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.

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

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)

Barefoot businesses

Many years ago, China pioneered the idea of "barefoot doctors": cheap physicians with a bagful of the most commonly prescribed medicines, providing a low-cost service to the many. This blog thinks the days of glitzy steel-and chrome offices and hot and cold running secretaries are numbered; the model of the future is the pavement stall and the home garage.

(htp: Jesse)

Heart of Darkness

My news aggregator has picked up news of a startling new discovery, though I fear some details may have been scrambled during transmission:

There is a giant financial black hole at the centre of our finances, a study has confirmed.
Austrian cashtronomers tracked the movement of dozens of banks circling the centres of Western economies.
The black hole in each is the equivalent of four million jobs.
Black holes are obligations whose interest is so great that nothing - including charismatic political leaders - can escape them.
According to experts, the results suggest that thriving economies form around giant debts in the way that a pearl forms around grit.
Treasury ministers on both sides of the Atlantic say that there is no reason to be concerned: provided enough cash is directed into the black holes, they will fill up and the economy will continue to revolve as normal.

Here we go

Jesse interprets the Federal Reserve's request to issue its own debt, as a preparation for selective default on public debt issued by the Treasury.

Now then, cheat China (pop. 1.3 billion, army personnel 2.3 million)- or the UK (pop. 61 million, army personnel 100,000)? Tough call...

Time Management [Guest post by Paddington]

For decades, much was made of the fact that American workers were the most productive of the Western world. Business articles derided the 35-hour work week of the French and Germans.

However, about 10 years ago, there was a study that showed that the French and German workers were much more productive per hour.

This supports my long-held belief that a typical worker averages 6-7 hours of productive work per day. Give them a short-term project and they will work harder and faster, but be less productive afterwards. Tell them that they are going to work overtime, and they will not work as hard in the regular day. Presented with too much work (for them), many will actually do less.

Realizing this is one of the things that has made my job (university teaching) better. I could do my work in less time, so that I had time for myself and my family, rather than twiddling my thumbs at my desk for 8 hours.

In short, people need time to goof off and socialize, and it makes them work better.

Bide-a-Wii

The West is worrying about indebtedness and global competition, and China is devaluing the renminbi to maintain its trading advantage.

It's time for electronic warfare. Not hacking into the military system - that's so obvious, and it was so uncharacteristically direct of the Chinese to do it. No, I think the counterattack is through computer games.

Fund the provision of PSPs, Xboxes, Wiis and a host of absorbing games (e.g. Morrowind, Gears of War) as pseudo-benevolent gifts to bright young Chinese kids. With any luck, the effect will be the same as here: early, heavy adoption by the ASD/OCD types who might otherwise become the core of the mathematics/engineering/science elite that keep the rest of the population warm, well-fed and protected against disease.

If that doesn't work, only power cuts can save us.

WeaselWordWatch: "Quantitative Easing"

Google references now 177,000 (up from 159,000 yesterday); 1,663 news references in the last 24 hours.

Excuse me while I quantitatively ease a balloon, then stick a pin into it for a non-gradual relaxation.

The MSM take up the punishment theme

Nassim Taleb and Pablo Triana echo my call for condign punishment for the white-collar thieves.

Worrying about the wrong things

We teach regularly in schools about drugs, guns and gangs... actually, the real threats to life - that we can do something about -are much less dramatic:


I packed in smoking over 30 years ago - but this coming year, I'd better do something about the weight.

You know you're in trouble when...

... they give a new name to an old crime, in this case, dubbing inflation "quantitative easing".

This phrase yielded an estimated 159,000 results on Google today; watch for imminent "Google result hyperinflation" with respect to this weaselly term. Sackerson is offering a prize for the first sighting of a cartoon in the MSM featuring it.

P.S. 3,210 Google-found news items have it (all dates); 970 in the past month but 1,619 in the last day (how does that statfreak happen?) The earliest news reference found via Google is July 1, 1995 - relating to China's commercial bank reform. A Communist plot, then!

Death to the paper tigers! We demand only tigers with intrinsic value!

The free market and redistribution of wealth

Jesse argues the free market case: interventions just make things worse; real wages in Western economies must decline; international currencies must float freely.

Okay, if we also have some other system of supporting our workers through the change, instead of import tariffs and other protectionist measures. You can't drop masses of people from a great height and expect society to remain stable.

A lot of our present arrangements - health, education, welfare - seem to me to be a fairly inefficient way of transferring wealth from the upper strata to the lower, less the cost and inconvenience of all the system servicers in between.

Why don't we get honest and open about the need for wealth redistribution, balanced with the need to encourage enterprise? Could we get rid of weaselly taxes and insidious benefit traps? All we need is some way of levelling the playing field between groups of workers in very different parts of the world, in such a way as not to force the game to be abandoned by either side. Can anyone propose a system of financial support - could some form of the Citizens' Basic Income be made to work?

What is "Common Purpose"?

Googling this term, one gets (a) lots of stuff by Common Purpose and/or a Julia Middleton, (b) lots of favourable stuff about either or both, and (c) a handful of snarling "stop-them" sites. I shouldn't bother asking any more, except it seems that this organisation does have connexions with many influential people and organizations.

What is the "Common Purpose" of the eponymous outfit? Who exactly is this Julia Middleton, and why has she become so apparently prominent? Is it a McKinsey-type thing, or a McCarthy-type thing? Can anyone who isn't obviously a nutter tell me, in cool and rational terms?

And as for the D-word...

The Economist Intelligence Unit democracy index has moved the UK up from 23rd place in 2006 to 21st place in 2008. Of course, this was before the government started nationalising the banks and arresting the Opposition.

Even so, the Civil Liberties strand has fallen in two years from 9.12 to 8.82; and the competition seems to be weakening anyway, as the 2008 report notes:

...following a decades-long global trend in democratisation, the spread of democracy has come to a halt. Comparing the results for 2008 with those from the first edition of the index, which covered 2006, shows that the dominant pattern in the past two years has been stagnation. Although there is no recent trend of outright regression, there are few instances of significant improvement. However, the global financial crisis, resulting in a sharp and possibly protracted recession, could threaten democracy in some parts of the world.

Press release from September:

Transparency International’s global Corruption Perceptions Index (CPI) 2008, launched today, shows a significant worsening of the way the UK’s attitude to corruption is seen in the world. The UK’s score has dropped from 8.4 last year to only 7.7 today: the first time it has ever fallen from the high rating of more than 8 (10 is the highest a country can score on the Index).

The UK's engrained complacency over its failure to take international corruption seriously is now further exposed to public scrutiny. The UK has a wretched foreign bribery prosecution record compared to most of its G7 peers. It was strongly criticised this summer by the OECD body responsible for ensuring that members comply with the 1997 OECD Anti-Bribery Convention and may now face tougher measures by the OECD if it continues to fail.

The top 20:

(htp: Hatfield Girl)

BTW: Zimbabwe is not even in the bottom 10 of the list.

An expert writes

The words...

In truth, gold has been a poor investment for a long time...

Other safe havens have done much better... Government bonds... Swiss franc...

Gold rises and falls with oil, copper and wheat, and all the other things that get turned into stuff in factories. It is still a useful metal. But it is not money — and after its failure to rally in this crisis, even the most dogmatic gold bug may well have to admit that.

(Matthew Lynn in The Spectator)

The picture...

Corruption Competition

Jeremy Clarke's dragoman introduces a brilliant new system of classification:

The Egyptian government is 100 per cent corrupt. In other countries the government is 10 per cent corrupt or maybe 20 or 50 per cent. Here in Egypt it is 100 per cent corrupt. I am telling you.

You are invited to argue the case for one or more "other countries" to be considered as runners-up in this competition.

(Please have regard for libel law.)

Don't write it, think it