River deep, mountain high

How long do bear markets last?

There's how long the market takes to bottom-out, and then also how long it takes to match its previous peak. In real terms (adjusted for CPI), here's the last two Dow bears:

1929: 3 years to hit bottom, lost 86% of its peak value, in all took over 29 years (i.e. in 1958) to match its 1929 high; then a further 8 years to reach a new record top

1966: 16 years to hit bottom, lost 73% of its peak value, in all took over 29 years (i.e. in 1995) to match its 1966 high; then a further 4 years to reach a new record top

1999: ...

See you back on the high slopes in 2029?

The crushing weight of debt

US GDP is estimated at $14.3 trillon, and the Chinese article referenced in my post yesterday calculated total debts to be $68.5 trillion. The average interest rate on Federal debt in October was 4.009%.

So if that interest rate applied to all debts in the US, it would equate to 19.2% of GDP. In other words, $19.20 out of every 100 dollars earned simply pays interest. But private borrowing costs more, so the real burden is even greater.

Worse still is the fact that debts have been rapidly increasing for years. A study by the Foundation for Fiscal Reform calculates that debt-to-GDP rose from 249% in 1983 to 392% earlier this year, an average increase of nearly 6% (of GDP) per year; actually, accelerating faster than that in the last few years.

So merely to go no further into debt, plus paying interest without ever repaying capital, would cost at least 25% of GDP. And if there were (please!) a plan to abolish all debt by the beginning of the next century (92 years away), that would add another 5% or so, bringing the total national debt servicing to 30% of GDP.

Having got to this breakneck speed, there is no difference between stopping and crashing.

I suspect there simply must be debt destruction - either slowly, in the form of currency devaluation, or quickly, in debt writeoffs and defaults.

Presumed Consent revisited

Most of us know by now that the government wants to increase rates of organ donation by assuming the right to our bodies the moment we cease to breathe, unless we opt-out of their grisly clutches. Jimmy Young in the Sunday Express notes the failure of such schemes in Brazil and France, for example.

My wife points out that in England, it has always been the law that the body of the deceased belongs to the next of kin. Or has that gone by the board since the EU abolished our country's sovereign right to make its own law?

What has happened to the Common Law, Natural Justice, The Reasonable Man and the long, bloodily-won fight to assert the Englishman's rights against the overweening powers of the State?

And will these things have to be re-won by bloody resistance, one day?

Bank crashes and the Basel Accords

I need information and understanding - please help me, somebody.

I've pointed out more than once that M4 bank lending in the UK accelerated from 2003 on, and I suspected it was something to do with reducing bank capital adequacy requirements, so the government (via its regulators) would have been implicated. In other words, I've been looking for the villain of the piece, and the smoking gun.

But do you think I can find them?

What I have found so far is references to the Basel Accords, Basel I and Basel II. Basel I became law in the G10 countries including the UK in 1992, and Basel II was published in 2004. The general drift, I understand, is to encourage a uniformity of approach to systemic financial risk, and to introduce a system of risk-weighting bank capital according to what the banks are lending against or investing in. What a success that has proved! Perhaps we should refer to the scheme as "Basel Fawlty".

But can somebody help unpack and simplify what actually happened? Is it, for example, possible that this system was perceived by the banks as a more pliable alternative to fixed minimum reserve ratios, and so they reduced the cash in their vaults to the very least that they could tweak the definitions? For example, we have read many times how mortgage-backed securities are at the heart of the subprime problem, because the packages could be represented as having much less risk than they actually contained.

So is the present crisis an unintended consequence of more elastic international regulation, dating back as far as the early 1990s?

It's good news week

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The sixfold path to Chinese hegemony

The Mogambo Guru does a (tragi-) comedy riff on a Chinese piece he's read. Here's a list of tunes that the Chinese author is calling the piper to play:

1. The US should cancel the limits on high-tech exports to China, and allow China to acquire advanced technology and high-tech companies from the US

2. The US needs to open its financial system to Chinese financial institutions, allowing all Chinese financial firms to open branches and develop business in the US

3. The US should not prevent Europe from canceling the ban against selling weapons to China

4. The US should stop selling military weapons to Taiwan

5. The US should loosen its limits on numbers of Chinese tourists and allow them to travel freely to the US

6. The US should never restrain China’s exports to the US and force RMB appreciation in the name of domestic protectionism and employment pressure

Given the relationship between government and journalism in China, I half-suspect that the article may have had input, shall we say, from official sources. Looking at the implications of these demands, we may begin to tremble.

Below, I put in graph from the statistics quoted in that article. To my layman's mind, it's clear that bailouts transferring debt from other piles to the national pile, are a waste of time: it's debt cancellation that's needed.

Publish the lot

Currently there's a furore over here about the publication on the internet of the membership of the British National Party. Some of them look like scrubbed-up thugs, it's true, but I can't see them ever being anything but a cranky and resentful minority. However, if you are a policeman and hold officially-unapproved views, you will lose your job; and there are others for whom this cyber-unmasking will prove a permanent block in their careers.

But if we really want to set the cat among the pigeons, let's make public all political party membership, past and present. Then let's correlate the information with employment. For I recall reading in the 70s that it was pretty much career suicide for teachers in some London boroughs not to be members of the Labour Party, and I suspect the same issue would apply in other areas and other lines of work. And how about mapping the complex network of personal and employment-related relationships, as was done so damningly for Macmillan's government?

And who was in the International Marxist Group and other left-wing, semi-secret societies? The present Minister for "Justice", Jack Straw, has, I understand, called for and either weeded or destroyed the file on himself years ago, a luxury not afforded to many of us. And who went to those annually-advertised Marxist "summer schools" and carefully didn't join a political party, or let their membership lapse to maintain radio silence in their future missions?

Maybe we'll see where the real danger lies.