Conservative leader David Cameron is making noises about prosecuting crooked bankers. Nice to see he's getting with my program.
Also in the Daily Mail, Alex Brummer says Madoff has queered the pitch for hedge funds generally. Damn: I had started to look at how to set one up, using links supplied by Jim from San Marcos. If I'd started a couple of years ago, I'd have got everyone into cash and made a packet for them and myself. 2 and 20, 2 and 20.
Odds on the bankers and hedgies Getting Away With It? Pretty fair, I'd have thought - especially when you bear in mind (as Denninger points out - and Jesse, too) all the others who could be implicated. To quote Oscar Wilde: "The good ended happily, and the bad unhappily. That is what fiction means."
Tuesday, December 16, 2008
Monday, December 15, 2008
On Competitiveness
Consider a group of players in a game of chance. If all conditions are equal, the long-term results will be randomly distributed, with some big winners, and some big losers.
Change the conditions so that some players have an advantage, and eventually those players will be the only winners. How long this takes depends on the size of the advantage.
This is the basis of the mutation and natural selection portion of evolution theory.
For a generation after World War II, the US had a huge advantage: capital, undamaged manufacturing capacity, cheap energy, and most of the scientists and engineers. Thus, we 'won' the economic game, and it was attributed to Americans being 'better'.
We failed to notice that many other nations were catching up in education and technology. That the government and industry chose to dis-invest in research in the 1980's just accelerated the process.
As the playing field is now level (or even tipped against us), we should carefully consider how to gain back that advantage. We have done so before in the short term: arming in World War II, the Manhattan Project, the Space Race.
Do we have the will to do this when not faced with war, but with long-term economic decline?
Change the conditions so that some players have an advantage, and eventually those players will be the only winners. How long this takes depends on the size of the advantage.
This is the basis of the mutation and natural selection portion of evolution theory.
For a generation after World War II, the US had a huge advantage: capital, undamaged manufacturing capacity, cheap energy, and most of the scientists and engineers. Thus, we 'won' the economic game, and it was attributed to Americans being 'better'.
We failed to notice that many other nations were catching up in education and technology. That the government and industry chose to dis-invest in research in the 1980's just accelerated the process.
As the playing field is now level (or even tipped against us), we should carefully consider how to gain back that advantage. We have done so before in the short term: arming in World War II, the Manhattan Project, the Space Race.
Do we have the will to do this when not faced with war, but with long-term economic decline?
The elephant in the room?
In 'Great Expectations', Charles Dickens wrote: "Annual income 20 pounds, annual expenses twenty pounds and sixpence, result misery" (or words to that effect).
In the 1960's, the US undertook an orgy of spending on the Great Society and the Cold War (including the Vietnam War and Space Race). At the same time, the typical middle-class American lived an extravagant lifestyle, relatively speaking. This was all fueled by cheap American oil, gas and coal.
By 1973, we had used so much that OPEC had us over a barrel, and by 1975 we had our first large trade deficits, which have grown every year.
Since about 1980, not much has come out of our industry that the rest of the world seems to want to buy.
Did we go broke 30 years ago, and are just now noticing it?
In the 1960's, the US undertook an orgy of spending on the Great Society and the Cold War (including the Vietnam War and Space Race). At the same time, the typical middle-class American lived an extravagant lifestyle, relatively speaking. This was all fueled by cheap American oil, gas and coal.
By 1973, we had used so much that OPEC had us over a barrel, and by 1975 we had our first large trade deficits, which have grown every year.
Since about 1980, not much has come out of our industry that the rest of the world seems to want to buy.
Did we go broke 30 years ago, and are just now noticing it?
There's more truth in humour ...
Today's 'Non Sequitur' cartoon strip:
C.E.O. talking in his palatial office talking to a man with a wrench in his hand:
"We crunched the numbers over and over on where we could cut back, and it kept coming down to whatever it is you guys do on the assembly line..."
C.E.O. talking in his palatial office talking to a man with a wrench in his hand:
"We crunched the numbers over and over on where we could cut back, and it kept coming down to whatever it is you guys do on the assembly line..."
In a nutshell
London Banker sums up what went wrong over the past 25 years, in 1,610 words. It's a reprint from May, but he's right to show it again: it pretty much says it all.
Those who are old enough may remember having to do a precis in English. This is a very valuable, rational, intellectual exercise, which perhaps is one of the reasons it was ditched in New Teaching.
Do you think you could distil LB's observations in, say, 600 words?
Those who are old enough may remember having to do a precis in English. This is a very valuable, rational, intellectual exercise, which perhaps is one of the reasons it was ditched in New Teaching.
Do you think you could distil LB's observations in, say, 600 words?
Saturday, December 13, 2008
Two cheers for deflation
A pattern is emerging.
Jörg Guido Hülsmann, on the Mises site, says deflation does not ruin the economy as a whole, but destroys the parasites who exploit the potential of fiat money. Parasites like (alleged) Ponzi-style fraudster Madoff and his clients, who deserve what they've now got, Mish judges.
Jesse says that "financial capitalism" seeks to use the money system to develop a dictatorial New World Order, and will be defeated when the dollar fails as the world's reserve currency.
Brad Setser wonders whether the dollar has reached its zenith; which implies that it may begin heading for its nadir.
Desperately holding back the inevitable is the US Federal Reserve, says Jim from San Marcos, who (although the Fed is refusing FOI requests) suspects that its $2 trillion in emergency loans is equally divided between support for banks, credit cards and the stockmarket. (I wondered what was being used as the robust cloth on the Dow's trampoline, and covert official support may be the answer.)
As I argued yesterday, the straightest path would be to destroy fraudulent, oppressive debt and those who introduced it into the system. For so many families, the bank is the fattest kid at their kitchen table, and nobody knows who invited him.
For a long time, I've been recasting financial issues as issues of power and freedom. If Jesse is correct, we are reaching a turning point in the battle. I hope we may soon say, as Churchill said of El Alamein, "A bright gleam has caught the helmets of our soldiers and warmed and cheered all our hearts." It would be worth the blood, toil, tears and sweat.
Jörg Guido Hülsmann, on the Mises site, says deflation does not ruin the economy as a whole, but destroys the parasites who exploit the potential of fiat money. Parasites like (alleged) Ponzi-style fraudster Madoff and his clients, who deserve what they've now got, Mish judges.
Jesse says that "financial capitalism" seeks to use the money system to develop a dictatorial New World Order, and will be defeated when the dollar fails as the world's reserve currency.
Brad Setser wonders whether the dollar has reached its zenith; which implies that it may begin heading for its nadir.
Desperately holding back the inevitable is the US Federal Reserve, says Jim from San Marcos, who (although the Fed is refusing FOI requests) suspects that its $2 trillion in emergency loans is equally divided between support for banks, credit cards and the stockmarket. (I wondered what was being used as the robust cloth on the Dow's trampoline, and covert official support may be the answer.)
As I argued yesterday, the straightest path would be to destroy fraudulent, oppressive debt and those who introduced it into the system. For so many families, the bank is the fattest kid at their kitchen table, and nobody knows who invited him.
For a long time, I've been recasting financial issues as issues of power and freedom. If Jesse is correct, we are reaching a turning point in the battle. I hope we may soon say, as Churchill said of El Alamein, "A bright gleam has caught the helmets of our soldiers and warmed and cheered all our hearts." It would be worth the blood, toil, tears and sweat.
Friday, December 12, 2008
History repeats itself - because it's getting old
Jesse extrapolates the Dow and sees it heading for 2,000 points:
As my select and distinguished readers now know, I'm an optimist (by the standards of unfolding reality), and I say, not so. I say, maybe 4,000 - 5,000, adjusted for CPI.
The comparison I'd urge is not with 1929-32 (stockmarket deflation exacerbated by monetary strictness), but (in inflation-adjusted terms) from January 1966 to July 1982: stockmarket deflation prolonged and partially disguised by monetary inflation; I said so here and here, last month. I maintain that the bear market began in 2000 and the symptoms were masked by the terrible extra debts taken on over the last 8 years. Karl Denninger showed us yesterday that these debts account for all the US GDP growth since the New Millennium, plus $9 trillion.
The debate about inflation and deflation continues, though from a British perspective we've seen practically the whole of the rest of the world become one-third more expensive in sterling terms, in only five months. However, Einstein's theory of relativity rejects the notion of any absolute standpoint, and we shall see next year which other currencies mimic sterling's vertiginous fall.
In these shifting times, it becomes very hard to discern real value; but however hard to measure, it exists nevertheless. There is a real bill to pay for our excesses, and I think 2008 will be seen in retrospect as the year that the global balance of power underwent a sudden tectonic shift, from West to East. Yes, the East will suffer for a while, too, but it has long been acquiring the means of production and developing its local markets, and will emerge from the crisis ahead of us.
And there will also - must also - be an intergenerational shift of power, within our Western societies. As globalization continues and real income and real house prices decline, existing debt (set in fixed terms) will become proportionately greater, until the weight is too great to bear; and the worst of it falls on the people who are also struggling to raise families and save something, however inadequate, for their old age. They cannot be crucified in this way. How can savers be taxed at 20% and workers at (effectively, on margin, including National Insurance) 40%? Real wealth must flow from one to the other, just to maintain civilization. I think either savings must be taxed more (perhaps the removal of tax exemption for some savings products will be the start), or inflation must come, though I don't know how long the play will go on before the denouement.
We did have another option, and I was only half-joking: cancel mortgage debts on a massive scale (bankrupting the banks and the bankers, and serve them right). Then, with our productive populace relatively unencumbered, it would be possible to let Western wages and prices fall to much nearer Eastern levels, and we could begin to compete.
As my select and distinguished readers now know, I'm an optimist (by the standards of unfolding reality), and I say, not so. I say, maybe 4,000 - 5,000, adjusted for CPI.
The comparison I'd urge is not with 1929-32 (stockmarket deflation exacerbated by monetary strictness), but (in inflation-adjusted terms) from January 1966 to July 1982: stockmarket deflation prolonged and partially disguised by monetary inflation; I said so here and here, last month. I maintain that the bear market began in 2000 and the symptoms were masked by the terrible extra debts taken on over the last 8 years. Karl Denninger showed us yesterday that these debts account for all the US GDP growth since the New Millennium, plus $9 trillion.
The debate about inflation and deflation continues, though from a British perspective we've seen practically the whole of the rest of the world become one-third more expensive in sterling terms, in only five months. However, Einstein's theory of relativity rejects the notion of any absolute standpoint, and we shall see next year which other currencies mimic sterling's vertiginous fall.
In these shifting times, it becomes very hard to discern real value; but however hard to measure, it exists nevertheless. There is a real bill to pay for our excesses, and I think 2008 will be seen in retrospect as the year that the global balance of power underwent a sudden tectonic shift, from West to East. Yes, the East will suffer for a while, too, but it has long been acquiring the means of production and developing its local markets, and will emerge from the crisis ahead of us.
And there will also - must also - be an intergenerational shift of power, within our Western societies. As globalization continues and real income and real house prices decline, existing debt (set in fixed terms) will become proportionately greater, until the weight is too great to bear; and the worst of it falls on the people who are also struggling to raise families and save something, however inadequate, for their old age. They cannot be crucified in this way. How can savers be taxed at 20% and workers at (effectively, on margin, including National Insurance) 40%? Real wealth must flow from one to the other, just to maintain civilization. I think either savings must be taxed more (perhaps the removal of tax exemption for some savings products will be the start), or inflation must come, though I don't know how long the play will go on before the denouement.
We did have another option, and I was only half-joking: cancel mortgage debts on a massive scale (bankrupting the banks and the bankers, and serve them right). Then, with our productive populace relatively unencumbered, it would be possible to let Western wages and prices fall to much nearer Eastern levels, and we could begin to compete.
I prefer Alexander's handling of the Gordian knot, to Gordon Brown's. For me, debt forgiveness is the way; but that's too radical, it seems. Instead, inflation will have to diminish the real value of debt, but jerkily, as the debt-holders periodically jack up interest rates in a fighting retreat. All to hide from reality. "Oh, what a tangled web we weave..."
Subscribe to:
Posts (Atom)