Mervyn King at the Bank of England refers to "unconventional unconventional measures". One seems to be to stop publishing what he's doing; what else can he have in mind?Brad Setser thinks the pound sterling may crash through the floorboards.
Thursday, January 22, 2009
Desperate diseases call for desperate remedies
Mervyn King at the Bank of England refers to "unconventional unconventional measures". One seems to be to stop publishing what he's doing; what else can he have in mind?
Wednesday, January 21, 2009
Newsflash
All is well: the Dow has just sailed (well, snailed) back through the 8,000 barrier. But what's this? Brad Setser doesn't know what to think about China's role in US debt financing.
Here he thinks that a downturn in China's production will be panic their already-prudent populace into saving even more money, and
they'll also import less, which will screw our deflation down even tighter:
Bottom line: A big fall in activity in China will tend to drive China’s trade surplus up. It thus would tend to increase — not reduce — China’s (net) purchases of foreign assets. Someone in China will still buying foreign assets — and likely providing indirect support for the Treasury market — even if it is not China’s central bank. A big fall in activity also means less Chinese demand for the world’s products — as well as less Chinese demand for China’s products, which frees up capacity to export. That adds to the deflationary forces in the world economy.
... and here he worries about the switch from long-term purchases of Treasuries, to ones with short maturity dates:
At the same time, it is risky to finance a large external deficit with short-term debt. Even for the US. If the US deficit starts to head back up again — as, for example, the effect of the recent fall in oil prices wears off and a large fiscal stimulus in the US stimulates the world economy — without a shift in the composition of inflows, there would be cause for concern.
It's said that Charles Colson, an aide to President Nixon, had this motto framed in his office: "When you've got them by the balls, their hearts and minds will follow." Funny, until you're on the receiving end.
Here he thinks that a downturn in China's production will be panic their already-prudent populace into saving even more money, and
they'll also import less, which will screw our deflation down even tighter:
Bottom line: A big fall in activity in China will tend to drive China’s trade surplus up. It thus would tend to increase — not reduce — China’s (net) purchases of foreign assets. Someone in China will still buying foreign assets — and likely providing indirect support for the Treasury market — even if it is not China’s central bank. A big fall in activity also means less Chinese demand for the world’s products — as well as less Chinese demand for China’s products, which frees up capacity to export. That adds to the deflationary forces in the world economy.
... and here he worries about the switch from long-term purchases of Treasuries, to ones with short maturity dates:
At the same time, it is risky to finance a large external deficit with short-term debt. Even for the US. If the US deficit starts to head back up again — as, for example, the effect of the recent fall in oil prices wears off and a large fiscal stimulus in the US stimulates the world economy — without a shift in the composition of inflows, there would be cause for concern.
It's said that Charles Colson, an aide to President Nixon, had this motto framed in his office: "When you've got them by the balls, their hearts and minds will follow." Funny, until you're on the receiving end.
WeaselWordWatch update: "Quantitative Easing"
"Aaahhh, that's better... Look out! Aaarghh!!"
Google references now up to 320,000 but news references down to 3,347 in the last 24 hours.
If QE is the answer, what was the question?
Worry-wart corner
From Brian Gongol:
Three badly-underestimated risks to humanity What's happening in the financial markets is a mess; there's no doubt about that. But it's a mess that has the public's attention. Here are three huge risks to the modern world that aren't getting their fair share of attention:
Our computers are susceptible to catastrophic electrical attack. Virtually everything important in the world today depends upon computers. Yet, aside from the work of one member of Congress, almost no one seems to take seriously the threat of attacks on the computing infrastructure by electromagnetic pulse. In short, hostile governments and groups either already have access to or will soon possess the tools they would need to cripple most of the electronics over most of the continental United States in a single stroke. We have the capacity to create resistance to such an attack, but for the most part, nothing significant has been done. Lest the threat sound fictitious, it should be noted that NATO used special weapons in the campaign in Yugoslavia to disable the electrical system there during the late 1990s, in order to suppress the fighting power of the Milosevic regime.
We still don't have a real plan for containing a contagious pandemic. While avian influenza hasn't really made the leap to human-to-human transmission yet (as far as we know), the threat still exists, and people are still dying of the infection. At some time, whether it's H5N1 bird flu or something else, a disease outbreak will reach pandemic status, just like the Spanish flu of 1918. And when it happens, it will shut down many of the human systems upon which we depend, unless alternatives are put into place.
Frightening? Certainly. After all, each of the disasters in question has happened before. But these risks are surmountable, if we're willing to apply our minds, technologies, and resources to the solutions. Let's find better ways to store food -- perhaps by improving our capacity to freeze-dry food on a massive scale. Let's figure out how to protect our electronics from attack -- perhaps by making use of Faraday cages where appropriate. And let's take some of the lessons from Y2K preparations and apply them to the risk of a pandemic. These things can be done, and if we had more foresight as a species than the common goldfish, then we'd actually put our knowledge to good use.
Three badly-underestimated risks to humanity What's happening in the financial markets is a mess; there's no doubt about that. But it's a mess that has the public's attention. Here are three huge risks to the modern world that aren't getting their fair share of attention:
We don't have enough food to survive a natural calamity. A volcanic eruption in Indonesia in 1815 left behind a cloud of ash that blocked much sunlight for months and led to food shortages all over the globe. A similar eruption could happen at any time today. The population of the world was around one billion then; now, it's approaching 7 billion. We've dramatically improved food production, but we haven't improved food storage at a similar pace. World food reserves amount to only a few weeks' worth of normal consumption. If another volcanic eruption of similar magnitude were to occur today -- and it could -- then we could see a global hunger emergency on a scale never before seen nor comprehended.
Our computers are susceptible to catastrophic electrical attack. Virtually everything important in the world today depends upon computers. Yet, aside from the work of one member of Congress, almost no one seems to take seriously the threat of attacks on the computing infrastructure by electromagnetic pulse. In short, hostile governments and groups either already have access to or will soon possess the tools they would need to cripple most of the electronics over most of the continental United States in a single stroke. We have the capacity to create resistance to such an attack, but for the most part, nothing significant has been done. Lest the threat sound fictitious, it should be noted that NATO used special weapons in the campaign in Yugoslavia to disable the electrical system there during the late 1990s, in order to suppress the fighting power of the Milosevic regime.
We still don't have a real plan for containing a contagious pandemic. While avian influenza hasn't really made the leap to human-to-human transmission yet (as far as we know), the threat still exists, and people are still dying of the infection. At some time, whether it's H5N1 bird flu or something else, a disease outbreak will reach pandemic status, just like the Spanish flu of 1918. And when it happens, it will shut down many of the human systems upon which we depend, unless alternatives are put into place.
Frightening? Certainly. After all, each of the disasters in question has happened before. But these risks are surmountable, if we're willing to apply our minds, technologies, and resources to the solutions. Let's find better ways to store food -- perhaps by improving our capacity to freeze-dry food on a massive scale. Let's figure out how to protect our electronics from attack -- perhaps by making use of Faraday cages where appropriate. And let's take some of the lessons from Y2K preparations and apply them to the risk of a pandemic. These things can be done, and if we had more foresight as a species than the common goldfish, then we'd actually put our knowledge to good use.
Unfair advantage and reward, and how to get them.
It's not all in the genes.
This is a very intriguing post by Half Sigma, on memory versus active intelligence. There's a rich field to be explore here, about getting and maintaining advantage.
It's also about starting early - as early as pre-pregnancy, according to a doctor friend (and Phil Hammond). For example, the womb needs to be in good condition, not shrivelled by a smoking habit. It''s said that the foetus will steal whatever it needs, so surely there needs to be plenty of the right vitamins and minerals in the mother's body. And after birth, early, plentiful and positive emotional and intellectual stimulation.
Then there's education - being taught principles and strategies. I read somewhere that in Japan, trainee professional Go players aren't allowed to learn through play until their reading has brought them up to 1-Dan level (sort of like Black Belt). That's instead of learning the hard way. In any case, does the hard way actually teach you? Or do you decide to try harder next time? Or tell yourself the other guy was lucky? Or maybe just give up?
And the right social and professional connections. And choosing the right career, and the right place for it to flourish.
Some years ago, I watched a programme about a very senior British civil servant/politician in Hong Kong at the time of the handover to China. He quoted what appears to be an old saw, though I hadn't heard it before: "Eat right, work right, marry right."
This is a very intriguing post by Half Sigma, on memory versus active intelligence. There's a rich field to be explore here, about getting and maintaining advantage.
It's also about starting early - as early as pre-pregnancy, according to a doctor friend (and Phil Hammond). For example, the womb needs to be in good condition, not shrivelled by a smoking habit. It''s said that the foetus will steal whatever it needs, so surely there needs to be plenty of the right vitamins and minerals in the mother's body. And after birth, early, plentiful and positive emotional and intellectual stimulation.
Then there's education - being taught principles and strategies. I read somewhere that in Japan, trainee professional Go players aren't allowed to learn through play until their reading has brought them up to 1-Dan level (sort of like Black Belt). That's instead of learning the hard way. In any case, does the hard way actually teach you? Or do you decide to try harder next time? Or tell yourself the other guy was lucky? Or maybe just give up?
And the right social and professional connections. And choosing the right career, and the right place for it to flourish.
Some years ago, I watched a programme about a very senior British civil servant/politician in Hong Kong at the time of the handover to China. He quoted what appears to be an old saw, though I hadn't heard it before: "Eat right, work right, marry right."
Tuesday, January 20, 2009
The replacement of democratic government by carte blanche
Secret inflation: Mish relays a Telegraph article about yet another unscrupulous legal change to make government less accountable - the BoE will be able to increase the money supply without reporting it.
Increasingly, the British Government seem to me to have become a coup by loophole.
Increasingly, the British Government seem to me to have become a coup by loophole.
Pardon? Get your kicks on Route '66 (that's 1866)
He can't do any more, so here is Wikipedia's list of the people George W. Bush has pardoned, or whose sentences he has commuted.
Perhaps the smart thing to have done would have been to charge the entire American financial establishment and pardon them. *
Still, if he listens to the Village Voice, President Obama now has the chance to pardon Bush and Cheney.
* Perhaps unnecessary. The VV article quoted above says an 1866 Supreme Court ruling means you don't even have to be charged to be pardoned.
Perhaps the smart thing to have done would have been to charge the entire American financial establishment and pardon them. *
Still, if he listens to the Village Voice, President Obama now has the chance to pardon Bush and Cheney.
* Perhaps unnecessary. The VV article quoted above says an 1866 Supreme Court ruling means you don't even have to be charged to be pardoned.
Obama's speech
He certainly delivered it confidently. Whoever wrote it, this is President Obama's inauguration speech.
Oscar Wilde said something to the effect that the best, sincerest response to a fine piece of writing is the attempt to write one of your own, and as I listened I couldn't help wondering what I would have said had I been on that podium. If he can pull the American nation together, that will be a great start.
But for the irreverent (or habitually drunk and cynical), here is a cheeky cod-Obama-speech generator.
Oscar Wilde said something to the effect that the best, sincerest response to a fine piece of writing is the attempt to write one of your own, and as I listened I couldn't help wondering what I would have said had I been on that podium. If he can pull the American nation together, that will be a great start.
But for the irreverent (or habitually drunk and cynical), here is a cheeky cod-Obama-speech generator.
Gold, silver, what you will... but not sterling
Jim Rogers says exit the pound and sterling-denominated assets. (htp: Wat Tyler)
Inflation and gold
(1) Times of Malta (htp Jesse)
Gold is a currency and Phillip Manduca is proving this once and over again.
He seems to have gambled his entire professional reputation on gold, reaching the $2,000 threshold by the end of 2010.
He is well worth listening to. His words are illuminated by a previous outstandingly successful record.
The high gold price seems, for the time being, to have reached a plateau, but Manduca of Titan Investments sees a price of gold at $1,000 a troy ounce as a distinct possibility in the near future. He said so a few days ago.
China is now moving part of its massive dollar reserves from the dollar into the euro and gold.
Madoff can be said to have harmed Wall Street, but he has certainly helped the prospects of a booming gold price. The money the Fed is pumping into the economy is proving insufficient to reignite it.
Gold is a currency and Phillip Manduca is proving this once and over again.
He seems to have gambled his entire professional reputation on gold, reaching the $2,000 threshold by the end of 2010.
He is well worth listening to. His words are illuminated by a previous outstandingly successful record.
The high gold price seems, for the time being, to have reached a plateau, but Manduca of Titan Investments sees a price of gold at $1,000 a troy ounce as a distinct possibility in the near future. He said so a few days ago.
China is now moving part of its massive dollar reserves from the dollar into the euro and gold.
Madoff can be said to have harmed Wall Street, but he has certainly helped the prospects of a booming gold price. The money the Fed is pumping into the economy is proving insufficient to reignite it.
(2) Article from the Economic Times on our options (htp: Jesse, again). It thinks there are three: writeoffs/bankruptcies, increase GDP, inflation. The first is politically unacceptable, the second cannot be achieved by monetary means alone, so it's to be the third:
The stage is set for a long period of slow growth as debts are worked down and a rise in inflation in the medium term.
Vice versa
“Good morning, Bank. Customer here.”
“Er, good morning...”
“I’ve been looking at your account with me –“
“I was going to give you a call...”
“ – and there are some matters we need to discuss.“
“I’m very busy at the moment..”
“ Tomorrow morning at nine, if you please.”
“Er, nine, yes.”
Click.
“Er, good morning...”
“I’ve been looking at your account with me –“
“I was going to give you a call...”
“ – and there are some matters we need to discuss.“
“I’m very busy at the moment..”
“ Tomorrow morning at nine, if you please.”
“Er, nine, yes.”
Click.
Monday, January 19, 2009
Maybe it's not really so bad?
The Coyote points out that redundancies are happening faster than drop in output, so he thinks at least part of the crisis is anticipatory behaviour.
Another possibility that occurs to me, is that the credit crunch is a pretext for businesses to become more efficient and cut out deadwood in a way they'd long been planning to do anyway.
Another possibility that occurs to me, is that the credit crunch is a pretext for businesses to become more efficient and cut out deadwood in a way they'd long been planning to do anyway.
Sunday, January 18, 2009
Monetary policy: chameleon on a tartan
Our government has contradictory objectives, and something will have to give.
1. It has ordered banks to rebuild their cash reserves, because they loaned out far too high a multiple of what they kept in their vaults. Normally, the way to do this would be to widen the margin between the interest they pay and the interest they charge, making bigger profits that could be salted away; or to become far more cautious in their future lending, increasing the ratio of good loans to bad ones. In a recessionary economy, where many businesses are more likely to fail, this would also imply calling in business loans and trimming their overdraft limits
2. It has called for banks to pass on the full benefit of recent cuts in interest rates, and to maintain lending, especially to businesses.
If (1) is not done, the crisis continues. And if (2) is done, it counteracts (1).
Besides, unless the government nationalises the banks, it's not in a position to force them to do (2). It must know this. Maybe (2) is merely for us punters and voters to hear, not for real action.
As Aeschylus said 2,500 years ago: "In war, truth is the first casualty. "
1. It has ordered banks to rebuild their cash reserves, because they loaned out far too high a multiple of what they kept in their vaults. Normally, the way to do this would be to widen the margin between the interest they pay and the interest they charge, making bigger profits that could be salted away; or to become far more cautious in their future lending, increasing the ratio of good loans to bad ones. In a recessionary economy, where many businesses are more likely to fail, this would also imply calling in business loans and trimming their overdraft limits
2. It has called for banks to pass on the full benefit of recent cuts in interest rates, and to maintain lending, especially to businesses.
If (1) is not done, the crisis continues. And if (2) is done, it counteracts (1).
Besides, unless the government nationalises the banks, it's not in a position to force them to do (2). It must know this. Maybe (2) is merely for us punters and voters to hear, not for real action.
As Aeschylus said 2,500 years ago: "In war, truth is the first casualty. "
Hi yo, Silver
Jesse surveys measures of monetary growth in the USA. He concludes that inflation is likely to drag the dollar down and shares upwards (N.B. in the 70s, they didn't rise as fast as inflation); as to commodities: "silver may be one of the first commodities to break out because the government maintains no significant physical inventory of it as it does for gold and oil."
UPDATE (re silver): Tim "Mess that Greeenspan Made" Iacono thinks so, too.
Limits to growth: rare elements
An article from the New Scientist, first published in May 2007, discusses another challenge to our current way of living: modern technology's dependence on rapidly-shrinking supplies of rare earths. (htp: Paddington)
Greens take turn this into a message about reuse and non-use; selfish investors may consider the implications for funds specialising in industrial metals, metal recovery companies and associated technology.
Greens take turn this into a message about reuse and non-use; selfish investors may consider the implications for funds specialising in industrial metals, metal recovery companies and associated technology.
"End lending altogether" - Waldman
I've been wondering why we shouldn't bust our criminal banks immediately and replace them with a system that simply transfers money. For a half-serious proposal to end lending altogether, see Naked Capitalism on Steve Waldman.
Evolution Inaction
Some time ago, on this forum, Sackerson discussed the disdain that the ancient Greek philosophers had for those who actually made things, dismissing them as 'artisans', and noted that this attitude appeared to be alive and well in the UK, where engineers are treated much worse than their counterparts in Germany.
As early as 1959, C.P.Snow noted in 'The Two Cultures' that engineers and scientists were not considered 'real' academics at universities. That attitude is alive and well still, and the ranks of academic administrations are full of professors of education, philosophy and psychology.
The recent bailouts in the US add another data point. Wall Street, which produces nothing, was given over $350 billion with no conditions, yet the auto industry was raked over the coals for asking for $25 billion in loans.
I don't think that it is a coincidence that the amazing US Constitution was written by men who were not only were versed in the classics, but knew the science and mathematics of their day.
It is a fact that most of the ruling elite in China have engineering degrees, as do many of the business leaders in Japan. The CEO's of BMW and Volkswagon have always been doctors of engineering.
I am convinced that one of the reasons for our current problems is that our social and political structures have not adapted to the Scientific and Industrial Revolutions. While living in imagination may be more fun than being constrained by reality, we need leaders who can make the hard decisions.
As early as 1959, C.P.Snow noted in 'The Two Cultures' that engineers and scientists were not considered 'real' academics at universities. That attitude is alive and well still, and the ranks of academic administrations are full of professors of education, philosophy and psychology.
The recent bailouts in the US add another data point. Wall Street, which produces nothing, was given over $350 billion with no conditions, yet the auto industry was raked over the coals for asking for $25 billion in loans.
I don't think that it is a coincidence that the amazing US Constitution was written by men who were not only were versed in the classics, but knew the science and mathematics of their day.
It is a fact that most of the ruling elite in China have engineering degrees, as do many of the business leaders in Japan. The CEO's of BMW and Volkswagon have always been doctors of engineering.
I am convinced that one of the reasons for our current problems is that our social and political structures have not adapted to the Scientific and Industrial Revolutions. While living in imagination may be more fun than being constrained by reality, we need leaders who can make the hard decisions.
Saturday, January 17, 2009
A hand hovers over the chain
Marc Sobel:Do I understand the net of this posting to be that the US is much more vulnerable to a quick run on the debt, i.e. being mainly financed by short term debt which constantly has to be rolled over ?
Brad Setser:
Yes, that risk is rising...
Read the whole thing here.
Friday, January 16, 2009
Taxation is inflationary, not deflationary
I've often wondered whether that's the case - now the Mogambo Guru says so. If taxes cut our take-home income, we insist on more income to make up for it.
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