If the 2003 reflation hadn't happened?

What if the banks hadn't gone for broke from 2002/2003 onward?

In the above graph, I show the Dow, adjusted for CPI, up to 19 November 2008, with an extra: the gold line is the same as what actually happened from the beginning of 1966 to November 1974, adjusted proportionately to the height of the boom at the end of 1999.

Interpreted and represented in this way, even the worst of the crash so far has not caught up with the mid-70s: the Dow closed last Wednesday at 7,997 where 32 years before it would have been the equivalent of 4,911. If that period of history were to repeat itself, the Dow would take another 7 years of whipsawing towards its low of 3,988 in today's terms.

So in my view, the monetary expansion of the last 6 years or so, has merely delayed progress a little. The drunkard has had a few more to put off the hangover.

What if...

Today we learn that UK Police forces have become excited about the possibilities of stun guns. No doubt once they've been issued, there'll be a race to escalate the usage, in the same way that you make gallons of ice cream or larders full of bread, once you've bought the device. Just wait for the trigger-happy traffic warden or lollipop lady.

Coincidentally, the following comes by email across the Atlantic. I've seen it before, I think, but I also think it may well be largely true.

Pocket Taser Stun Gun, a great gift for the wife. A guy who purchased his lovely wife a pocket Taser for their anniversary submitted this:

Last weekend I saw something at Larry's Pistol & Pawn Shop that sparked my interest. The occasion was our 15th anniversary and I was looking for a little something extra for my wife Julie. What I came across was a 100,000-volt, pocket/purse-sized taser. The effects of the taser were supposed to be short lived, with no long-term adverse affect on your assailant, allowing her adequate time to retreat to safety....??

WAY TOO COOL! Long story short, I bought the device and brought it home.

I loaded two AAA batteries in the darn thing and pushed the button.
Nothing!

I was disappointed . I learned, however, that if I pushed the button AND pressed it against a meta surface at the same time; I'd get the blue arc of electricity darting back and forth between the prongs. AWESOME!!! Unfortunately, I have yet to explain to Julie what that burn spot is on the face of her microwave.

Okay, so I was home alone with this new toy, thinking to myself that it couldn't be all that bad with only two triple-A batteries, right? There I sat in my recliner, my cat Gracie looking on intently (trusting little soul) while I was reading the directions and thinking that I really needed to try this thing out on a flesh & blood moving target. I must admit I thought about zapping Gracie (for a fraction of a second) and thought better of it. She is such a sweet cat. But, if I was going togive this thing to my wife to protect herself against a mugger, I did want some assurance that it would work as advertised. Am I wrong?

So, there I sat in a pair of shorts and a tank top with my reading glasses perched delicately on the bridge of my nose, directions in one hand, and taser in another. The directions said that a one-second burst would shock and disorient your assailant; a two-second burst was supposed to cause muscle spasms and a major loss of bodily control; a three-second burst would purportedly make your assailant flop on the ground like a fish out of water. Any burst longer than three seconds would be wasting the batteries.

All the while I'm looking at this little device measuring about 5' long, less than 3/4 inch in circumference; pretty cute really and (loaded with two itsy, bitsy triple-A batteries) thinking to myself, 'no possible way!'

What happened next is almost beyond description, but I'll do my best...?

I'm sitting there alone, Gracie looking on with her head cocked to one side as to say, 'don't do it dipshit,' reasoning that a one second burst from such a tiny little ole thing couldn't hurt all that bad. I decided to give myself a one second burst just for heck of it.. I touched the prongs to my naked thigh, pushed the button, and . . HOLY MOTHER OF GOD . . WEAPONS OF MASS DESTRUCTION . . . WHAT THE HELL!!!

I'm pretty sure Jessie Ventura ran in through the side door, picked me up in the recliner, then body slammed us both on the carpet, over and over and over again. I vaguely recall waking up on my side in the fetal position, with tears in my eyes, body soaking wet, both nipples on fire, testicles nowhere to be found, with my left arm tucked under my body in the oddest position, and tingling in my legs? The cat was making meowing sounds I had never heard before, clinging to a picture frame hanging above the fireplace, obviously in an attempt to avoid getting slammed by my body flopping all over the living room.

Note: If you ever feel compelled to 'mug' yourself with a taser, one note of caution: there is no such thing as a one second burst when you zap yourself! You will not lt go of that thing until it is dislodged from your hand by a violent thrashing about on the floor.. A three second burst would be considered conservative?

IT HURT LIKE HELL!!!

A minute or so later (I can't be sure, as time was a relative thing at that point), I collected my wits (what little I had left), sat up and surveyed the landscape. My bent reading glasses were on the mantel of the fireplace. The recliner was upside down and about 8 feet or so from where it originally was. My triceps, right thigh and both nipples were still twitching. My face felt like it had been shot up with Novocain, and my bottom lip weighed 88 lbs. I had no control over the drooling. Apparently I pooped on myself, but was too numb to know for sure and my sense of smell was gone. I saw a faint smoke cloud above my head which I believe came from my hair. I'm still looking for my nuts and I'm offering a significant reward for their safe return!!

P.S. My wife loved the gift, and now regularly threatens me with it! 'If you think education is difficult, try being stupid.'

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?

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