"Wages are sticky downward": American car workers are still trying to fight gravity, i.e. globalization's effect on wage rates. Denninger think that if it's anything more than a bargaining ploy, it will finish most of the US car industry.
And after them? Who else could have their work outsourced? White-collar workers should not look on unconcerned. Save money while you can, while wages are still ahead of minimum spending requirements.
Meanwhile, up in the clouds, a hedge fund manager has (allegedly) admitted his business was a fraud, losing $50 billion; more than three times the car-makers' bailout fund currently under discussion.
Friday, December 12, 2008
How we got here? [by Paddington]
In my opinion, the boom and bust cycles of the past 30 years or so reflect the deep denial of the real world from our leaders in business, government and education.
Much of that is due to the dearth of quantitative and scientific influence on decision-making. President Bush even down-graded the science advisor from the Cabinet.
For decades, students in the US and UK have avoided mathematics, science and engineering. Becoming a teacher meant getting an education degree, rather than knowledge of any particular discipline, as if the skills of teaching were at some mystical higher level than mere content. In business schools, students shunned accounting and finance, and flocked to management and marketing, as the former required too much mathematics and computer knowledge.
This meant a whole generation of managers unable to make decisions based on facts.
Managers in business are brothers under the skin with bureaucrats in government, and the administrators in education, all of whom make wild assertions and demands of subordinates that are completely at odds with reality.
Much of that is due to the dearth of quantitative and scientific influence on decision-making. President Bush even down-graded the science advisor from the Cabinet.
For decades, students in the US and UK have avoided mathematics, science and engineering. Becoming a teacher meant getting an education degree, rather than knowledge of any particular discipline, as if the skills of teaching were at some mystical higher level than mere content. In business schools, students shunned accounting and finance, and flocked to management and marketing, as the former required too much mathematics and computer knowledge.
This meant a whole generation of managers unable to make decisions based on facts.
Managers in business are brothers under the skin with bureaucrats in government, and the administrators in education, all of whom make wild assertions and demands of subordinates that are completely at odds with reality.
Thursday, December 11, 2008
Toll me back from thee to my sole Self
Just caught a minute of BBC1's Question Time, chaired by the garrulous and self-regarding David Dimbleby. Self-regarding literally, this time, as he watched Will Self lay into the career-crazy fascists of New Labour, who now propose to persecute the unemployed after a decade of encouraging them to remain on benefit. As he says, they had the time, the money and the ideology to sort it out, and they didn't do it; and in some damningly characteristic way, they're slapping people who are down already. Lethal. I may have to start liking the white-nosed sleazebag, after all.
His target is the type who may not have realized that they were driving David Kelly to suicide, but probably don't much care that they did, so long as the trail was brushed. My only concern is that the public generally may be starting to feel as I do, in which case we are entering dangerous territory.
His target is the type who may not have realized that they were driving David Kelly to suicide, but probably don't much care that they did, so long as the trail was brushed. My only concern is that the public generally may be starting to feel as I do, in which case we are entering dangerous territory.
Bookends: deflation and inflation
On one side, the redoubtable Mish scorns those who think inflation is a clear and present danger:...Those who think inflation is about prices alone were busy shorting treasuries, and looking the wrong direction for over a year. Only after the stock market fell 50% and gasoline prices crashed did the media start picking up on "deflation". Only those who knew what a destruction in credit would do to jobs, to lending, to retail sales, to the stock market, to corporate bond yields and to treasury yields got it right...
Those who stick to a monetary definition of inflation pointing at M3, MZM, base money supply, or even Money AMS, are selecting a definition that makes absolutely no practical sense. Worse yet they do it screaming about bond-bubbles at yields of 5% or higher, all because they refuse to see or admit the destruction of credit is happening far faster than the Fed is printing...
The trick now is to figure out how long deflation will last, not whether we are in it. Humpty Dumpty is of no use, he cannot even see where we are.
On the other end, Jesse recalls Moscow in 1997, before the currency popped:
...They were desperate times, and you could see that there was a climactic crisis coming. It is easy to talk about this sort of thing, a thousand to one devaluation of your home currency, but harder to understand the impact. Imagine that you have $500,000 in savings for your retirement. Now imagine that within two years it is effectively reduced to $5,000 or less, and you will understand how disconcerting a currency crisis can be.
If you don't think a financial panic is possible here in the US, just take a look at the negative returns on short term T bills, and you will get a taste of the leading edge.
One of the best descriptions of the Weimar experience I have ever read was by Adam Fergusson titled "When Money Dies: The Nightmare of the Weimar Collapse." It is notoriously difficult to obtain, but it does the best job in describing how a currency collapse can come on like a lightning strike, although in retrospect everyone could have seen it coming. Denial is a strong narcotic. People believe in their institutions and ignore history until they are staring on the edge of the abyss.
I was right, but I didn't know why
Karl Denninger crunches the numbers: in the last 8 years, US GDP has increased by $14 trillion, but debts by $23 trillion, so effectively accounting for all the GDP growth in that time and still leaving a deficit of $9 trillion...
... we haven't had an expansion in GDP over the last eight years. Congress and its organs of reporting economic "facts" have lied. We have in fact actually seen about a 10% contraction in real GDP from 2000 levels; all of the so-called "expansion" of the Bush Administration has been a lie intended to prevent recognition and working through of the recession that should have happened in 2000.
Now, I sensed this during the last 8 years and felt it coming before then, and have recently said so several times. I'm only grateful that technical whizzes like Karl have managed to spell it out. If only we had taken our lumps after the technology bust of 2000.
... we haven't had an expansion in GDP over the last eight years. Congress and its organs of reporting economic "facts" have lied. We have in fact actually seen about a 10% contraction in real GDP from 2000 levels; all of the so-called "expansion" of the Bush Administration has been a lie intended to prevent recognition and working through of the recession that should have happened in 2000.
Now, I sensed this during the last 8 years and felt it coming before then, and have recently said so several times. I'm only grateful that technical whizzes like Karl have managed to spell it out. If only we had taken our lumps after the technology bust of 2000.
What went wrong? A post-match analysis of the Credit Crunch
Jesse quotes Joseph Stiglitz, and summarises five key moments:
1. Reagan's nomination of Alan Greenspan to replace Paul Volcker as Fed Chairman
2. The Repeal of Glass-Steagall and the Cult of Self-Regulation
3. Bush Tax Cuts for Upper Income Individuals, Corporations, and Speculation
4. Failure to Address Rampant Accounting Fraud Driven by Excessive and Flawed Compensation Models
5. Providing Enormous Bailouts to the Banks without Engaging Systemic Reform for the Underlying Causes of the Failure
1. Reagan's nomination of Alan Greenspan to replace Paul Volcker as Fed Chairman
2. The Repeal of Glass-Steagall and the Cult of Self-Regulation
3. Bush Tax Cuts for Upper Income Individuals, Corporations, and Speculation
4. Failure to Address Rampant Accounting Fraud Driven by Excessive and Flawed Compensation Models
5. Providing Enormous Bailouts to the Banks without Engaging Systemic Reform for the Underlying Causes of the Failure
Rude, funny, true
A near-the knuckle piece from The Onion, illustrating why education is a challenge. The combination of idiot argot and po-faced journalistic style is almost Wodehousian. (htp: Paddington)
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