For years, at least since the Reagan era, we in the US have heard the Republican Party mantra that the answer to growing the economy is to cut taxes for the richest, since they will 'invest in business'.
It never made sense to me, especially as I saw such a transfer of wealth to those same rich people, who spent their money on luxury imported goods. Incomes for the middle and lower class barely kept pace with inflation, even as industry became ever more efficient.
Today, thanks to posts here and elsewhere, I finally realized what is wrong with the claim above: buying stocks does not 'invest in a company', unless you are buying stock directly from that same company. All it does is put money in the pockets of the stockbrokers, while you have a piece of paper that must rise in value by profit plus fees, and find another sucker to buy it. The real estate market is no different.
Nonetheless, all of the experts that I have talked with over the years insisted that I simply didn't understand, implying that I was an idiot. Am I?
It never made sense to me, especially as I saw such a transfer of wealth to those same rich people, who spent their money on luxury imported goods. Incomes for the middle and lower class barely kept pace with inflation, even as industry became ever more efficient.
Today, thanks to posts here and elsewhere, I finally realized what is wrong with the claim above: buying stocks does not 'invest in a company', unless you are buying stock directly from that same company. All it does is put money in the pockets of the stockbrokers, while you have a piece of paper that must rise in value by profit plus fees, and find another sucker to buy it. The real estate market is no different.
Nonetheless, all of the experts that I have talked with over the years insisted that I simply didn't understand, implying that I was an idiot. Am I?
Tuesday, December 30, 2008
Fun with extrapolation
Since the 1990s, the stockmarket has been showing such freakish returns that many thought we were in a "new paradigm", whatever that means.
So I've looked at the Dow adjusted for CPI since late 1928, and calculated max/min lines on the basis of the highs in 1929 and 1966, and the lows in 1932 and 1982, to see just how unrepresentative the last decade has been. If we saw a return to these imaginary trends, the next Dow low could be less than half the present value. If, if, if...
Coincidentally, Jim Kunstler is predicting much the same:
By May of 2009, the stock markets will resume crashing with the ultimate destination of a Dow 4000 before the end of the year.
But I think it may take longer than that. The Elliott-wavers are looking for a final upwave first. Having said that, the last 10 years have been out of all comparison with the 70 years before.
Monday, December 29, 2008
Debt forgiveness, inflation and welching
Thus Jesse, discussing Michael Hodges' visionary "Grandfather Economic Report" and US indebtedness:
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?
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?
Sunday, December 28, 2008
Saturday, December 27, 2008
Is gold a hedge against inflation?
There are problems with using gold as an insurance against inflation.
(N.B. gold prices to the end of 1967 are annual averages, then monthly averages to the end of 1974, then the price is as on the first trading day of the month; all gold price figures from Kitco).
1. Governments interfere with it - from making it the legal base of their currency, as in the US Constitution, to making it illegal to have any, as in the US in 1933; from guaranteeing the exchange rate of gold against the dollar (post WWII) to the Nixon Shock of 1971, when the gold window was closed.
2. Central banks claim to hold it, then (it is widely suspected) lend or sell it surreptitiously.
3. There is so little of it, that speculators can have a significant effect on the price, especially if (as appears to have happened in recent years), the speculation has been powered by vast amounts of borrowed money.
Below, I give three graphs, all comparing the price of gold per ounce in US dollars with inflation as measured by the Consumer Price Index (and that's another can of worms). It's clear that gold has a very volatile relationship with inflation and can spend a very long time above or below trend.
In the fourth graph I divide the Dow by the price of gold. It seems obvious that gold is a contrarian position for equity investors, rather than a simple hedge against inflation.
Currently, the Dow has come back to something like a normal ratio to gold, but past history suggests there will be an overshoot. And gold itself seems above trend over all three periods chosen; which suggests that both still have a way to fall in nominal terms, but the Dow more so.
(N.B. gold prices to the end of 1967 are annual averages, then monthly averages to the end of 1974, then the price is as on the first trading day of the month; all gold price figures from Kitco).
Friday, December 26, 2008
Nominal and real
Marc Faber's latest interviews on Bloomberg and CNBC show him estimating the recession to last "2, 5, 10 years". He also says that Asia is better placed to recover, because after the panic of 1998 they deleveraged, i.e. reduced borrowings.
So it's time for me to review my guesses about when the recovery will come for us. A key consideration is inflation, which Faber says is being stoked up for the long term by all the "stimulus" currently put in by panicky Western governments.
I've suggested that we might compare the present, not to the 1929-32 collapse, but the period 1966-1982, when inflation sometimes growled and sometimes roared. The result was that the nominal and inflation-adjusted low points are very far apart: the start-of-month level for the Dow hit bottom in September 1974, but adjusted for CPI, the real bottom was in July 1982.
So when the upturn comes, depends on your definition. I am still guessing that there will be a nominal recovery in 2010, but inflation will erode gains over time and the real turning point may not come until, say, 2016.
Wednesday, December 24, 2008
"Efficiency" vs. survival
"...we have to build back into the system Resiliency. This means that each region has to work to become largely energy, food and financially self sustaining and that each region needs to network into the others. In effect we shift from an efficient machine to a resilient network."
Robert Paterson, as quoted by London Banker.
Like I keep saying, it's about diversity, dispersion and disconnection - please click on the label below for my posts on this subject.
Robert Paterson, as quoted by London Banker.
Like I keep saying, it's about diversity, dispersion and disconnection - please click on the label below for my posts on this subject.
It's not about dinosaurs
Would you rather explain away the following, or share in it?
1. The death of William Blake, 12 August 1827:
“Just before he died His Countenance became fair. His eyes Brighten'd and he burst out Singing of the things he saw in Heaven”
2. The experience of St Thomas Aquinas, 6 December 1273:
LXXIX: The witness went on to recall that while brother Thomas was saying his Mass one morning, in the chapel of St. Nicholas at Naples, something happened which profoundly affected and altered him. After Mass he refused to write or dictate; indeed he put away his writing materials. He was in the third part of the Summa, at the questions on Penance. And brother Reginald, seeing that he was not writing, said to him: 'Father, are you going to give up this great work, undertaken for the glory of God and to enlighten the world?' But Thomas replied: 'Reginald, I cannot go on.' Then Reginald, who began to fear that much study might have affected his master's brain, urged and insisted that he should continue his writing; but Thomas only answered in the same way: 'Reginald, I cannot - because all that I have written seems to me so much straw.' Then Reginald, astonished that ... brother Thomas should go to see his sister, the countess of San Severino, whom he loved in all charity; and hastening there with great difficulty, when he arrived and the countess came out to meet him, he could scarcely speak. The countess, very much alarmed, said to Reginald: 'What has happened to brother Thomas? He seems quite dazed and hardly spoke to me!' And Reginald answered: 'He has been like this since about the feast of St. Nicholas - since when he has written nothing at all.' Then again brother Reginald began to beseech Thomas to tell him why he refused to write and why he was so stupefied; and after much of this urgent questioning and insisting, Thomas at last said to Reginald: 'Promise me, by the living God almighty and by your loyalty to our Order and by the love you bear to me, that you will never reveal, as long as I live, what I shall tell you.' Then he added: 'All that I have written seems to me like straw compared with what has now been revealed to me.'
1. The death of William Blake, 12 August 1827:
“Just before he died His Countenance became fair. His eyes Brighten'd and he burst out Singing of the things he saw in Heaven”
2. The experience of St Thomas Aquinas, 6 December 1273:
LXXIX: The witness went on to recall that while brother Thomas was saying his Mass one morning, in the chapel of St. Nicholas at Naples, something happened which profoundly affected and altered him. After Mass he refused to write or dictate; indeed he put away his writing materials. He was in the third part of the Summa, at the questions on Penance. And brother Reginald, seeing that he was not writing, said to him: 'Father, are you going to give up this great work, undertaken for the glory of God and to enlighten the world?' But Thomas replied: 'Reginald, I cannot go on.' Then Reginald, who began to fear that much study might have affected his master's brain, urged and insisted that he should continue his writing; but Thomas only answered in the same way: 'Reginald, I cannot - because all that I have written seems to me so much straw.' Then Reginald, astonished that ... brother Thomas should go to see his sister, the countess of San Severino, whom he loved in all charity; and hastening there with great difficulty, when he arrived and the countess came out to meet him, he could scarcely speak. The countess, very much alarmed, said to Reginald: 'What has happened to brother Thomas? He seems quite dazed and hardly spoke to me!' And Reginald answered: 'He has been like this since about the feast of St. Nicholas - since when he has written nothing at all.' Then again brother Reginald began to beseech Thomas to tell him why he refused to write and why he was so stupefied; and after much of this urgent questioning and insisting, Thomas at last said to Reginald: 'Promise me, by the living God almighty and by your loyalty to our Order and by the love you bear to me, that you will never reveal, as long as I live, what I shall tell you.' Then he added: 'All that I have written seems to me like straw compared with what has now been revealed to me.'
Relativism
It's hard to measure what's going on, because currencies have turned out to be rulers made out of very stretchy elastic - especially for us Brits, recently.
In this article, Kurt Kasun reproduces a chart from Marc Faber's latest newsletter, showing an estimated drop of c. 50% on the world's stockmarkets - a loss of some $30 trillion.
So I've looked at the Dow and the FTSE, as priced in Euros, since the Euro appears to be more stable than either the dollar or the pound sterling (until we discover the supermassive black hole at the centre of the European financial galaxy, no doubt).
Fasten your seatbelts
I've relayed rumours of these things here earlier: a dollar crash and US bond default. Now a respected Japanese ratings agency is preparing us for the reality. (htp: Karl Denninger)
Tuesday, December 23, 2008
Democratic deficit
How come I can vote several times a week at Waitrose, but only once every five years or so in national elections (and with a result that's a foregone conclusion)?
Vengeance is mine
Following comments on the last post, I see the feeling that scores should be settled is spreading - see Denninger and a threatening post to which he's linked.
UPDATE
And Jim Kunstler, too.
UPDATE
And Jim Kunstler, too.
Every little thing's gonna be all right
From what I read, some people are becoming survivalist: storing food, water, medicines, cash, even weapons.
Perhaps it's no coincidence that BBC is currently screening a remake of Terry Nation's gripping 1975 post-catastrophe series, "Survivors". But that series assumes that most people have died suddenly because of a virus, so the ecosystem has not been destroyed by desparate, starving victims. I don't think Survivors is the model we should use. If we are to survive, it'll be together, in our populous societies, because if society breaks down, you and I are unlikely to emerge as the last people standing. Lone heroes don't win; this is a fantasy.
I think spare supplies are a good idea, because there could be some disruption, which could affect the very young and elderly; so we need ways to keep warm, eat and have clean water in an emergency. And it's important to make your home secure against a rise in burglary, which is associated with economic downturns; and not to go out after dark without at least one or two companions. Weapons are another matter: "guns in the home are far more likely to be used against members of the household than against intruders."
Pace the doomsters, the UK and the USA will feed itself. We may end up eating more veg and less meat; and we may be using public transport instead of cars; personally, that would simply take me back to the 70s, when I was slimmer and fitter. Globally and locally, there is enough to feed the world, although not enough to overfeed it or encourage unproductive men to sire children.
Two aspects of the current crisis worry me:
1. The present method of organising resources may be replaced, not by one dreamed of by well-fed Western socialists, but by a cruel, remote, commanding elite as in North Korea or East Germany, who far from minimising scarcity will use it to get and maintain power.
2. The transition from this system to whatever replaces it, may be disorderly and involve suffering for many people.
This is why I think the underlying issue for us is to preserve and strengthen democracy, to increase the chances that both the journey and the journey's end are acceptable.
Perhaps it's no coincidence that BBC is currently screening a remake of Terry Nation's gripping 1975 post-catastrophe series, "Survivors". But that series assumes that most people have died suddenly because of a virus, so the ecosystem has not been destroyed by desparate, starving victims. I don't think Survivors is the model we should use. If we are to survive, it'll be together, in our populous societies, because if society breaks down, you and I are unlikely to emerge as the last people standing. Lone heroes don't win; this is a fantasy.
I think spare supplies are a good idea, because there could be some disruption, which could affect the very young and elderly; so we need ways to keep warm, eat and have clean water in an emergency. And it's important to make your home secure against a rise in burglary, which is associated with economic downturns; and not to go out after dark without at least one or two companions. Weapons are another matter: "guns in the home are far more likely to be used against members of the household than against intruders."
Pace the doomsters, the UK and the USA will feed itself. We may end up eating more veg and less meat; and we may be using public transport instead of cars; personally, that would simply take me back to the 70s, when I was slimmer and fitter. Globally and locally, there is enough to feed the world, although not enough to overfeed it or encourage unproductive men to sire children.
Two aspects of the current crisis worry me:
1. The present method of organising resources may be replaced, not by one dreamed of by well-fed Western socialists, but by a cruel, remote, commanding elite as in North Korea or East Germany, who far from minimising scarcity will use it to get and maintain power.
2. The transition from this system to whatever replaces it, may be disorderly and involve suffering for many people.
This is why I think the underlying issue for us is to preserve and strengthen democracy, to increase the chances that both the journey and the journey's end are acceptable.
Monday, December 22, 2008
Why banks?
Banks require re-capitalisation. The capital is required to cover losses. Capital is also needed for assets returning onto their balance sheet (as the vehicles of the “shadow banking system” are unwound). This capital is required to restore bank balance sheets. Additional capital will be needed to support future growth. Availability of capital, high cost of new capital and dilution of earnings will impinge upon future performance.
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.
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 20, 2008
Christmas viewing
Hilarious new animation in which the daring but accident-prone duo attempt to undo the damage caused by an idiot who sold off half of Britain's gold and let the bankers blow up the economy. From the makers of "The Wrong Assets" and the full-length "The Curse Of The Weird Scotsman".How will the future look?
Thanks to the glacial catchup by the mainstream media, the public is finally worrying about economic depression, and consoling itself with the thought that we've messed it up for everyone, so at least the Chinese won't prosper and come over here as tourists, overdressed, overpaid and taking too many pictures for their digital photoframes at home. Short-sighted, I think. On the CapitalistsatWork blog, I comment:
I think we should turn our eyes, not on the Depression, but how things will look afterwards. The East will generate demand as it aspires to the lifestyle we used to enjoy, and meantime we have been allowing them to transfer the means of production to their co-prosperity sphere. So the Chinese factories will re-open, perhaps after some of the light industry has relocated to Thailand, the poorer parts of India, and other neighbouring regions?
And I shouldn't discount India as potentially the real industrial powerhouse of the 21st Century, while China scrabbles about annexing territory for extra lebensraum, water and wood.
I think, by the way, that econinvestguru Marc Faber took up residence in Chiang Mai, northern Thailand, not to pursue a monastic existence (hardly characteristic of the formerly ponytailed playboy), but because he's close to "where it's at", or even better (and typical of this farsighted man), where it will be.
Friday, December 19, 2008
Europe is keeping China (and America) going
A very interesting piece by Brad Setser, where he shows that the EU's currency strength and growing imports from China have offset the levelling in demand from America. His bottom line is that China's making money from us and lending it to the US.
Default
I relayed Jesse's comments on Ecuador's moves to default here on November 28th, and now it's happened. Any big ones coming, do you think?
Wednesday, December 17, 2008
The seventh seal
Denninger's question:
With the $7 trillion dollars we have committed we could have literally given every homeowner with a mortgage a fifty percent reduction in the principal outstanding.
This would have instantaneously stopped all of the foreclosures by putting all (essentially) homes into positive equity - overnight!
So why wasn't this done?
His answer: the government is trying to cover the staggering bets of the derivatives market. With borrowed money. The Treasury has swallowed the grenade and put its fingers in its ears.
This is the fourth horseman of the financial apocalypse that Michael Panzner predicted, as summarized here on Bearwatch on May 10, 2007.
UPDATE: Jesse comments on another fresh sum - tens of billions - needed to cover AIG's losses. As he says, there is an air of expectancy; but also of unreality, like the announcement of a major war.
With the $7 trillion dollars we have committed we could have literally given every homeowner with a mortgage a fifty percent reduction in the principal outstanding.
This would have instantaneously stopped all of the foreclosures by putting all (essentially) homes into positive equity - overnight!
So why wasn't this done?
His answer: the government is trying to cover the staggering bets of the derivatives market. With borrowed money. The Treasury has swallowed the grenade and put its fingers in its ears.This is the fourth horseman of the financial apocalypse that Michael Panzner predicted, as summarized here on Bearwatch on May 10, 2007.
UPDATE: Jesse comments on another fresh sum - tens of billions - needed to cover AIG's losses. As he says, there is an air of expectancy; but also of unreality, like the announcement of a major war.
Inappropriate gloat
I came to the US fresh out of university, and went to graduate school. Consequently, I was mostly oblivious to the details of 'real life', like taxes, bills and repairs.
Working my way into the system, it all seemed that it couldn't possibly work: too many people with no discernible talent were earning too much, and prices were lower than I thought they should be, particularly fuel prices. I thought the problem was that I wasn't intelligent enough, and just didn't understand.
The one personal satisfaction that I can get from the current mess is that I was right - it doesn't make sense.
Working my way into the system, it all seemed that it couldn't possibly work: too many people with no discernible talent were earning too much, and prices were lower than I thought they should be, particularly fuel prices. I thought the problem was that I wasn't intelligent enough, and just didn't understand.
The one personal satisfaction that I can get from the current mess is that I was right - it doesn't make sense.
WeaselWordWatch update: "Quantitative Easing"
Okay, it's a phrase, not a word. But 4,094 references on Google News in the last 24 hours. And Mish is at it, too, though of course in an ironic way.
On yer bike
Thus Denninger:
Bernanke clearly thinks ... that he can "restart borrowing." ... This is causing the dollar to get slammed - at least for a little while... These sorts of actions ignite wars. Choose between a trade war (about 75% chance) and a shooting war (the other 25%).
The dollar weakness, by the way, won't last. Either sort of war puts every other nation in the world in worse shape than us, which over time leads to the same place - "we're screwed but they're screwed worse."
He's not wrong. Total US debt, foreign and domestic, has recently been calculated as 392% of GDP; but alas for us Brits, UK external (foreign) debt alone is running at 400%. I just don't know what a like-for-like comparison would show.
The TV news here tried to put a merry gloss on sterling's collapse, reporting how it helps exporters like a bicycle firm they visited. A bit desperate: the start of the 'Oxford Automobile and Cycle Agency’, this isn't. You know you're in trouble when they tell you to "smile, smile, smile."
Tuesday, December 16, 2008
Unstoppable
From an engineering standpoint, I think that this crisis was unavoidable. Once we de-coupled the concept of wealth from production, we generated a positive-feedback loop. The profits from manipulating money were greater than could be made in manufacturing, and so even more money flowed in.
I cannot help but think of Douglas Adams' 'Shoe Event Horizon', where eventually every shop becomes a shoe shop.
I cannot help but think of Douglas Adams' 'Shoe Event Horizon', where eventually every shop becomes a shoe shop.
The answer is blowing in the wind
I said on Friday, "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." I forgot to add, "...and from North to South, too"; but Michael Panzner is not alone in seeing America's exclusion from the Brazilian summit as a straw in the wind.
In the news
Conservative leader David Cameron is making noises about prosecuting crooked bankers. Nice to see he's getting with my program.
Also in the Daily Mail, Alex Brummer says Madoff has queered the pitch for hedge funds generally. Damn: I had started to look at how to set one up, using links supplied by Jim from San Marcos. If I'd started a couple of years ago, I'd have got everyone into cash and made a packet for them and myself. 2 and 20, 2 and 20.
Odds on the bankers and hedgies Getting Away With It? Pretty fair, I'd have thought - especially when you bear in mind (as Denninger points out - and Jesse, too) all the others who could be implicated. To quote Oscar Wilde: "The good ended happily, and the bad unhappily. That is what fiction means."
Also in the Daily Mail, Alex Brummer says Madoff has queered the pitch for hedge funds generally. Damn: I had started to look at how to set one up, using links supplied by Jim from San Marcos. If I'd started a couple of years ago, I'd have got everyone into cash and made a packet for them and myself. 2 and 20, 2 and 20.
Odds on the bankers and hedgies Getting Away With It? Pretty fair, I'd have thought - especially when you bear in mind (as Denninger points out - and Jesse, too) all the others who could be implicated. To quote Oscar Wilde: "The good ended happily, and the bad unhappily. That is what fiction means."
Monday, December 15, 2008
On Competitiveness
Consider a group of players in a game of chance. If all conditions are equal, the long-term results will be randomly distributed, with some big winners, and some big losers.
Change the conditions so that some players have an advantage, and eventually those players will be the only winners. How long this takes depends on the size of the advantage.
This is the basis of the mutation and natural selection portion of evolution theory.
For a generation after World War II, the US had a huge advantage: capital, undamaged manufacturing capacity, cheap energy, and most of the scientists and engineers. Thus, we 'won' the economic game, and it was attributed to Americans being 'better'.
We failed to notice that many other nations were catching up in education and technology. That the government and industry chose to dis-invest in research in the 1980's just accelerated the process.
As the playing field is now level (or even tipped against us), we should carefully consider how to gain back that advantage. We have done so before in the short term: arming in World War II, the Manhattan Project, the Space Race.
Do we have the will to do this when not faced with war, but with long-term economic decline?
Change the conditions so that some players have an advantage, and eventually those players will be the only winners. How long this takes depends on the size of the advantage.
This is the basis of the mutation and natural selection portion of evolution theory.
For a generation after World War II, the US had a huge advantage: capital, undamaged manufacturing capacity, cheap energy, and most of the scientists and engineers. Thus, we 'won' the economic game, and it was attributed to Americans being 'better'.
We failed to notice that many other nations were catching up in education and technology. That the government and industry chose to dis-invest in research in the 1980's just accelerated the process.
As the playing field is now level (or even tipped against us), we should carefully consider how to gain back that advantage. We have done so before in the short term: arming in World War II, the Manhattan Project, the Space Race.
Do we have the will to do this when not faced with war, but with long-term economic decline?
The elephant in the room?
In 'Great Expectations', Charles Dickens wrote: "Annual income 20 pounds, annual expenses twenty pounds and sixpence, result misery" (or words to that effect).
In the 1960's, the US undertook an orgy of spending on the Great Society and the Cold War (including the Vietnam War and Space Race). At the same time, the typical middle-class American lived an extravagant lifestyle, relatively speaking. This was all fueled by cheap American oil, gas and coal.
By 1973, we had used so much that OPEC had us over a barrel, and by 1975 we had our first large trade deficits, which have grown every year.
Since about 1980, not much has come out of our industry that the rest of the world seems to want to buy.
Did we go broke 30 years ago, and are just now noticing it?
In the 1960's, the US undertook an orgy of spending on the Great Society and the Cold War (including the Vietnam War and Space Race). At the same time, the typical middle-class American lived an extravagant lifestyle, relatively speaking. This was all fueled by cheap American oil, gas and coal.
By 1973, we had used so much that OPEC had us over a barrel, and by 1975 we had our first large trade deficits, which have grown every year.
Since about 1980, not much has come out of our industry that the rest of the world seems to want to buy.
Did we go broke 30 years ago, and are just now noticing it?
There's more truth in humour ...
Today's 'Non Sequitur' cartoon strip:
C.E.O. talking in his palatial office talking to a man with a wrench in his hand:
"We crunched the numbers over and over on where we could cut back, and it kept coming down to whatever it is you guys do on the assembly line..."
C.E.O. talking in his palatial office talking to a man with a wrench in his hand:
"We crunched the numbers over and over on where we could cut back, and it kept coming down to whatever it is you guys do on the assembly line..."
In a nutshell
London Banker sums up what went wrong over the past 25 years, in 1,610 words. It's a reprint from May, but he's right to show it again: it pretty much says it all.
Those who are old enough may remember having to do a precis in English. This is a very valuable, rational, intellectual exercise, which perhaps is one of the reasons it was ditched in New Teaching.
Do you think you could distil LB's observations in, say, 600 words?
Those who are old enough may remember having to do a precis in English. This is a very valuable, rational, intellectual exercise, which perhaps is one of the reasons it was ditched in New Teaching.
Do you think you could distil LB's observations in, say, 600 words?
Saturday, December 13, 2008
Two cheers for deflation
A pattern is emerging.
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.
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
Jesse extrapolates the Dow and sees it heading for 2,000 points:
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.
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.
I prefer Alexander's handling of the Gordian knot, to Gordon Brown's. For me, debt forgiveness is the way; but that's too radical, it seems. Instead, inflation will have to diminish the real value of debt, but jerkily, as the debt-holders periodically jack up interest rates in a fighting retreat. All to hide from reality. "Oh, what a tangled web we weave..."
The US economy in a nutshell
"Wages are sticky downward": American car workers are still trying to fight gravity, i.e. globalization's effect on wage rates. Denninger think that if it's anything more than a bargaining ploy, it will finish most of the US car industry.
And after them? Who else could have their work outsourced? White-collar workers should not look on unconcerned. Save money while you can, while wages are still ahead of minimum spending requirements.
Meanwhile, up in the clouds, a hedge fund manager has (allegedly) admitted his business was a fraud, losing $50 billion; more than three times the car-makers' bailout fund currently under discussion.
And after them? Who else could have their work outsourced? White-collar workers should not look on unconcerned. Save money while you can, while wages are still ahead of minimum spending requirements.
Meanwhile, up in the clouds, a hedge fund manager has (allegedly) admitted his business was a fraud, losing $50 billion; more than three times the car-makers' bailout fund currently under discussion.
How we got here? [by Paddington]
In my opinion, the boom and bust cycles of the past 30 years or so reflect the deep denial of the real world from our leaders in business, government and education.
Much of that is due to the dearth of quantitative and scientific influence on decision-making. President Bush even down-graded the science advisor from the Cabinet.
For decades, students in the US and UK have avoided mathematics, science and engineering. Becoming a teacher meant getting an education degree, rather than knowledge of any particular discipline, as if the skills of teaching were at some mystical higher level than mere content. In business schools, students shunned accounting and finance, and flocked to management and marketing, as the former required too much mathematics and computer knowledge.
This meant a whole generation of managers unable to make decisions based on facts.
Managers in business are brothers under the skin with bureaucrats in government, and the administrators in education, all of whom make wild assertions and demands of subordinates that are completely at odds with reality.
Much of that is due to the dearth of quantitative and scientific influence on decision-making. President Bush even down-graded the science advisor from the Cabinet.
For decades, students in the US and UK have avoided mathematics, science and engineering. Becoming a teacher meant getting an education degree, rather than knowledge of any particular discipline, as if the skills of teaching were at some mystical higher level than mere content. In business schools, students shunned accounting and finance, and flocked to management and marketing, as the former required too much mathematics and computer knowledge.
This meant a whole generation of managers unable to make decisions based on facts.
Managers in business are brothers under the skin with bureaucrats in government, and the administrators in education, all of whom make wild assertions and demands of subordinates that are completely at odds with reality.
Thursday, December 11, 2008
Toll me back from thee to my sole Self
Just caught a minute of BBC1's Question Time, chaired by the garrulous and self-regarding David Dimbleby. Self-regarding literally, this time, as he watched Will Self lay into the career-crazy fascists of New Labour, who now propose to persecute the unemployed after a decade of encouraging them to remain on benefit. As he says, they had the time, the money and the ideology to sort it out, and they didn't do it; and in some damningly characteristic way, they're slapping people who are down already. Lethal. I may have to start liking the white-nosed sleazebag, after all.
His target is the type who may not have realized that they were driving David Kelly to suicide, but probably don't much care that they did, so long as the trail was brushed. My only concern is that the public generally may be starting to feel as I do, in which case we are entering dangerous territory.
His target is the type who may not have realized that they were driving David Kelly to suicide, but probably don't much care that they did, so long as the trail was brushed. My only concern is that the public generally may be starting to feel as I do, in which case we are entering dangerous territory.
Bookends: deflation and inflation
On one side, the redoubtable Mish scorns those who think inflation is a clear and present danger:...Those who think inflation is about prices alone were busy shorting treasuries, and looking the wrong direction for over a year. Only after the stock market fell 50% and gasoline prices crashed did the media start picking up on "deflation". Only those who knew what a destruction in credit would do to jobs, to lending, to retail sales, to the stock market, to corporate bond yields and to treasury yields got it right...
Those who stick to a monetary definition of inflation pointing at M3, MZM, base money supply, or even Money AMS, are selecting a definition that makes absolutely no practical sense. Worse yet they do it screaming about bond-bubbles at yields of 5% or higher, all because they refuse to see or admit the destruction of credit is happening far faster than the Fed is printing...
The trick now is to figure out how long deflation will last, not whether we are in it. Humpty Dumpty is of no use, he cannot even see where we are.
On the other end, Jesse recalls Moscow in 1997, before the currency popped:
...They were desperate times, and you could see that there was a climactic crisis coming. It is easy to talk about this sort of thing, a thousand to one devaluation of your home currency, but harder to understand the impact. Imagine that you have $500,000 in savings for your retirement. Now imagine that within two years it is effectively reduced to $5,000 or less, and you will understand how disconcerting a currency crisis can be.
If you don't think a financial panic is possible here in the US, just take a look at the negative returns on short term T bills, and you will get a taste of the leading edge.
One of the best descriptions of the Weimar experience I have ever read was by Adam Fergusson titled "When Money Dies: The Nightmare of the Weimar Collapse." It is notoriously difficult to obtain, but it does the best job in describing how a currency collapse can come on like a lightning strike, although in retrospect everyone could have seen it coming. Denial is a strong narcotic. People believe in their institutions and ignore history until they are staring on the edge of the abyss.
I was right, but I didn't know why
Karl Denninger crunches the numbers: in the last 8 years, US GDP has increased by $14 trillion, but debts by $23 trillion, so effectively accounting for all the GDP growth in that time and still leaving a deficit of $9 trillion...
... we haven't had an expansion in GDP over the last eight years. Congress and its organs of reporting economic "facts" have lied. We have in fact actually seen about a 10% contraction in real GDP from 2000 levels; all of the so-called "expansion" of the Bush Administration has been a lie intended to prevent recognition and working through of the recession that should have happened in 2000.
Now, I sensed this during the last 8 years and felt it coming before then, and have recently said so several times. I'm only grateful that technical whizzes like Karl have managed to spell it out. If only we had taken our lumps after the technology bust of 2000.
... we haven't had an expansion in GDP over the last eight years. Congress and its organs of reporting economic "facts" have lied. We have in fact actually seen about a 10% contraction in real GDP from 2000 levels; all of the so-called "expansion" of the Bush Administration has been a lie intended to prevent recognition and working through of the recession that should have happened in 2000.
Now, I sensed this during the last 8 years and felt it coming before then, and have recently said so several times. I'm only grateful that technical whizzes like Karl have managed to spell it out. If only we had taken our lumps after the technology bust of 2000.
What went wrong? A post-match analysis of the Credit Crunch
Jesse quotes Joseph Stiglitz, and summarises five key moments:
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
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
Rude, funny, true
A near-the knuckle piece from The Onion, illustrating why education is a challenge. The combination of idiot argot and po-faced journalistic style is almost Wodehousian. (htp: Paddington)
Wednesday, December 10, 2008
Barefoot businesses
Many years ago, China pioneered the idea of "barefoot doctors": cheap physicians with a bagful of the most commonly prescribed medicines, providing a low-cost service to the many. This blog thinks the days of glitzy steel-and chrome offices and hot and cold running secretaries are numbered; the model of the future is the pavement stall and the home garage.
(htp: Jesse)
(htp: Jesse)
Heart of Darkness
My news aggregator has picked up news of a startling new discovery, though I fear some details may have been scrambled during transmission:
There is a giant financial black hole at the centre of our finances, a study has confirmed.
Austrian cashtronomers tracked the movement of dozens of banks circling the centres of Western economies.
The black hole in each is the equivalent of four million jobs.
Black holes are obligations whose interest is so great that nothing - including charismatic political leaders - can escape them.
According to experts, the results suggest that thriving economies form around giant debts in the way that a pearl forms around grit.
Treasury ministers on both sides of the Atlantic say that there is no reason to be concerned: provided enough cash is directed into the black holes, they will fill up and the economy will continue to revolve as normal.
Austrian cashtronomers tracked the movement of dozens of banks circling the centres of Western economies.
The black hole in each is the equivalent of four million jobs.
Black holes are obligations whose interest is so great that nothing - including charismatic political leaders - can escape them.
According to experts, the results suggest that thriving economies form around giant debts in the way that a pearl forms around grit.
Treasury ministers on both sides of the Atlantic say that there is no reason to be concerned: provided enough cash is directed into the black holes, they will fill up and the economy will continue to revolve as normal.
Here we go
Jesse interprets the Federal Reserve's request to issue its own debt, as a preparation for selective default on public debt issued by the Treasury.
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...
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...
Tuesday, December 09, 2008
Time Management [Guest post by Paddington]
For decades, much was made of the fact that American workers were the most productive of the Western world. Business articles derided the 35-hour work week of the French and Germans.
However, about 10 years ago, there was a study that showed that the French and German workers were much more productive per hour.
This supports my long-held belief that a typical worker averages 6-7 hours of productive work per day. Give them a short-term project and they will work harder and faster, but be less productive afterwards. Tell them that they are going to work overtime, and they will not work as hard in the regular day. Presented with too much work (for them), many will actually do less.
Realizing this is one of the things that has made my job (university teaching) better. I could do my work in less time, so that I had time for myself and my family, rather than twiddling my thumbs at my desk for 8 hours.
In short, people need time to goof off and socialize, and it makes them work better.
However, about 10 years ago, there was a study that showed that the French and German workers were much more productive per hour.
This supports my long-held belief that a typical worker averages 6-7 hours of productive work per day. Give them a short-term project and they will work harder and faster, but be less productive afterwards. Tell them that they are going to work overtime, and they will not work as hard in the regular day. Presented with too much work (for them), many will actually do less.
Realizing this is one of the things that has made my job (university teaching) better. I could do my work in less time, so that I had time for myself and my family, rather than twiddling my thumbs at my desk for 8 hours.
In short, people need time to goof off and socialize, and it makes them work better.
Bide-a-Wii
The West is worrying about indebtedness and global competition, and China is devaluing the renminbi to maintain its trading advantage.
It's time for electronic warfare. Not hacking into the military system - that's so obvious, and it was so uncharacteristically direct of the Chinese to do it. No, I think the counterattack is through computer games.
Fund the provision of PSPs, Xboxes, Wiis and a host of absorbing games (e.g. Morrowind, Gears of War) as pseudo-benevolent gifts to bright young Chinese kids. With any luck, the effect will be the same as here: early, heavy adoption by the ASD/OCD types who might otherwise become the core of the mathematics/engineering/science elite that keep the rest of the population warm, well-fed and protected against disease.
If that doesn't work, only power cuts can save us.
Monday, December 08, 2008
WeaselWordWatch: "Quantitative Easing"
Google references now 177,000 (up from 159,000 yesterday); 1,663 news references in the last 24 hours.
Excuse me while I quantitatively ease a balloon, then stick a pin into it for a non-gradual relaxation.
Excuse me while I quantitatively ease a balloon, then stick a pin into it for a non-gradual relaxation.
The MSM take up the punishment theme
Nassim Taleb and Pablo Triana echo my call for condign punishment for the white-collar thieves.
Sunday, December 07, 2008
Worrying about the wrong things
We teach regularly in schools about drugs, guns and gangs... actually, the real threats to life - that we can do something about -are much less dramatic:
I packed in smoking over 30 years ago - but this coming year, I'd better do something about the weight.
I packed in smoking over 30 years ago - but this coming year, I'd better do something about the weight.
You know you're in trouble when...
... they give a new name to an old crime, in this case, dubbing inflation "quantitative easing".
This phrase yielded an estimated 159,000 results on Google today; watch for imminent "Google result hyperinflation" with respect to this weaselly term. Sackerson is offering a prize for the first sighting of a cartoon in the MSM featuring it.
P.S. 3,210 Google-found news items have it (all dates); 970 in the past month but 1,619 in the last day (how does that statfreak happen?) The earliest news reference found via Google is July 1, 1995 - relating to China's commercial bank reform. A Communist plot, then!
Death to the paper tigers! We demand only tigers with intrinsic value!
This phrase yielded an estimated 159,000 results on Google today; watch for imminent "Google result hyperinflation" with respect to this weaselly term. Sackerson is offering a prize for the first sighting of a cartoon in the MSM featuring it.
P.S. 3,210 Google-found news items have it (all dates); 970 in the past month but 1,619 in the last day (how does that statfreak happen?) The earliest news reference found via Google is July 1, 1995 - relating to China's commercial bank reform. A Communist plot, then!
Death to the paper tigers! We demand only tigers with intrinsic value!
The free market and redistribution of wealth
Jesse argues the free market case: interventions just make things worse; real wages in Western economies must decline; international currencies must float freely.
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?
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?
Saturday, December 06, 2008
What is "Common Purpose"?
Googling this term, one gets (a) lots of stuff by Common Purpose and/or a Julia Middleton, (b) lots of favourable stuff about either or both, and (c) a handful of snarling "stop-them" sites. I shouldn't bother asking any more, except it seems that this organisation does have connexions with many influential people and organizations.
What is the "Common Purpose" of the eponymous outfit? Who exactly is this Julia Middleton, and why has she become so apparently prominent? Is it a McKinsey-type thing, or a McCarthy-type thing? Can anyone who isn't obviously a nutter tell me, in cool and rational terms?
What is the "Common Purpose" of the eponymous outfit? Who exactly is this Julia Middleton, and why has she become so apparently prominent? Is it a McKinsey-type thing, or a McCarthy-type thing? Can anyone who isn't obviously a nutter tell me, in cool and rational terms?
And as for the D-word...
The Economist Intelligence Unit democracy index has moved the UK up from 23rd place in 2006 to 21st place in 2008. Of course, this was before the government started nationalising the banks and arresting the Opposition.
Even so, the Civil Liberties strand has fallen in two years from 9.12 to 8.82; and the competition seems to be weakening anyway, as the 2008 report notes:
...following a decades-long global trend in democratisation, the spread of democracy has come to a halt. Comparing the results for 2008 with those from the first edition of the index, which covered 2006, shows that the dominant pattern in the past two years has been stagnation. Although there is no recent trend of outright regression, there are few instances of significant improvement. However, the global financial crisis, resulting in a sharp and possibly protracted recession, could threaten democracy in some parts of the world.
Even so, the Civil Liberties strand has fallen in two years from 9.12 to 8.82; and the competition seems to be weakening anyway, as the 2008 report notes:
...following a decades-long global trend in democratisation, the spread of democracy has come to a halt. Comparing the results for 2008 with those from the first edition of the index, which covered 2006, shows that the dominant pattern in the past two years has been stagnation. Although there is no recent trend of outright regression, there are few instances of significant improvement. However, the global financial crisis, resulting in a sharp and possibly protracted recession, could threaten democracy in some parts of the world.
Press release from September:
Transparency International’s global Corruption Perceptions Index (CPI) 2008, launched today, shows a significant worsening of the way the UK’s attitude to corruption is seen in the world. The UK’s score has dropped from 8.4 last year to only 7.7 today: the first time it has ever fallen from the high rating of more than 8 (10 is the highest a country can score on the Index).
The UK's engrained complacency over its failure to take international corruption seriously is now further exposed to public scrutiny. The UK has a wretched foreign bribery prosecution record compared to most of its G7 peers. It was strongly criticised this summer by the OECD body responsible for ensuring that members comply with the 1997 OECD Anti-Bribery Convention and may now face tougher measures by the OECD if it continues to fail.
The top 20:
Transparency International’s global Corruption Perceptions Index (CPI) 2008, launched today, shows a significant worsening of the way the UK’s attitude to corruption is seen in the world. The UK’s score has dropped from 8.4 last year to only 7.7 today: the first time it has ever fallen from the high rating of more than 8 (10 is the highest a country can score on the Index).
The UK's engrained complacency over its failure to take international corruption seriously is now further exposed to public scrutiny. The UK has a wretched foreign bribery prosecution record compared to most of its G7 peers. It was strongly criticised this summer by the OECD body responsible for ensuring that members comply with the 1997 OECD Anti-Bribery Convention and may now face tougher measures by the OECD if it continues to fail.
The top 20:
(htp: Hatfield Girl)
BTW: Zimbabwe is not even in the bottom 10 of the list.
An expert writes
The words...
In truth, gold has been a poor investment for a long time...
Other safe havens have done much better... Government bonds... Swiss franc...
Gold rises and falls with oil, copper and wheat, and all the other things that get turned into stuff in factories. It is still a useful metal. But it is not money — and after its failure to rally in this crisis, even the most dogmatic gold bug may well have to admit that.
(Matthew Lynn in The Spectator)
The picture...
Friday, December 05, 2008
Corruption Competition
Jeremy Clarke's dragoman introduces a brilliant new system of classification:
The Egyptian government is 100 per cent corrupt. In other countries the government is 10 per cent corrupt or maybe 20 or 50 per cent. Here in Egypt it is 100 per cent corrupt. I am telling you.
You are invited to argue the case for one or more "other countries" to be considered as runners-up in this competition.
(Please have regard for libel law.)
China to devalue its currency?
I said some time ago that Far Eastern creditors weren't going to let themselves be swindled by currency depreciation; now it is rumoured that China (and maybe another country also) will take their revenge and begin a dangerous round of competitive devaluation around the world.
Hurray for a radical
I sympathise with Mish; but getting it done would be like a goat persuading a tiger to turn vegetarian.
If deflation is not the problem, what is?
The problem is fractional reserve lending that allows banks to leverage lending 12-1 and broker dealers like the now defunct Bear Stearns and Lehman 40-1. It does not take much to cause a run on the bank when leverage is 40-1. Fannie Mae is leveraged many times more than that.
Without that excessive leverage, no one would be in trouble over falling prices. Actually everyone would benefit. The cure is not to defeat deflation, the cure is to embrace deflation and stop fractional reserve lending and the serially bubble blowing activities of the Fed.
I support abolishing the Fed and the elimination of fractional reserve lending. Those are the only long term cures to the problems we face.
If deflation is not the problem, what is?
The problem is fractional reserve lending that allows banks to leverage lending 12-1 and broker dealers like the now defunct Bear Stearns and Lehman 40-1. It does not take much to cause a run on the bank when leverage is 40-1. Fannie Mae is leveraged many times more than that.
Without that excessive leverage, no one would be in trouble over falling prices. Actually everyone would benefit. The cure is not to defeat deflation, the cure is to embrace deflation and stop fractional reserve lending and the serially bubble blowing activities of the Fed.
I support abolishing the Fed and the elimination of fractional reserve lending. Those are the only long term cures to the problems we face.
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