Historic inflation in the USA and UK compared

Just for interest...

The, er, credit, er, crunch

UK M4 official data here

No wonder most of us have difficulty understanding the financial equivalent of the matter-antimatter drive powering the USS Enterprise. You'd think lending would have decreased, wouldn't you? Smoke and mirrors...

September 15, 2008: the secret bank run and corralito

According to Paul Kedrosky (htp: Tim Iacono), Hank Paulson and Ben Bernanke scared the wits out of Congress with references to a potential $5.5 trillion electronic cash withdrawal from the US banking system, which would have led immediately to economic and political Armageddon. Electronic money accounts were closed down to stop the flight and collapse.

I said a month later that Paulson looked like a bully. But when Congress threw out the first bailout plan, he had also looked scared-angry, turning his head this way and that, like a bull throwing off dogs.

Perhaps the scare story was true. Perhaps not. Shame it took the ex-head of Goldman to drive the Bill through. I assume that rescuing the banks also rescued much of his personal $500 million wealth.

It's time for us to leave off discussing the affairs of the Gods, and return to our own interests. We ordinary mortals don't have the luxury of that kind of money transaction facility. If the system had gone down, presumably it would have taken our little all with it. And is anyone so brave as to say that it's been fixed?

Be prepared; don't be panicked (as it seems Congress was), but take what sensible precautions you can.

Denninger: deflation

Belatedly, I refer you to Karl Denninger's end-year review and forecast. He sees continuing deflation, and makes a number of other plausible and worrisome predictions - scroll to the end of his post for the horrid gallery of prognostications.

In short:

...rallies are to be sold, cash is to be raised and prudence is to be practiced in your own personal financial affairs. Don't get creative in all things finance, get stingy and prudent. Your personal financial survival could well depend on it.

So instead of staring at the low interest on your cash balance, think of the real capital appreciation of your money as measured by what big-ticket items it will buy. And for once, the government can't easily tax your capital gain.

You may also want to hold more cash away from a bank ("Round #2 of severe bank instability gets served up on us in the second half of 2009").

And maybe diversify your currency holdings:

The Dollar will not collapse. This is not because we're in great shape or will truly recover, it is because the rest of the world is in worse shape than we are... The rest of the world is literally on the precipice of a full-on collapse. European banks are more-levered and less-transparent than our banks as just one example... I see the potential for the pound and euro to both reach par with the dollar.

I think Denninger on the one hand, and Faber/Janszen on the other, may both be correct. It's a matter of timing - deflation now, debasement of the currency later. Because nominal debt gets relatively bigger as assets and incomes decline in value, something will have to give.

Satire

A very clever essay from the rec.gambling.poker newsgroup:

The Amazing Stimulus Package.

Join us for an enjoyable night of illusion brought to you by Uncle Sam the Magnificent and Fed the Enabler. Sit back, relax while this magical duo performs feats of magic so astounding that they will have you reaching for your wallet, even while knowing neither of them ever left the stage.

Their world famous "Creating Money Out of Thin Air" will have you rubbing your eyes with amazement. Watch closely as they transfer that "Created Money" to the Wall Street elite, third world dictators, and ultimately out of the pockets of the audience. Try not to be caught as they captivate the audience with the hypnotizing phrase "Too large to fail". Try to follow their logic as they magically convince you and most of the rest of the audience that spending your future earnings today will turn their bumbled (or was it intentioned?) handling of the economy from crisis to stability.

Marvel as they nightly obfuscate their positions and purposes while they plunge the world economy into recession, and then depression.

You'll be astonished when they reward each and every member of the audience Gift cards, checks, or direct deposits worth many times their ticket price. You'll leave the auditorium scratching your head wondering how they can continually perform these feats of magic and financially return to continue the show night after night.

But most important be sure to buy tickets for their closing night. You won't want to miss their amazing final show as they make your money shrink and disappear right before your eyes, making even most wealthy people poor as they create a two class economic structure composed of the super rich and the poor. Watch as they finally render the U.S. Constitution a worthless piece of paper while magically converting hundreds of millions of American citizens to citizens of the WORLD with little resistance from a weakened, powerless middle class.

Robert Ladd

Blowing bubbles

Nobody has made economic depression and its consequences seem so inevitable and at the same time so colourful and even attractive, as Jim in San Marcos.

It's a shame that I was counting on my State pension to eke out retirement income. Looks like many of us will be using Hamburger Helper instead.

Denninger demystifies "the Fed"

You tend to get a clear and concise explanation from somebody, when they either blow their cool or are in a hurry to get somewhere else. Here, in a very crisp and useful post, Karl Denninger blows away the conspiracy theories surrounding the Federal Reserve.

He explain that his beef with them is that they are acting ultra vires (very damagingly), and notes that there is, unfortunately, no statutory penalty for their doing so. The caning will, he thinks, have to be administered by the bond market instead.

Some, like Eric Janszen of iTulip, would say that's exactly what the government intends.

Is it officially permissible to be a Christian? Or indeed, anything?

Here in the Daily Mail is a sample of the hoo-ha about nurse Caroline Petrie, who was suspended for offering to pray for an elderly patient. (She also used to leave a mildly evangelical Christian pamphlet.) The patient says, "I have Christian beliefs myself, but it could perhaps be upsetting for some other people if they have different beliefs or thought that she meant they looked in such a bad way that they needed praying for."

Both parties seem reasonable and decent. What's worrying is what happens when officialdom gets involved, as the rest of the story shows.

But I'd love to see a Philadelphia lawyer let loose on the "Nursing and Midwifery Council code" (full text here) which Mrs Petrie is deemed to have breached. By implication, this code regulates not merely conduct, but opinions and even religious faith.

The code commands nurses to "Be open and honest, act with integrity" and straightaway gives a very contentious clarification of the term "integrity": "You must demonstrate a personal and professional commitment to equality and diversity." The managers at the health organisation for which Mrs Petrie works clearly understand "equality and diversity" to cover religions. The logic of this is that Jews, Muslims and Christians (among others) cannot work as nurses - for note the word "personal" in that order. It may be that atheists would also be precluded.

All this results from two things: the State getting too big for its boots; and in attempting to govern every aspect of our lives has delegated insanely wide-ranging powers to quangos, who make and apply rules with a whim of iron. The professions and semi-professions - doctors, teachers, nurses and so on* - all have their own little councils to terrorise them. Such prodnosing easily magnifies a "storm in a teacup" into an issue that could affect your job, wealth, family life and physical liberty.

We need a Constitution to limit the powers of would-be tyrants, even if they are now soft-handed, well-dressed ones. Resist the Red Armani Choir.
_______________________
* ... even foster parents.

Janszen, Faber: hyperinflation is government policy

(Graph reproduced by iTulip from NowAndFutures.com)

In an extended "Titanic" analogy, Eric Janszen describes what he sees as the government's response to the crisis: "send rescue", "boil the ocean" and if terrified investors refuse to relinquish the security of Treasury bonds, "sink the rafts" by devaluing the currency. Around the world, he sees a policy of inflation and even hyper-inflation. So does chipper doomster Marc Faber, who now thinks we must eventually have 200% inflation in the USA. 1974 - 82, here we come again?

Inflation bubbling up

Richard Daughty, aka The Mogambo Guru, comments on the sharp rise in raw materials prices.

Further to my recent post on whether gold is overpriced, it's worth pointing out that gold can remain for long periods above trend. Those who mock new buyers of gold may have overlooked this.

UPDATE

Marc Faber: "If I look at government debt in the US, and debt in general, I think the only way they will not default physically on their debt is to inflate." (htp: Michael Panzner)

Murphy: raise interest rates!

A striking article by Robert Murphy on Mises today, about the earlier Depression of 1920-21, and how raising interest rates was the painful, but quick way out.

"... the high rates of the 1920–1921 depression had certainly been painful, but they had cleaned the rot out of the structure of production very thoroughly....Going into 1923, the capital structure in the United States was a lean, mean, producing machine."

Personal choices

I have always been a great believer in personal choice, as I defended in the recent discussion on drug use.

Sometimes, however, I feel a surge of the draconian autocrat that comes from the Prussian part of my ancestry.

Such is the case today: Nadya Suleman, the mother of the octuplets born this week, is already the mother of six other children. She is unmarried, unemployed, and on disability for a back injury at work 10 years ago. In spite of all of those problems, and the fragile state of the US economy, she found a doctor willing to implant another 6 embryos in her womb (2 split later).

Investment Trust success stories

The Telegraph lists 20 ITs that have increased dividends annually for at least the last 20 years.

One factor helping these companies, says the article, is that they are permitted to keep up to 15% as cash in reserve. How much would you, now, be keeping in reserve?

A warning for world-improvers

There are so many proposals to improve the world, and such a short supply of humility and plain, ordinary fear of change. Take spelling, for example, and read this logically-refined paragraph:

Kontinuing cis proses, year after year, we would eventuali hav a reali sensibl writen langug. By 1975, wi ventyur tu sei, cer wud bi no mor uv ces teribli trublsum difikultis, wic no tu leters usd to indikeit ce seim nois, and laikwais no tui noises riten wic ce seim leter. Even Mr. Yaw,wi beliv, wud be hapi in ce nog cat his drims fainali keim tru.

For the whole thing, click here. (There are other versions doing the rounds, since the idea is so good.) (htp: Paddington)

Agreement is not the same as 50:50 compromise

For a technical discussion of how we should adjust our opinions scientifically in debate with others, see Overcoming Bias. This follows an earlier post on the impossibility of disagreeing unless you (rather unreasonably) assume the other person is somehow misinformed, wrong-headed or stupid.

It does look very valuable, though I'd be grateful for a clearer explanation, notwithstanding the participants evidently think they've already given it.

There's a story about Einstein from his time at Princeton. In the lecture room, he discussed his ideas in free-ranging talks, which were so revolutionary and complex that the students begged him to put some formulae on the board so they could follow him properly. He promised he would, and next time gave another dense, extempore peroration, at the end of which he said, "It's as easy as two and two make four". He then walked to the board and wrote "2 + 2 = 4". That's mathematicians for you.

Stimulus

(htp: QandO)

Go drugs!

Gary Becker thinks we should legalize and tax drugs. Look at how this approach has decimated alcohol and tobacco usage, for example.

And the joys to be had from drugs! As the Moroccan saying goes,"A pipe of khif before breakfast is worth a hundred camels in the courtyard." Though I think the Devils' Dictionary needs updating: we need slogans like, "A six-pack of wife-beater in the morning is worth a hundred business calls", "Sixty a day is worth death before sixty", "Dropping a tab is worth the risk of grinning at the backs of your hands for the rest of your life."

So what's it to be, Falstaff or the pain-in-the-mule Puritans?

I think it's to do with work. In the old days, the ordinary person couldn't afford (financially or otherwise) to be almost constantly intoxicated; now, most of us are richer than Roman Emperors: central heating, carpets, hot water, ice cream, multimedia entertainment 24/7, no starvation if you don't work. Once, the Tree of Idleness was for the few surviving old men, who were past it; now, while we still have The Energy of Slaves (ie. machines and fossil fuels) to do the hard stuff for us, we don't know what to do with ourselves.

Freedom makes you fall apart.

What goes up

Todd Harrison of Minyanville is predicting a big stockmarket rally soon (htp: Kirk Report). Others (Elliott Wave followers, for example) have suggested this will happen, but as part of a longer pattern of overall decline. In other words, a "bear market rally".

My feeling? This is (a) a market for bold day traders, and (b) an opportunity for some less adventurous types to cash-out at a less dismal price than they've been offered recently. In fact, I think this situational psychology is part of the process that will help limit the rise and confirm the downward trend.

Restoration, not revolt

"What is a cynic? A man who knows the price of everything and the value of nothing," says Lord Darlington in Wilde's Lady Windermere's Fan. That perfectly describes the man who doesn't understand inflation.

Inflation is The Mogambo Guru's bete noire, and he gives us another comedy riff on that today. His principal cure for it is gold, the stock in trade of another ranter, Jim Willie, who sees the price of the yellow metal breaking out in various currencies (it's soared in sterling, for example).

Both men habitually connect gold, the US Constitution and the decayed professional morals of the politico-judicial elite, and try to stimulate the people to restore the old, good order. In short, they are prophets, and there's plenty more out there at this time.

For it is a sign of societal stress that ranters, dreamers and revolutionaries begin to drag out their soap boxes and declaim to passers-by. We had it in the Old Testament, the English Civil War, the American Revolutionary War and most other times that the world was turned upside down.

If buttercups buzzed after the bee
If boats were on land, churches on sea
If ponies rode men and grass ate the cows
And cats should be chased to holes by the mouse
If the mammas sold their babies to the gypsies for half a crown
Summer were spring and the t’other way round
Then all the world would be upside down

There is a difference between civil war, and the revolt of colonies from their distant parent. Having said that, the crisis is now cracking the cement between the States and the Federal Government, as we see in New Hampshire and elsewhere. America, remember history and avoid secessionary talk.

The results of revolution are rarely pretty. Norman Cohn's famous book , about the horrifying aftermath of prophet episodes in the Middle Ages, shows that once the mix is brought to the boil, it becomes very volatile. The outcome is often not what the prophet expected; and always, the people suffer. Rather than overthrow our rulers, it would be far better (if possible) to make them see the danger to us all of continuing their course, and have them turn back.

But can they see it? Do they know the difference between price and value? Will they permit the theft of real wealth by inflation? Or is it, worse still, their intention?

The best we can hope for, is that our leaders are not cynics, and so do not need correction from dangerous idealists.

Stock market could halve again - more evidence

I've been following this alarming idea recently. Now Russell Napier chips in, citing Tobin's Q as a measure to predict a further 55% stockmarket decline within the next five years (htp: Financial Sense).

I had a look at Tobin's Q last April. Are we coming to some gloomy consensus - except for Karl Denninger, who fears it could be worse?