The Greenback is Red-backed

Brad Setser returns to a favourite theme, China's investment in the US. If I can summarise:

1. China buys American bonds directly, but also via the UK. Practically all the UK's purchases are on behalf of China.

2. American government bonds are either Treasuries (debts of the government of the USA) or Agencies (debts of US States and local government). Concerned about risk, China has recently been selling Agencies to buy Treasuries, because the latter are backed by the Federal Government.

3. China will continue to invest in the US, because this keeps up demand for the dollar and so keeps down the Chinese currency, the Renminbi. This means that Chinese exports to America will remain very competitive in terms of price.

4. China's continuing support will stop the US dollar from collapsing in the world currency market, as many have feared. Other countries who are also running a trade deficit and need financing, have much more reason to worry.

Dow 2,000: confessions of an optimist

Karl Denninger looks at one of the shapes chartists use to guess market movements, and concludes that a Dow fall to 2,000 points is one possible outcome.

Back in November, I did my own work on the "in-real-terms" Dow (i.e. adjusted for CPI), and if history repeats itself, a fall to below the equivalent of 2,000 points would merely be a repetition of what happened twice in the 20th century. But the second low (1982) was not so deep as in 1932, and in December I re-drew the graph with (sort of) reassuring curvy lines, which suggested that maybe the low point next time might only be c. 4,000 points.

This latter attempt of mine sturdily ignored two facts: debt, and its recent monetization (look at Tim Iacono's second graph here) have gone far past all previous levels; and so did the Dow in its "twin peaks" episode of years 2000 and 2007. Maybe the next low will be as devastatingly deep as the last peaks were dizzyingly high.

I will comfort myself with the illusion that the Dow will merely halve, until reality proves me wrong.

An answer to global warming

Grow Azolla.

Preparing for the Abolition of Freedom in the USA

How many Americans are aware of this?:-

Establishing Martial Law in the United States

(htp: Global Research; referred to me by Paddington)

UPDATE: see this from Jesse re New Hampshire's Resolution HCR 6! Freedom is in the air again!

New Market Terms

[Making the rounds]
CEO --Chief Embezzlement Officer.
CFO-- Corporate Fraud Officer.
BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.
BEAR MARKET -- A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.
VALUE INVESTING -- The art of buying low and selling lower.
P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.
BROKER -- What my broker has made me.
STANDARD & POOR -- Your life in a nutshell.
STOCK ANALYST -- Idiot who just downgraded your stock.
STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves.
FINANCIAL PLANNER -- A guy whose phone has been disconnected.
MARKET CORRECTION -- The day after you buy stocks.
CASH FLOW-- The movement your money makes as it disappears down the toilet.
YAHOO -- What you yell after selling it to some poor sucker for $240 per share.
WINDOWS -- What you jump out of when you're the sucker who bought Yahoo @ $240 per share.
INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse. PROFIT -- An archaic word, no longer used.

Radical chic

(Pic left: Ken Kesey's bus)

QandO has a good go at Bill Ayers, an education prof who once led the violent radical underground Weathermen movement (and is married to a former member). For those who want to know about one strand of the Baby Boomers, Ayers (born 1944) may be a touchstone.

The connection between radicalism and education is a very old one; modern mass communications also come under this category of vectors of revolution. Readers might like to consider how many other Ayerses there are, not actually getting their hands dirty anymore but getting well-paid and respected for influencing the agenda in classrooms, TV and the print media.

I'm not quite going to take the simplistic guntoting redneck line on them. People like this meant well, but they thought in abstracts, always dangerous with earthbound Man. If there is one thing we must learn from the past 40 years, it's that meaning well isn't enough. But they always wanted to do well for themselves out of doing good to others, and have fun doing it - isn't that human.

Is "double jeopardy" wrong?

My apologies to readers who may find the following a bit scrappy in style - it is Sunday and I ought to be doing other things in my real life!

Scotland, where the murder rate is double that south of the border, is now considering allowing “double jeopardy”; that is, trying someone more than once for the same offence (this has been possible in England since 2005). Libertarians will worry that the State can persecute individuals using judicial process; even that possibility is something of an extra burden on the citizen.

Penalties for the most serious crime, murder, are not so severe as they once were. There is no death penalty, and life imprisonment rarely turns out to be that: the average time served for mandatory lifers in the UK is 14 years. (Other, non-mandatory life sentences end up as 9 years served, on average.)

Perhaps one could work out the change in penalty as some kind of life-related formula. Let's assume for the sake of argument that life in prison is the same as no life at all. In that case, the death penalty is the loss of 100% of the rest of one's life, irrespective of the time between conviction and execution.

By contrast, how much of the criminal's life does life imprisonment take away? It depends on how old he is when the crime is committed, and how long he might be expected to live afterwards. I can't easily find statistics on the average age of murderers in the UK, but in the US it appears to be around 27. In the UK, life expectancy at birth varies for males according to social class, from 80 to 73 years (further complicated, I should expect, by variations in infant and juvenile mortality rates). Thus the penalty of life imprisonment represents 14/(73 - 27)% = 30% of remaining life.

I've read that before capital punishment was abolished, British juries were more reluctant to convict in cases where the death sentence might be imposed, but I can only guess at how far this might alter the probability of a "guilty" verdict. Shall we say, a difference of 20%? That would mean a penalty factor of (100*0.8)=80% for the death penalty, versus 30% for "life".

The discrepancy may well be less than this, since for many convicts, prison is safer and healthier than the life they face outside. The retired prison doctor "Theodore Dalrymple" has often noted how his patients throve "inside", where largely they were off illegal drugs and were reasonably well-fed. If after serving his time the ex-convict lives a shorter (nastier, more brutish) life, then his prison sentence has consumed a greater proportion of his post-conviction existence.

Wrongful conviction is always a concern. In Parliament in 2006, Mr O'Hara asked "how many miscarriages of justice there have been in capital cases which have resulted in a payment of compensation in the last 30 years", to which the answer was, that there were only four cases. Perhaps it's because forensic science has advanced very considerably since 1964, when the last execution was carried out in England. But the American experience suggests other factors masking miscarriages of justice, including: "Lawyers in many capital cases are lousier than the norm." There's no making up for a mistake, in the case of capital punishment (unless we return to the ancient principle of "weregeld").

What about deterrence? From the foregoing, "life" seems to be perhaps half as onerous as the death sentence. Yet US criminologists appear to agree that the death penalty does not have a significant deterrent effect. Could we argue that in many murder cases, the circumstances of the crime are such the perpetrator simply doesn't consider the potential consequences for himself? Would the same number of such crimes be committed, even if there were no legal penalty at all?

One might argue that deterrence is not the main point, and the penalty, whatever it may be, is simply a punishment that fits the seriousness of the crime. In which case, why is the crime treated so much less seriously than before?

On the other hand, maybe deterrence is an argument, after all. The journalist Peter Hitchens has argued that the murder rate in Britain would be far higher (I think he said, by a factor of about 10), were it not for huge improvements in medical procedures over the last 40 years, that now save the lives of many victims of violent assault. If that is so, then there may well be a correlation between severity of punishment and the crime rate, after all.

Perhaps greater certainty of conviction is the greatest deterrence; but that can't be easily achieved. If re-trial significantly increases the probability of successful and just conviction, it might go some way towards evening-up the odds in terms of deterrence. But I doubt that it will greatly improve conviction rates overall, not least because there will be opportunities for the defence to claim that the outcome has been prejudiced in some way by matters relating to the previous trial and the associated publicity. And I would think there would not be many re-trials approved by the Crown Prosecution Service (or its Scottish equivalent), since they will have to consider the chances of "a result" second time round, and also bear in mind the issue of the presumed-innocent citizen's right not to have his life consumed by legal pestering, for which monetary compensation may never be sufficient.

So I think it's always going to be extremely important to "get it right first time," and I don't think a second pop at the target is going to make enough difference to justify the inconvenience to the accused in cases that don't succeed.

As to sentencing, an incorrect conviction is always wrong, but a death sentence for the innocent is absolutely wrong. Yet for the guilty, the penalty for murder is far less heavy than it used to be, and that, too, seems unjust and quite possibly it has also been one of the reasons for an increase in potentially lethal assaults.

So to me, it would be better to increase time actually served in jail, in cases where the judge determines that consideration of consequences was, or would likely, or (after making allowance for emotion) ought to have been in the criminal's mind at the time of committing the act. (a) I think it would increase the deterrent effect, and (b) opinion may differ, but I think it would be deserved, at least in "serious" cases.

There should also be the swiftest and fairest treatment of appeals, so that where there has been a miscarriage of justice, the innocent should be released as quickly as possible, and compensated handsomely. The State itself needs a deterrent.