How many trillions?

A while ago, the pessimistic figure being discussed was $1 trillion of losses; yesterday the FT looked at the prospect of $5 trillion of liabilities emerging from off-balance obscurity, to lurch back onto already-weak bank balance sheets.

There comes a point when it gets so dire it starts to become funny. Ah well, time to clean house.

A splendid rant

Karl Denninger lays all about him vigorously today. Where are the Brit bloggers to match him? Any nominations for UK financial Jeremiah of the Year?

Democracy - a cut flower

I think we are not a democracy, but a competing selection of complex oligarchies with a mechanism for periodic bloodless overthrow.

I put the above comment about the British system on the ever-elegant Angels in Marble. Is it too cynical?

What does democracy mean here? What should it be like?

Is democracy the best system, or should we turn to authoritarianism, which seems to be working for the Russians and Chinese, as an increasing number of opinion-formers seem to be suggesting?

Is that happening anyway? Are the people watching the bottom rung of the ladder of power rise out of reach?

Why interest rates should increase - and (IMO) probably won't

Hundreds of millions of Chinese, Indian, Vietnamese, East European and other emerging market workers and many millions of enterprises have entered the global marketplace as suppliers of goods and services that are competitive with those produced by the UK (so-called "core" goods and services) and as demanders of commodities, especially energy, metals and food (so-called "non-core" goods). As a result, the price of energy, food, metals and other commodities, relative to that of manufactures and services, has risen.

Willem Buiter gives a beautifully clear and concise view of the factors affecting inflation and argues for an increase in lending rates.

But the hard, narrow path upward is often avoided, especially in "democracies" where the governing party feels its hold on power slipping.

Besides, a depreciating pound is helping maintain orders for what remains of our manufacturing industry. Why halt the pound's fall?

Maybe we should start doing our FTSE charts in Euros, so we can see the real effect of rotting currency. Like Alice and the Red Queen, when the stockmarkets stand still, they are actually falling back, once you price them against the rest of the world's money.

I note that Mish used the Red Queen's Race analogy two years ago, and presciently outlined the monetary and economic dilemma for the USA - and, I suspect, the UK:

Bernanke is trapped in "Wonderland" but unlike Alice has no way out.Bernanke gets to choose between hyperinflation and deflation. The moment he can not run fast enough, the US economy will implode. If he runs too fast, the value of the US dollar as well as the FED's power will both come to a very abrupt stop.

A long way to go yet

Equities are not cheap enough and need to decline by at least 50 percent.

These and other observations recently from Morgan Stanley's Teun Draaisma are reported here in FT Alphaville.

The return of the gods

I perceive a theme in public opinion these days, regarding democracy. Taki has a piece in the Spectator this week, saying that even in ancient Greece it was empire and aristocracy. Highly intelligent professionals like Don Boudreaux boast of their refusal to vote. It seems that people think the system will continue to run more or less for our benefit, even if we take no part in it; just as your local shop will always be there, even though you very rarely patronise it.

Yes, rule us as you wish, as long as our kettles and TVs work, as long as there is petrol for our cars and the trains run on time. What we want is broth for our bellies, now, like Esau.

We may have to re-learn our lessons the hard way, as Kipling warned... and Cavafy:

Without consideration, without pity, without shame
they have built big and high walls around me.

And now I sit here despairing.
I think of nothing else: this fate gnaws at my mind;

for I had many things to do outside.
Ah, why didn’t I observe them when they were building the walls?

But I never heard the noise or the sound of the builders.
Imperceptibly they shut me out of the world.

Oil speculation?

Pace Nick Drew's comment on the previous post, Jim in San Marcos reckons there is indeed influential speculation in the oil market.

But Karl Denninger reckons it's just money looking for a home, like the boll weevil, and ultimately deflation caused by credit writedowns should reverse the trend.

The Oil Controversy

Tom Bower pooh-poohs "Peak Oil" claims in the Daily Mail, saying there's several times more to come out of the ground than has ever yet been extracted. His book on the subject is due out soon.

I should like to see what energy commentators like Nick Drew wish to say to this. From what I've read, remaining oil stocks are likely to be of lesser quality and will cost far more to extract than God's gift to the Saudis (which, I understand, is already being exploited at a rate that is damaging the field).

Granted, oil is massively over-taxed. Americans would head for their gun rooms if they had to pay £5 a gallon.

Meanwhile, the FTSE continues to float cheerily above 6,000 and the Dow above 12,000 - for how much longer?

It's going to be bad...

Mike Morgan, quoted in Mish's, is now convinced that we are headed for outright economic depression. Builders, banks and the rest of us are going to be hit very hard. This is, of course, the view of a real-estate expert in Florida, but he sees this as hitting the whole country.

We in the UK will not be immune from the general economic malaise to follow, even if unregulated immigration and a slower past housebuilding program help keep our housing assets from falling quite so far.

Any room for dissent?

I was listening to BBC Radio 4's "Any Questions?". The first audience question was on China's "media-savvy" handling of the Szechuan earthquake.

And with a disgraceful click, the supposedly diverse panel closed ranks behind China, despite some attempt by the chairman to generate at least a little debate. We heard that we have been indulging in "China-bashing" lately, and now that this earthquake has happened, we should stop all this nonsense about China's human rights and/or ecological violations.

I began to wonder whether there might be some business and party-political interests to declare, for I've rarely heard such a combination of unanimity and superficial reasoning. The message seemed to be, "Stop talking about Tibet, look at this crisis instead."

That's imposing a false perspective. China's own news media currently reckon the death toll from this terrible quake to be under 29,000; but "According to various estimates, up to 1.2 million Tibetans have died due to the Chinese occupation and various political campaigns since the Dalai Lama fled his homeland in March 1959." So in cold mathematical terms, Tibet has suffered a death toll 40 times as great - and far more avoidable. Why should a recent misfortune be the pretext for ignoring a long-standing injustice?

And as for rubbishing ecological concerns, there will come a time (and quite soon) when we have forgotten in which year this quake happened, but we will be dealing with the multifarious fallout of China's economic, demographic and ecological problems. For China is a distressed giant thrashing about in the small house of this world.

China's population last year was estimated at about 1.3 billion, and in the next ten years or so is expected to increase by maybe another 100 million. Over the last 60 years, life expectancy has more than doubled and infant mortality has reduced. So despite the one-child-per-family policy (not universally applied in China), the population continues to grow.

And, as time goes by, it is becoming a demographically unbalanced population. Thanks to the preference for sons, there is a disparity between male and female. Should China decide to become warlike in the conventional manner, she will have an almost limitless supply of expendable single men. (Meanwhile, Russia's population threatens to decline to such a degree that reversing the trend was "a key subject of Vladimir Putin's 2006 state of the nation address".)

Less frightening for us, but surely very worrying for the Chinese, must be the growing imbalance of numbers between young and old. Imagine a young Chinese couple who have their one child, but face supporting four elderly parents. And when that child grows up, perhaps up to 6 parents-cum-grandparents (up to 12, after marriage). And the healthcare costs!

And with a smaller proportion of girls surviving to breeding age, the demographic waist will be pinched further. Perhaps the one-child policy will eventually be abandoned.

Meanwhile, China's burgeoning populace must be fed, but how? Changes in diet and the progressive loss of arable land, and reducing yields from such land as is still fertile, have been a serious concern for a long time (see e.g. here).

Then there's the demand for water, and energy, and how to have breathable air while exploiting China's giant coal reserves and rapidly expanding heavy industry.

It's far too simple to make China into a villainess, but she faces enormous difficulties on the road away from her past abject poverty and suffering. These translate into mighty pressures that the rest of the world will feel. We must find a way to assist China in the solution of her problems - but self-censoring discussion of her external relations will not help us find realistic answers.

Check your bank deposit security

A cautionary story from Michael Panzner here. An American nearly lost most/all of $400,000 deposited with his bank, despite taking great care to set up the account in a way that brought it under the FDIC deposit protection scheme.

An intriguing detail is the reluctance of the bank to let the account be titled appropriately - failure to do which could have cancelled the FDIC protection. Another, is the bank's reluctant and misleading response when the depositor tried to exercise his right to withdraw his cash.

And the $15,000 interest was lost, anyway.

Where is your account? Make sure it's not dead money.

Oops

For more detail and comment, see Karl Denninger.

The sky is dark, wings are flapping

Some, like Don Boudreaux of Cafe Hayek, call the doomsters Chicken Little. Well, many Chicken Littles make a Chicken Big, and she's coming home to roost. Or maybe the pessimists are all wrong, and everybody will live happily ever after. At least, everyone who matters.

Karl Denninger notes that in both the US and Japan, there are moves to force full disclosure of the banks' poor-grade assets; Jim in San Marcos reprises some observations of what happens when mutual funds (collective investments) are told by worried investors to "switch to cash" or simply pay out.

Look out for a hole in the henhouse roof, and a cloud of feathers.

Nationalism and internationalism

"James Higham" joins his voice to those who detect a revival of the nationalist spirit.

I don't think nationalism will be confined to losers in the game, or rejected by those who claim to love all mankind. Once there was Bukharin/Stalin's "Socialism in one country"; soon it'll be "China first". I can't blame the latter - they have worked so hard for what they've got, and won't understand why we think we can whinge it all back from them.

Speaking as the man in the street, my perception is that we have had a long period in which global businesses and a carpetbagging international managerial class developed and made fortunes. The liberal economists say this system is great for all of us, and should stay that way; perhaps so, if we had honest money and sound national budgets, so the correction mechanisms could steer the course of international trade more steadily.

But thanks to criminal negligence, incompetence and greed by those who could have maintained the integrity of the economic system, I think the aspirant working class and lower middle class in the developed world are paying heavily, and will pay more heavily. As they give up on their aspirations, we shall see a ballooning underclass, increasing the drag on national economic performance; but the situation may prove impossible to change for electoral reasons in a sort-of-democracy. The gap between rich and poor in our countries has widened, but will widen further: "Devil take the hindmost."

At the same time, on both sides of the Atlantic, people suspect a sell-out by the political class, which is intertwined (professionally and often maritally, or extra-maritally) with the business, media and public relations people. I have often said that I think we are seeing the reconstruction of the aristocracy in Europe. Many Americans also fear that their society is moving away from its historic and constitutional foundations.

The implications for democracy, social cohesion and international relations are worrying.

Bust - or false boom and mega-bust?

Ron Paul and others discuss the state of the American economy here. Don Boudreaux (the economist who writes the Cafe Hayek blog) agrees with Ron Paul that the central bank should stop "doing something".

This also chimes with what Marc Faber said last year: the crisis should be allowed to burn through and take out some of the players. Of course, those who are in a position to "allow", are part of the club that includes the players, and there's the rub.

Still room for wonder

Just watched Patrick Moore's "Sky at Night" programme - number 666 in the series - and been fascinated by how much we still haven't firmly established, in fact we're conjuring up theoretical matter and energy that dwarf everything we can directly observe.

It's a little early but the programme should soon appear online here.

UPDATE - now online here (requires RealPlayer to view).

Quote of the day

This global credit bust is going to astound practically everyone, including the bears.

says Mish, daringly criticising Warren Buffett, who has declared a $billion-plus loss on short bets in the market.

The system does not care

Please read this - and pass it on. More and more, the services of the State seem to serve only as a way to employ people, not to achieve.

Not all the individuals can be blamed - you can lose your job for going beyond your brief, or shortcutting protocol.

But don't expect a pantomime horse to win the Derby, and don't expect compassion and commitment from these reified functions that we used to perform for ourselves.

Maybe only embarrassment will make a difference. Please pass on the link to Callum's site.

http://calumcarr.blogspot.com/2008/05/those-who-read-yesterdays-post-nhs-mega.html

Brummies

James Higham writes how the nation likes to look down on the humble Brummie. Having lived here for over 30 years, I should like to say something in reply, as no doubt he knew I would:

First, I think the affected contempt for Brummies is a displaced scorn for industrial labour perhaps impermissible to express so baldly in relation to Yorkshiremen and Lancastrians. Imagine such contempt shown for miners!

This is not universal: German engineers put Ing. in front of their names, and may have a kudos similar to that of the medical profession; but British engineers are treated with patrician condescension. Think squaddies in oil-stained Khakis. No place for officers there.

Or picture Repton-educated (though expelled) Jeremy Clarkson, cheerfully displaying his ignorance as he drives the latest wonder constructed by "four blokes bashing metal in an industrial unit". Decades of regarding going into industry as the wooden spoon in life's competition, has brought Britain to our current sorry pass.

Thickos associated with Birmingham include Matthew Boulton, James Brindley, Sir Arthur Conan Doyle, JRR Tolkien, John Baskerville, Sir Edward Burne-Jones etc.

But mostly, Birmingham was too busy making its own and the nation's prosperity - the "cheap tin trays" of Masefield's "Cargoes". Ugh, the proles. Who also made the chain, the anchors, the presses, the lathes and so on that liberated us from guarding sheep as we read our Bibles with frozen fingers.

There may be a London-centric jealousy because Birmingham is not Britain's Second City, but, technically speaking, its first in geographical area and population. It is the largest local authority by a country mile (the "Mayor of London" controls a larger budget, but that "London" is an sort of urban conglomeration imprecisely related to the City of London, the surrounding boroughs, and other local authorities in the greater metropolitan area).

As to accents, few outsiders could pass for Brummies. Attempts to imitate the accent usually sound like a Scouser being strangled; and what is often thought of as a Brummie accent (say, Timothy Spall's Barry in "Auf Wiedersehen, Pet", or Julie Walters' Mrs Overall in "Acorn Antiques") is more like West Bromwich.

The Black Country abounds in accents; when I first came to Birmingham a Black Country-born history teacher told me that it was once possible to identify by his speech not only the village of the interlocutor, but sometimes even his street.

My personal preference is Sedgley, an exceptionally musical tone. Their pronunciation of the word "flowers" makes me think there must indeed have been a Golden Age in which men sang rather than spoke.

The newt got up and slowly walked away

I didn't think it plausible.