Spiralling round the black hole of inequality

"Economist's View" argues that the Gini Index will go on rising until someone positively stops it:

Once income concentration becomes a reinforcing cycle of the kind we are witnessing, it is never stopped by pure market forces. Only extensive government intervention, of the kind that will inevitably create high controversy, reverses this trend.

Read the rest of Mark Thoma's piece here.

People get ready

We're going to be splatted by a headlights-on-full-beam, diesel-pluming, horn-honking road-train of debt. Fred Goodwin, CEO at Nomura (i.e. not the RBS wrecker who scuttled to his hideout in France - the private gated resort may be the one between Cannes and Mougins) has used the colourful phrase "clear and present danger" of the British economy. Unfortunately, shouting "Look out!" usually doesn't prevent disaster.

Karl Denninger, still indignant and vengeful but now also beginning to sounding the Cassandra note of inevitable defeat ("We are one cycle away from a collapse - if we're lucky"), graphs debt against GDP for the USA and it's clear that there must be a break in the smooth lines at some point.

And however bad it is for America - a country which periodically falls over, picks itself up, dusts itself down, and starts all over again - it'll be far worse for Britain, a country where the management has never quite lost that 1066 sense of being quite unconnected with the indigenous peasantry subjected to their cruel alien rule. This is why our overlords find it so easy to flee the country to take their place in the new pan-European aristocracy currently under construction, an unlovely amalgam of big-business swindlers, venal politicians and their marketing men. They're allying with old money smart enough to know which side its bread is buttered; history is made in the bedroom and the backroom (“Let others wage wars: you, fortunate Austria, marry”).

There is a long history of England's rulers employing foreign mercenaries (especially Germans) to put down uprisings of the overwrought population, both here in the sixteenth century, and in the American colonies in the eighteenth. In the modern world, where the predominant avatar of Power is money (Bertrand Russell's 1938 book is illuminating on the three-headed helldog), we are being driven off our business smallholdings and made day-labourers for giant enterprises owned abroad or by equally huge collective investments in which the individual shareholders' voices are lost "like tears in rain".

And when the Empire falls, as it must, as all do, the great forgetting will descend. Perhaps we can take comfort in the thought that after the bloody cataclysm, the Dark Ages, so named because untroubled by the scribes and accountants of expansive rulers, were, quietly and anonymously, as sunlit as ours.

The night they raided Minsky

Australian economist Steve Keen summarises Hyman Minsky's Financial Instability Hypothesis, which is that you get bubble after bubble, each time increasing the debt, until the process simply cannot continue and all will be catastrophically revealed.

So he's another forecasting and fearing systemic collapse - like Marc Faber and Max Keiser recently - and now Karl Denninger.

As the Dow heads for 10,000, the FTSE soars above 5,000 but gold seems now to be consistently drifting beyond the $1,000 breakwater, I feel of the bankers, traders and politicians, as Talleyrand said of the Bourbons, that "They have learned nothing and forgotten nothing."

Evolution of Creationism

In the 150 years since the publication of Charles Darwin's 'Origin of Species', the Theory of Evolution has been refined and strengthened on a daily basis. For 100 years, it has been the best-supported model that we have, and is settled science.

Culturally is a different matter.

Biblical literalists, principally in the US, with some in Canada, Australia, England, Ireland and elsewhere, have fought a public relations rearguard action, retarding US science and education. Even as they lose in the scientific arena, they also have lost in legal battles.

Ironically, this pressure has caused their arguments to evolve:

CREATION SCIENCE (ruled religion and not science by the US Supreme Court in 1987)

A used-car salesman in a cheap suit. Tries to convince you that a rusted-out junker is better than a new car.

INTELLIGENT DESIGN (Kansas and Ohio School Board hearings)

Salesman has a nicer suit. Paints over the rust, and tells you that the car IS new.

'ONLY A THEORY' and 'STRENGTHS AND WEAKNESSES' (Cobb County, Georgia and Dover, Pennsylvania court cases)

Salesman caught on video turning back odometer. Hides car and denies everything. Points out 'major defect' in new car next door. Closer inspection shows defect to be dead bug on windshield.

20:20 hindsight and the coming stock collapse

Look at this fascinating interactive graphic from the New York Times, about the shrinking and swelling of the major US financial firms. They may not have seen it coming, but boy can they see clearly in the rear-view mirror. (htp: Barry Ritholtz)

So, is all well again?

Denninger thinks not. To get back to where we were in 2000, either debt has to be slashed (this isn't the path chosen by the powers-that-be over the last couple of years) or GDP and incomes have to soar (how? Who are we suddenly going to sell loads more to?).

Given a choice of the impossible and the merely unpleasant, it looks as though there must be a large-scale default sometime - either of actual debt, or of current and/or future government-provided benefits (or both).

In the meantime, the monetary pumping may erode the dollar's value and cause a highly misleading leap in nominal stock prices. Like I said yesterday, I think we could be looking at a re-run of the mid-70s to 1982. I remember an old financial adviser colleague reminiscing about the stockmarket "boom" of 1974, but he didn't mention the inflationary context, which is what concerns Marc Faber - the fundamentals are still all wrong.

What's good for the [Dow] ISN'T good for the country

Jesse: It is possible that the Fed monetizes sufficiently to reinflate an equity bubble, essentially whoring out the Dollar and the real economy for the sake of the financial or FIRE sector.

This is what I have been thinking - that the stock indices are now fundamentally disconnected from the health of the economy.

Predicting the 2010 General Election Result

A new invention has allowed us to access newsfeed from the near future. One of our early scoops is that the next General Election in 2010 will be the first to allow the electorate to vote on-line from their homes (those without computers will still be allowed to vote by post). Another is the surprising (to some) result, and we have pleasure in copying you in on some of the follow-up.

We must warn you that the technology is still in its infancy, and so there may be glitches in the transcription. For example, the article below appears to have been affected by some kind of crossed line with BBC News from 2009. We'll keep you updated from time to time on the progress of our researches and technical developments.

Brown Poll trick 'confuses' voters

Gordon Brown: 'It was just a trick' from Gordon Brown - How to Win the Election', courtesy of Channel 4.

Many voters and critics have been left confused by Prime Minister Gordon Brown's explanation of how he appeared to predict Thursday's General Election results.

Some 4.6m viewers saw him claim to have asked 24 people to guess the successful candidates for the 646 commons seats and use an average of the total for each to predict the result.
But some mathematicians have dismissed his explanation as "complete nonsense".
And on blogging site Twitter one fan said he was "still confused", while another called it a "massive letdown".

IT trickery

On Brown's own Twitter account, he said: "Well there you go. I trust all is clear now."
He also added that his blog, which has been set up for people to comment on his tricks, has received 5 million hits.
However, it is currently not working.
Thursday's show on Channel 4 attracted 2.7 million people - beating the actual Election 2010 programme on BBC One, which 2.4 million tuned in for.
Brown successfully produced the correct numbers during The Live Event programme, at the same time the actual results were announced on the BBC's coverage.
He then promised viewers they would discover the secret of the trick on Friday's Channel Four News.
During How To Win The Election - which attracted a peak of 4.6 million viewers - he revealed that he had worked out the election numbers by asking a group of 24 people to guess them.
Once he had their answers Brown said he added the numbers up for each candidate and divided them by 24.
However, Alex Newton, a professor of Pure Mathematics at the University of Oxford, has dismissed Brown's explanation.
"Mathematically it is complete rubbish. It is a bluff on his part," he said.
And Roger Penwiper, professor of psephology at the University of Cambridge added: "There is a difference between guessing between the weight of an ox and guessing election candidates, which is un-guessable.
"That is just a clear wind-up and complete nonsense. There is absolutely no way he did that."
Other theories, that have been suggested in the newspapers, claim Brown used IT hacking trickery or a wall of postal votes to help him complete the stunt.
Michael Pundit of The Times newspaper rated the show five out of five, saying Brown has turned from "most irritating man on television to the most intriguing".
However, he added: "It was, of course, still one hell of a trick — far too good for him to give away."
Twitter critics of the explanation show include dCameron1966, who said: "I'm still confused about what way he did it to be honest."
T-Benn called the 59-year-old a "massive letdown" and AnthonyCLB said: "Is it just me or was Gordon Brown's explanation last night very disappointing?"
But some voters enjoyed Brown's stunt.
Peterm&elson posted on his Twitter page that the show had been "very interesting & entertaining".
Kjongil added: "Gordon Brown is pretty cool... I can see why people are so skeptical [sic] about him, but I think he's on to something here."