Consumerism, if it doesn't define the US, certainly describes it. The marketing that it spawns drives our political campaigns and pays for most sports, newspapers, magazines, radio, television and internet sites.
Advertisements try to convince us to buy products and services that we don't need, or undo brand loyalty to increase market share.
I am fairly sure that, as disposable income dries up, the dirty secret at the heart of the marketing sector will kill or cripple it.
The secret: It probably doesn't work!
I have been reading some mathematical papers on marketing. It is well-known that new marketing campaigns lead to increased sales, but only for a while. When this data is discussed, two factors are not considered:
1. The cost of the campaign itself is not factored into the increased sales.
2. There is no attempt made to check how much of the increased business is simply consumers buying earlier than they would have otherwise.
Since the manufacturers relies on marketing firms for their research, and the latter have a vested interest in the results, it is no surprise that these slip under the radar.
In other words, the sector is a huge bubble which, unlike investment or housing, has absolutely nothing backing it up!
Friday, February 27, 2009
Niall Ferguson's rivers-of-blood prophecy
Read Niall Ferguson as edited by Jesse - he talks straight.
About the only bit I don't quite agree with, is the ending - the note of hope is blasted too early in this battle. We are not going to stay in 1995, I'm quite confident about that; and one of the causes/consequences will be capital flight from/strike in America.
E.g.: "China, concerned about their U.S. reserves being devalued by U.S. monetary policy, is exchanging their holdings for long-term oil contracts from countries all over the world, locking in oil prices at exceptional levels, like the $11.40/barrel estimate for the Russian deal."
The elite, and foreign investors, will take care of what's left of their billions. Wealth will flee from inflation and taxation. Somewhere around the world will appear a new Liechtenstein.
Maybe in the calmer end of the Arab Street. Let's see American tax authorities try to lay down the law there.
About the only bit I don't quite agree with, is the ending - the note of hope is blasted too early in this battle. We are not going to stay in 1995, I'm quite confident about that; and one of the causes/consequences will be capital flight from/strike in America.
E.g.: "China, concerned about their U.S. reserves being devalued by U.S. monetary policy, is exchanging their holdings for long-term oil contracts from countries all over the world, locking in oil prices at exceptional levels, like the $11.40/barrel estimate for the Russian deal."
The elite, and foreign investors, will take care of what's left of their billions. Wealth will flee from inflation and taxation. Somewhere around the world will appear a new Liechtenstein.
Maybe in the calmer end of the Arab Street. Let's see American tax authorities try to lay down the law there.
Thursday, February 26, 2009
Still a bear, for now
A letter to the Spectator (unpublished), posted here on 2nd November 2008. We seem to be edging towards the "unsurprising", though the market may give a leap of denial before then:
Sir:
Your leader (“Riders On The Storm”, 1 November) suggests that current investor sentiment is “excessively negative”. That depends upon one’s historical perspective, in both directions.
A reversion to the mean (over the last generation) for UK house prices would be some 3.5 times household income, which on 2007 figures would imply average valuations around £120,000. Turning to shares, the progress of the Dow over the past 80 years (adjusted for consumer prices) indicates that a return to 6,000 points should be unsurprising, and a low of 4,000 not impossible.
But in addition to the business cycle and recurrent bubbles, there are deep linear changes at work. While maintaining the Western consumer in his fantasy of idle wealth, the East has been building up its human and physical industrial resources. We are focussing on the present recession, but not what the world will look like afterwards. When Asia has sufficiently developed its domestic demand, it will lose its enthusiasm for US Treasury debt, and the credit markets will tear at our economies with higher interest rates. Already, the search is well under way for an alternative to the US dollar as a world trading currency; and foreign investors, sovereign wealth funds and oil-rich governments are building up holdings in our bellwether businesses (e.g. Barclays Bank), thus converting imbalance into equity and exporting our future dividends.
Besides, the Dow and FTSE companies derive an increasing proportion of their income from abroad, so stock indices no longer reflect national prosperity. Real wages have stalled, and seem set to decline against a background of rising inflation and global competition; this, plus an interest rate correction, might strengthen the downward trend for house prices.
In short, successive governments have failed to repair our economic structure, and bear market rallies notwithstanding, I think we must eventually recalibrate our measures of normality.
Sir:
Your leader (“Riders On The Storm”, 1 November) suggests that current investor sentiment is “excessively negative”. That depends upon one’s historical perspective, in both directions.
A reversion to the mean (over the last generation) for UK house prices would be some 3.5 times household income, which on 2007 figures would imply average valuations around £120,000. Turning to shares, the progress of the Dow over the past 80 years (adjusted for consumer prices) indicates that a return to 6,000 points should be unsurprising, and a low of 4,000 not impossible.
But in addition to the business cycle and recurrent bubbles, there are deep linear changes at work. While maintaining the Western consumer in his fantasy of idle wealth, the East has been building up its human and physical industrial resources. We are focussing on the present recession, but not what the world will look like afterwards. When Asia has sufficiently developed its domestic demand, it will lose its enthusiasm for US Treasury debt, and the credit markets will tear at our economies with higher interest rates. Already, the search is well under way for an alternative to the US dollar as a world trading currency; and foreign investors, sovereign wealth funds and oil-rich governments are building up holdings in our bellwether businesses (e.g. Barclays Bank), thus converting imbalance into equity and exporting our future dividends.
Besides, the Dow and FTSE companies derive an increasing proportion of their income from abroad, so stock indices no longer reflect national prosperity. Real wages have stalled, and seem set to decline against a background of rising inflation and global competition; this, plus an interest rate correction, might strengthen the downward trend for house prices.
In short, successive governments have failed to repair our economic structure, and bear market rallies notwithstanding, I think we must eventually recalibrate our measures of normality.
Darwin's Bicentennial
The 'balance of Nature' is a misleading phrase. It is not a Disney-esque harmony, but the sweaty struggle of wrestlers, with efficiency of predation competing with that of procreation. A small change in environment, or the introduction of a new disease or species can lead to rapid extinction.
If an ecological niche opens, or gains resources, there is an explosion of varieties. When resources are abundant and predators scarce, even the weaker ones can thrive for a while. This explains the fat, waddling dodo.
The Industrial Revolution, and the Agricultural one that came before it, were the product of a few minds, and the sweat of many. They drove the move to more cities, which meant larger companies and bigger government. This widened the niche for a parasitic class of people who produce nothing, but are sometimes necessary. We call them consultants, middle managers, investment specialists (sorry Sackerson!), marketing gurus, guidance and life coaches, and the like.
With no predators, and a virtually infinite supply of resources (they print the money!), this class grew like a cancer. We have now reached the point that it consumes most of what we produce, and the system is shutting down. Since the typical politician or bureaucrat is of this class, the obvious answer is to give them more. Hence the Bush stimulus package.
I could be wrong, but I think that we are simply postponing the inevitable.
If an ecological niche opens, or gains resources, there is an explosion of varieties. When resources are abundant and predators scarce, even the weaker ones can thrive for a while. This explains the fat, waddling dodo.
The Industrial Revolution, and the Agricultural one that came before it, were the product of a few minds, and the sweat of many. They drove the move to more cities, which meant larger companies and bigger government. This widened the niche for a parasitic class of people who produce nothing, but are sometimes necessary. We call them consultants, middle managers, investment specialists (sorry Sackerson!), marketing gurus, guidance and life coaches, and the like.
With no predators, and a virtually infinite supply of resources (they print the money!), this class grew like a cancer. We have now reached the point that it consumes most of what we produce, and the system is shutting down. Since the typical politician or bureaucrat is of this class, the obvious answer is to give them more. Hence the Bush stimulus package.
I could be wrong, but I think that we are simply postponing the inevitable.
Wednesday, February 25, 2009
Dow update
Adjusted for CPI inflation, the Dow is now back to where it was in December 1995.
This is still above the peak of the previous long cycle, ending in January 1966 - and still over 4 times higher than the low of July 1982. We only think of it as catastrophic because we got used to more recent, wildly inflated valuations.
I'm still hoping that the end position will be no worse than 4,000 points - a drop of 45% from today's close.
This is still above the peak of the previous long cycle, ending in January 1966 - and still over 4 times higher than the low of July 1982. We only think of it as catastrophic because we got used to more recent, wildly inflated valuations.
I'm still hoping that the end position will be no worse than 4,000 points - a drop of 45% from today's close.
Theft by inflation has begun already
The UK Debt Management Office website shows that a UK Treasury bond offering 5% annual interest is, because of its current traded price, actually yielding 2.522793%.
But the risk of default, almost as high as Italy's government debt and far higher than even the USA's, is (as Jesse quotes) currently priced at 1.63%. (The market currently prices the risk of USA default at 1%.)
So after insuring for risk, 5-year UK sovereign debt earns you less than 0.893%.
Inflation, as measured by the Consumer Price Index*, now runs at 3%. In other words, a "safe" government bond loses you more than 2% a year.
And that's before inflation really gets going.
_____________________________________
*The Retail Price Index is a different measure of inflation, which takes into account mortgage costs. So after recent savage cuts in the bank rate, currently RPI should be negative. But wait until the private capital credit strike leads to higher interest rates, and judge.
But the risk of default, almost as high as Italy's government debt and far higher than even the USA's, is (as Jesse quotes) currently priced at 1.63%. (The market currently prices the risk of USA default at 1%.)
So after insuring for risk, 5-year UK sovereign debt earns you less than 0.893%.
Inflation, as measured by the Consumer Price Index*, now runs at 3%. In other words, a "safe" government bond loses you more than 2% a year.
And that's before inflation really gets going.
_____________________________________
*The Retail Price Index is a different measure of inflation, which takes into account mortgage costs. So after recent savage cuts in the bank rate, currently RPI should be negative. But wait until the private capital credit strike leads to higher interest rates, and judge.
How long will the bear market last?
Jesse quotes this comparison of the current bear market with three previous ones, mixing stats for the Dow and the S&P 500:
I'd suggest we should look at when the recent bubble really burst - end 1999, then desperately disguised by monetary inflation from 2002/03 onwards; if that's right, we have maybe another 6 years to go through.
But taking similar periods for the Dow only, adjusting for CPI inflation, and adding the long period from 1966 to 1982, we get this:
I'd suggest we should look at when the recent bubble really burst - end 1999, then desperately disguised by monetary inflation from 2002/03 onwards; if that's right, we have maybe another 6 years to go through. The shapes of these two lines do sort of rhyme, don't they? And if so, looking at where the end of the red line is, maybe a bear market rally is now due, like the c. '75 - '76 mini-recovery.
End point in real terms this time, my guess, is the equivalent of 4,000 points today. However, there are features unique to the present situation, especially the size of debts, the loss of much of the West's manufacturing base, and the interconnectedness of modern world markets and economies.
Tuesday, February 24, 2009
Cash (equivalent) and gold - iTulip
Our primary concern at this stage is no longer our readers' portfolios but their ability to weather a US dollar crisis if one erupts. In response, we are increasing our gold allocation to 30% and moving all Treasury holdings to the very shortest maturities, to three month Treasury bills, until we see indications that conditions are stabilizing. We encourage you to engage with the community to actively discuss strategies that are appropriate for you.
The rest is here.
The rest is here.
Sunday, February 22, 2009
Good luck, right action
Reportedly, George Soros doesn't see the bottom of the market yet. We judge by recent experience and think ourselves hard done by, yet look at the following chart, which takes the Dow and adjusts it for inflation:
What they're really talking about is inflation. Debt, which is fixed in nominal terms, becomes cruelly heavier as the assets pledged against it become worth less and less. The pain will get so bad that the government will crack, as it always does, and debauch the currency. Holding cash just now is great, for those lucky enough to have it; but if Robin Hood can't confiscate it through taxation, he'll bleed it white by printing lots more fiat currency for himself (and the people who keep voting for him), so sucking real value out of your money. If you can't face investing, be prepared to spend like a sailor on shore leave when inflation hits town.
My clients generally aren't traders. In the same interview cited above, Faber said:
Recently I bought some U.S. stocks for the first time in a long time. If you buy Intel , Cisco , Yahoo! , Oracle and Microsoft , you will do much better in the next 10 years than you would with Treasuries. These stocks will double and even triple -- before going to zero.
That's not for my clients - they like the idea of the double and triple (who doesn't?), but not enough to risk the "going to zero".
That said, investment - including in commodities - is going to be part of their fight back against the attempt to take away everything they've saved. Inflationary periods do sap the real value of shares, they hit cash even worse. Look at the position of the man who invested in the (dollar-denominated) Dow from the start of 2008 up till last Friday's seeming debacle, compared with the poor chap who "played safe" and held good old British pounds:
All that has happened is that the illusory gains of the last 12 years, more than accounted for by extra debt taken on in that time, have now unwound. Yet we're still nowhere near where we were in 1987, which (if you were around then) we thought of as an exciting time for investment. To get back to that peaklet in real terms, the Dow would have to drop below 5,000 points.
But to return to the low point of the recession that preceded it - around July 1982 - the Dow would have to break down below 1,800. Even then, that miserable score is a big advance on the low of 50 years before that (July 1932: CPI-adjusted Dow would equate to c. 833 points).
Karl Denninger has said recently that he sees 2,000 points as a possibility; I've suggested a low of c. 4,000, because in these 40-year cycles, each peak and each low has been higher than in the previous cycle.
However, seeing how unbelievably high the Dow went in recent years (way above anything that could have been extrapolated from the highs of 1929 and 1965!), maybe a correspondingly low low is not out of the question.
So why am I planning to set up a new brokerage on my own? Why don't I send a copy of this blog to all my clients, together with news of my retirement from the industry and a valedictory "Good luck, because you're going to need it"? (Actually, I have repeatedly advertised this blog to clients; I only wish the viewing stats could show me that they all read it.)
The Mogambo Guru has taken to signing off his rants with a sarcastic "Wheee! This investing stuff is easy!" - he recommends gold, silver and oil. Over on Financial Sense a couple of days ago, Martin Goldberg opines, "The important question for most investors is whether to be in cash or gold" (cash for now, he thinks). Marc Faber has long been saying that we are entering a long bull market in commodities, and has just said he thinks an ounce of gold will one day be worth more than the Dow.What they're really talking about is inflation. Debt, which is fixed in nominal terms, becomes cruelly heavier as the assets pledged against it become worth less and less. The pain will get so bad that the government will crack, as it always does, and debauch the currency. Holding cash just now is great, for those lucky enough to have it; but if Robin Hood can't confiscate it through taxation, he'll bleed it white by printing lots more fiat currency for himself (and the people who keep voting for him), so sucking real value out of your money. If you can't face investing, be prepared to spend like a sailor on shore leave when inflation hits town.
My clients generally aren't traders. In the same interview cited above, Faber said:
Recently I bought some U.S. stocks for the first time in a long time. If you buy Intel , Cisco , Yahoo! , Oracle and Microsoft , you will do much better in the next 10 years than you would with Treasuries. These stocks will double and even triple -- before going to zero.
That's not for my clients - they like the idea of the double and triple (who doesn't?), but not enough to risk the "going to zero".
That said, investment - including in commodities - is going to be part of their fight back against the attempt to take away everything they've saved. Inflationary periods do sap the real value of shares, they hit cash even worse. Look at the position of the man who invested in the (dollar-denominated) Dow from the start of 2008 up till last Friday's seeming debacle, compared with the poor chap who "played safe" and held good old British pounds:
The picture will change when the dollar dives, of course; though maybe the pound will dive along with it. To hold what you have, you'll have to keep on your feet, balancing the relative merits of currencies and asset classes. For me and most of my clients, it won't be about getting rich; it'll be about not getting robbed.
I'd have been happier with a world where money kept its value, and I'm not alone. The blogosphere is now crowded with people who have their own schemes for a fair and just economic world. But none of these ideal arrangements will enter into reality. There's too much to be made out of destroying it, by a handful of traders, and the politicians - and the bankers who will eventually employ the politicians when they leave office. We must take, not the right action, but the appropriate action.
Good luck, because you're going to need it.
Tuesday, February 17, 2009
Sunday, February 15, 2009
Can we do it?
We live in an era in which every one of us needs massive amounts of technology just to survive, and lots more to stay as comfortable as we are. Yet, paradoxically, there is a great deal of denigration in the UK and US for mathematics, science and engineering and the people who have skills in those areas, which discourages many from those fields of study. It is to the point where there are sometimes two jobs per graduate.
Can we make the cultural shift to nurture and reward those people, or are we doomed to drop backwards?
Yet another conversation with a wealthy parent (she pushes papers, he is a corporate lawyer) does not give me much hope. All the ones that I have talked to assume that we need such specialists, who will be someone else's children, but their own will go to college, graduate in non-technical fields, and then have successful high-paying careers. I cannot make these parents understand that we have run out of the wealth to get the technology from elsewhere, so we have to make it here. Without a manufacturing base, those nice parasitic managerial and service jobs just won't exist.
Or perhaps I'm wrong, and should have gone into accounting, instead of mathematics teaching and engineering research.
Can we make the cultural shift to nurture and reward those people, or are we doomed to drop backwards?
Yet another conversation with a wealthy parent (she pushes papers, he is a corporate lawyer) does not give me much hope. All the ones that I have talked to assume that we need such specialists, who will be someone else's children, but their own will go to college, graduate in non-technical fields, and then have successful high-paying careers. I cannot make these parents understand that we have run out of the wealth to get the technology from elsewhere, so we have to make it here. Without a manufacturing base, those nice parasitic managerial and service jobs just won't exist.
Or perhaps I'm wrong, and should have gone into accounting, instead of mathematics teaching and engineering research.
Saturday, February 14, 2009
Where is Paul Moore's bonus?
Paul Moore, former head of risk management at HBOS (which, by the way, has just cratered its new owner, Lloyds Bank), was sacked in 2005 by Sir James Crosby, allegedly for warning about the bank's excessive lending.
Whistleblowers generally suffer for speaking out. Under the Public Interest Disclosure Act 1998, there is no limit for compensation paid by industrial tribunals in whistleblower cases; but I should very much like to know what is the average paid out under such circumstances, and the most that has ever been paid.
Mr Moore has received "substantial damages" but was also gagged, so I regard whatever he was paid, as merely a recompense for his silence. I doubt whether the damages come anywhere close to the "compensation" paid to some greedy, corrupt and incompetent senior executives at top banking and financial firms; and I think it should.
The OFT has introduced a scheme to award up to £100k for cartel-breaking snitches. Big, fat, hairy deal: five bankers spent £44,000 on wine alone on a single evening in 2001.
Maybe demobureaucracy doesn't work; maybe we should go back to old-fashioned kingship. In Shakespeare's Henry V, the King goes about his camp in disguise before the crucial battle:
KING HENRY V: I myself heard the king say he would not be ransomed.
WILLIAMS: Ay, he said so, to make us fight cheerfully: but when our throats are cut, he may be ransomed, and we ne'er the wiser.
KING HENRY V: If I live to see it, I will never trust his word after.
WILLIAMS: You pay him then. That's a perilous shot out of an elder-gun, that a poor and private displeasure can do against a monarch! you may as well go about to turn the sun to ice with fanning in his face with a peacock's feather.
After the battle, the King calls a trembling Williams out of the ranks and reveals himself as the anonymous interlocutor of the night before; but instead of dealing with his frankly-spoken subject as one might expect of a ruthless Plantagenet monarch, he returns Williams' challenge-glove, filled with gold coin from the royal treasury.
And how might King Solomon have adjudicated a dispute between a CEO and his erstwhile employee? Is it not possible that, in some cases, he would have taken years of earnings from one and passed it directly to the other? Where are the mega-bonuses for those who risk their careers to defend their firm, its shareholders and the general public?
Whistleblowers generally suffer for speaking out. Under the Public Interest Disclosure Act 1998, there is no limit for compensation paid by industrial tribunals in whistleblower cases; but I should very much like to know what is the average paid out under such circumstances, and the most that has ever been paid.
Mr Moore has received "substantial damages" but was also gagged, so I regard whatever he was paid, as merely a recompense for his silence. I doubt whether the damages come anywhere close to the "compensation" paid to some greedy, corrupt and incompetent senior executives at top banking and financial firms; and I think it should.
The OFT has introduced a scheme to award up to £100k for cartel-breaking snitches. Big, fat, hairy deal: five bankers spent £44,000 on wine alone on a single evening in 2001.
Maybe demobureaucracy doesn't work; maybe we should go back to old-fashioned kingship. In Shakespeare's Henry V, the King goes about his camp in disguise before the crucial battle:
KING HENRY V: I myself heard the king say he would not be ransomed.
WILLIAMS: Ay, he said so, to make us fight cheerfully: but when our throats are cut, he may be ransomed, and we ne'er the wiser.
KING HENRY V: If I live to see it, I will never trust his word after.
WILLIAMS: You pay him then. That's a perilous shot out of an elder-gun, that a poor and private displeasure can do against a monarch! you may as well go about to turn the sun to ice with fanning in his face with a peacock's feather.
After the battle, the King calls a trembling Williams out of the ranks and reveals himself as the anonymous interlocutor of the night before; but instead of dealing with his frankly-spoken subject as one might expect of a ruthless Plantagenet monarch, he returns Williams' challenge-glove, filled with gold coin from the royal treasury.
And how might King Solomon have adjudicated a dispute between a CEO and his erstwhile employee? Is it not possible that, in some cases, he would have taken years of earnings from one and passed it directly to the other? Where are the mega-bonuses for those who risk their careers to defend their firm, its shareholders and the general public?
Should we leave the EU?
Is this a fair picture of our relationship with the Far East and Europe? If so, what happens if we disconnect from "ever-closer union?" Wouldn't they just throw away the straw and drink straight out of the glass?
Friday, February 13, 2009
Confusion
America gets het up about a mother of 14, but feeds over 160 million cats and dogs daily. I must say, Nadya Suleman's website is a work of art, though.
Let them eat dirt
It begins, but so much sooner than I expected.
A panicky middle class moves from worrying about its bank account, to railing against those richer and stronger than itself, to turning on those poorer or weaker than itself. Then it seeks to connect the two:
"However you slice it this is ridiculous. FOURTEEN children as a single parent? Assuming she has medical "insurance" from somewhere, exactly how does a desire to have as many kids as humanly possible entitle her to this sort of abuse of that insurance? If she doesn't have insurance, who's footing the bill? And how do you possibly go out and earn a living while raising fourteen kids?
This is what the nation is up against.
This is why California is broke."
"...there are two Americas. A poor America on socialism and a wealthy America on capitalism...
A vast sea of perhaps well intentioned government programs, all initially set into motion in the 1960's, that were going to lift the nation's poor out of poverty.
A benevolent Uncle Sam welcomed mostly poor black Americans onto the government plantation. Those who accepted the invitation switched mindsets from "How do I take care of myself?" to "What do I have to do to stay on the plantation?""
"Because society no longer believes that it's appropriate to let these children die because of the gross irresponsibility of the mother, the only humane way to prevent this sort of stuff from happening again is to require sterilization of anyone who would receive food stamps or other sorts of welfare. "
Long ago, bailouts were unheard of; failure meant starvation, perhaps death. Consider the caveman: Ug's tribal chief couldn't afford to say, "It OK Ug no kill deer this week. It not Ug's fault. Tribe will bail out Ug."
If he wants his tribe to stick around, the chief must say, "Ug no kill deer: Ug family starve."
(For a moment, one has a vision: Ug family no starve; Ug family kill, eat Virginian economics professor.)
But the tendency... We must punish the wicked rich, correct the feckless poor, do something about the swelling ranks of the disabled, and then we'll all be jolly, prosperous and middle class. Without the bad, sad and mad, everyone would be happy. Patriotic citizens must form a united front... The communists are a deadly threat, and must be firmly suppressed... It's for the working man and the national good that we must for a while band together, almost as though we were socialists...
The clouds were boiling red and yellow over the Alps. Standing on the balcony of the Leader's retreat, the party gazed awestruck. A woman said to Him, "Das bedeutet blut, blut, und mehr blut." The Leader paled, trembled violently and said, "Wenn das sein musss, dann lass es sein."
So proud and lofty is some sort of sin
Which many take delight and pleasure in
Whose conversation God doth much dislike
And yet He shakes His sword before He strike
A panicky middle class moves from worrying about its bank account, to railing against those richer and stronger than itself, to turning on those poorer or weaker than itself. Then it seeks to connect the two:
"However you slice it this is ridiculous. FOURTEEN children as a single parent? Assuming she has medical "insurance" from somewhere, exactly how does a desire to have as many kids as humanly possible entitle her to this sort of abuse of that insurance? If she doesn't have insurance, who's footing the bill? And how do you possibly go out and earn a living while raising fourteen kids?
This is what the nation is up against.
This is why California is broke."
"...there are two Americas. A poor America on socialism and a wealthy America on capitalism...
A vast sea of perhaps well intentioned government programs, all initially set into motion in the 1960's, that were going to lift the nation's poor out of poverty.
A benevolent Uncle Sam welcomed mostly poor black Americans onto the government plantation. Those who accepted the invitation switched mindsets from "How do I take care of myself?" to "What do I have to do to stay on the plantation?""
"Because society no longer believes that it's appropriate to let these children die because of the gross irresponsibility of the mother, the only humane way to prevent this sort of stuff from happening again is to require sterilization of anyone who would receive food stamps or other sorts of welfare. "
Long ago, bailouts were unheard of; failure meant starvation, perhaps death. Consider the caveman: Ug's tribal chief couldn't afford to say, "It OK Ug no kill deer this week. It not Ug's fault. Tribe will bail out Ug."
If he wants his tribe to stick around, the chief must say, "Ug no kill deer: Ug family starve."
(For a moment, one has a vision: Ug family no starve; Ug family kill, eat Virginian economics professor.)
But the tendency... We must punish the wicked rich, correct the feckless poor, do something about the swelling ranks of the disabled, and then we'll all be jolly, prosperous and middle class. Without the bad, sad and mad, everyone would be happy. Patriotic citizens must form a united front... The communists are a deadly threat, and must be firmly suppressed... It's for the working man and the national good that we must for a while band together, almost as though we were socialists...
The clouds were boiling red and yellow over the Alps. Standing on the balcony of the Leader's retreat, the party gazed awestruck. A woman said to Him, "Das bedeutet blut, blut, und mehr blut." The Leader paled, trembled violently and said, "Wenn das sein musss, dann lass es sein."
So proud and lofty is some sort of sin
Which many take delight and pleasure in
Whose conversation God doth much dislike
And yet He shakes His sword before He strike
Thursday, February 12, 2009
Symmetry; asymmetry
"China’s January surplus ($39.1b) is roughly the same size as the United States’ December deficit ($39.9b). It is reasonable to think it will roughly match the United States January deficit as well.
The extreme symmetry captures something real. Deficits and surpluses are shrinking globally now that the price of oil is at levels that roughly cover the oil exporters imports. Right now China’s (growing) surplus is clearly the main counterpart to the United States’ (shrinking) deficit" - Brad Setser
"I believe there is a greater than 25pc chance of a departure from the Eurozone given the social and economic behaviours of some countries within it" - John Moulton on the UK and the Euro.
The extreme symmetry captures something real. Deficits and surpluses are shrinking globally now that the price of oil is at levels that roughly cover the oil exporters imports. Right now China’s (growing) surplus is clearly the main counterpart to the United States’ (shrinking) deficit" - Brad Setser
"I believe there is a greater than 25pc chance of a departure from the Eurozone given the social and economic behaviours of some countries within it" - John Moulton on the UK and the Euro.
Wednesday, February 11, 2009
Crime and punishment
Congressman Michael E. Capuano does his job today, flaying the banks (htp: Jesse). I tried to email congratulations to him, but I haven't got a Massachusetts zip code.
And Karl Denninger also:
If the law enforcement agencies in this nation do not start prosecuting the fraudsters in our banking and investment industry that caused this economic collapse (and "token prosecutions" like Madoff will not cut it), and our lawmakers (and President) do not stand up darn soon and call for this prosecutorial action in public there is a very real risk that a repeat of those sordid affairs will soon arrive...
This much is clear to me - high-dollar white-collar crimes, certainly those with an impact greater in aggregate than we currently value a single human life (which various estimates put somewhere between $5 and $50 million each) are deserving of punishment equivalent to murder, meaning either (depending on state law) life imprisonment without possibility of parole or a sentence of death.
We need to put this change into the law as a deterrent against such acts in the future.
They're coming round to my point of view, as expressed e.g. here.
Remember
It was the strength forged in fighting his personal Black Dog, that Churchill lent to us when we most needed it. And the poem he quotes in this broadcast has that mingling of suffering, determination and joyous tears. I give Clough's text in full after the link.
Churchill's War Time Speeches.
A Difficult Time.
'Westward, Look, the Land is Bright'
BBC London
27th April 1941
Say not the Struggle Naught availeth
SAY not the struggle naught availeth,
The labour and the wounds are vain,
The enemy faints not, nor faileth,
And as things have been they remain.
If hopes were dupes, fears may be liars;
It may be, in yon smoke conceal'd,
Your comrades chase e'en now the fliers,
And, but for you, possess the field.
For while the tired waves, vainly breaking,
Seem here no painful inch to gain,
Far back, through creeks and inlets making,
Comes silent, flooding in, the main.
And not by eastern windows only,
When daylight comes, comes in the light;
In front the sun climbs slow, how slowly!
But westward, look, the land is bright!
Arthur Hugh Clough
Churchill's War Time Speeches.
A Difficult Time.
'Westward, Look, the Land is Bright'
BBC London
27th April 1941
Say not the Struggle Naught availeth
SAY not the struggle naught availeth,
The labour and the wounds are vain,
The enemy faints not, nor faileth,
And as things have been they remain.
If hopes were dupes, fears may be liars;
It may be, in yon smoke conceal'd,
Your comrades chase e'en now the fliers,
And, but for you, possess the field.
For while the tired waves, vainly breaking,
Seem here no painful inch to gain,
Far back, through creeks and inlets making,
Comes silent, flooding in, the main.
And not by eastern windows only,
When daylight comes, comes in the light;
In front the sun climbs slow, how slowly!
But westward, look, the land is bright!
Arthur Hugh Clough
Deflation, inflation, distress
The Contrarian Investor gives a lucid explanation of the potential consequences of deflation.
In Australia (as in the UK, as I think I showed here), the nation owes more money than it has in savings, so it depends on foreign investment.
If interest rates fall, foreign capital will go away to where it can earn more. This reduces the demand for our currency and makes it cheaper. So goods we sell to foreigners get cheaper, and things they sell us get more expensive. They buy more from us, we buy less from them (or they have to cut their prices so we can afford their stuff). More money comes into our economy; all well again.
Except...
What can they take? In Australia, there are mineral deposits the Chinese will want, thinks the Contrarian Investor. Here in the UK, maybe some remaining profitable businesses and valuable technical expertise, maybe patents and secret technologies. And it's not only the Chinese that have been lending us their surpluses. We have other creditors.
Then, as the laden carts depart and the keys of the mansion are handed to the new owners, the decayed gentry become vagrants and vagabonds.
Unless we are too dangerous to dun. Perhaps America is; can we be so? And what if our creditors are not certain of our might? Uncertainty can trigger inappropriate actions. There is a Chinese saying, I believe: fear a weak enemy. Catastrophe can be avoided, but unless our leaders are tough with us now, we will learn a harder way later.
But if the master has become poor, what of his servants?
What if, like me, you're not one whose power and social status protects him from the worst effects? Do you believe that democratic societies can do the right thing? If not, this is a time for individuals to make their own quiet plans and preparations.
In Australia (as in the UK, as I think I showed here), the nation owes more money than it has in savings, so it depends on foreign investment.
If interest rates fall, foreign capital will go away to where it can earn more. This reduces the demand for our currency and makes it cheaper. So goods we sell to foreigners get cheaper, and things they sell us get more expensive. They buy more from us, we buy less from them (or they have to cut their prices so we can afford their stuff). More money comes into our economy; all well again.
Except...
- What if , thanks to decades of spending lots without earning much (and borrowing the difference), we no longer make things foreigners want?
- What if they sell us things we can't do without, and won't cut their prices?
What can they take? In Australia, there are mineral deposits the Chinese will want, thinks the Contrarian Investor. Here in the UK, maybe some remaining profitable businesses and valuable technical expertise, maybe patents and secret technologies. And it's not only the Chinese that have been lending us their surpluses. We have other creditors.
Then, as the laden carts depart and the keys of the mansion are handed to the new owners, the decayed gentry become vagrants and vagabonds.
Unless we are too dangerous to dun. Perhaps America is; can we be so? And what if our creditors are not certain of our might? Uncertainty can trigger inappropriate actions. There is a Chinese saying, I believe: fear a weak enemy. Catastrophe can be avoided, but unless our leaders are tough with us now, we will learn a harder way later.
But if the master has become poor, what of his servants?
What if, like me, you're not one whose power and social status protects him from the worst effects? Do you believe that democratic societies can do the right thing? If not, this is a time for individuals to make their own quiet plans and preparations.
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