*** FUTURE POSTS WILL ALSO APPEAR AT 'NOW AND NEXT' : https://rolfnorfolk.substack.com
Thursday, February 12, 2009
Symmetry; asymmetry
The extreme symmetry captures something real. Deficits and surpluses are shrinking globally now that the price of oil is at levels that roughly cover the oil exporters imports. Right now China’s (growing) surplus is clearly the main counterpart to the United States’ (shrinking) deficit" - Brad Setser
"I believe there is a greater than 25pc chance of a departure from the Eurozone given the social and economic behaviours of some countries within it" - John Moulton on the UK and the Euro.
Wednesday, February 11, 2009
Crime and punishment
Congressman Michael E. Capuano does his job today, flaying the banks (htp: Jesse). I tried to email congratulations to him, but I haven't got a Massachusetts zip code.
And Karl Denninger also:
If the law enforcement agencies in this nation do not start prosecuting the fraudsters in our banking and investment industry that caused this economic collapse (and "token prosecutions" like Madoff will not cut it), and our lawmakers (and President) do not stand up darn soon and call for this prosecutorial action in public there is a very real risk that a repeat of those sordid affairs will soon arrive...
This much is clear to me - high-dollar white-collar crimes, certainly those with an impact greater in aggregate than we currently value a single human life (which various estimates put somewhere between $5 and $50 million each) are deserving of punishment equivalent to murder, meaning either (depending on state law) life imprisonment without possibility of parole or a sentence of death.
We need to put this change into the law as a deterrent against such acts in the future.
They're coming round to my point of view, as expressed e.g. here.
Remember
Churchill's War Time Speeches.
A Difficult Time.
'Westward, Look, the Land is Bright'
BBC London
27th April 1941
Say not the Struggle Naught availeth
SAY not the struggle naught availeth,
The labour and the wounds are vain,
The enemy faints not, nor faileth,
And as things have been they remain.
If hopes were dupes, fears may be liars;
It may be, in yon smoke conceal'd,
Your comrades chase e'en now the fliers,
And, but for you, possess the field.
For while the tired waves, vainly breaking,
Seem here no painful inch to gain,
Far back, through creeks and inlets making,
Comes silent, flooding in, the main.
And not by eastern windows only,
When daylight comes, comes in the light;
In front the sun climbs slow, how slowly!
But westward, look, the land is bright!
Arthur Hugh Clough
Deflation, inflation, distress
In Australia (as in the UK, as I think I showed here), the nation owes more money than it has in savings, so it depends on foreign investment.
If interest rates fall, foreign capital will go away to where it can earn more. This reduces the demand for our currency and makes it cheaper. So goods we sell to foreigners get cheaper, and things they sell us get more expensive. They buy more from us, we buy less from them (or they have to cut their prices so we can afford their stuff). More money comes into our economy; all well again.
Except...
- What if , thanks to decades of spending lots without earning much (and borrowing the difference), we no longer make things foreigners want?
- What if they sell us things we can't do without, and won't cut their prices?
What can they take? In Australia, there are mineral deposits the Chinese will want, thinks the Contrarian Investor. Here in the UK, maybe some remaining profitable businesses and valuable technical expertise, maybe patents and secret technologies. And it's not only the Chinese that have been lending us their surpluses. We have other creditors.
Then, as the laden carts depart and the keys of the mansion are handed to the new owners, the decayed gentry become vagrants and vagabonds.
Unless we are too dangerous to dun. Perhaps America is; can we be so? And what if our creditors are not certain of our might? Uncertainty can trigger inappropriate actions. There is a Chinese saying, I believe: fear a weak enemy. Catastrophe can be avoided, but unless our leaders are tough with us now, we will learn a harder way later.
But if the master has become poor, what of his servants?
What if, like me, you're not one whose power and social status protects him from the worst effects? Do you believe that democratic societies can do the right thing? If not, this is a time for individuals to make their own quiet plans and preparations.
Tuesday, February 10, 2009
Monday, February 09, 2009
The, er, credit, er, crunch
September 15, 2008: the secret bank run and corralito
According to Paul Kedrosky (htp: Tim Iacono), Hank Paulson and Ben Bernanke scared the wits out of Congress with references to a potential $5.5 trillion electronic cash withdrawal from the US banking system, which would have led immediately to economic and political Armageddon. Electronic money accounts were closed down to stop the flight and collapse.
I said a month later that Paulson looked like a bully. But when Congress threw out the first bailout plan, he had also looked scared-angry, turning his head this way and that, like a bull throwing off dogs.
Perhaps the scare story was true. Perhaps not. Shame it took the ex-head of Goldman to drive the Bill through. I assume that rescuing the banks also rescued much of his personal $500 million wealth.
It's time for us to leave off discussing the affairs of the Gods, and return to our own interests. We ordinary mortals don't have the luxury of that kind of money transaction facility. If the system had gone down, presumably it would have taken our little all with it. And is anyone so brave as to say that it's been fixed?
Be prepared; don't be panicked (as it seems Congress was), but take what sensible precautions you can.
Sunday, February 08, 2009
Denninger: deflation
In short:
...rallies are to be sold, cash is to be raised and prudence is to be practiced in your own personal financial affairs. Don't get creative in all things finance, get stingy and prudent. Your personal financial survival could well depend on it.
So instead of staring at the low interest on your cash balance, think of the real capital appreciation of your money as measured by what big-ticket items it will buy. And for once, the government can't easily tax your capital gain.
You may also want to hold more cash away from a bank ("Round #2 of severe bank instability gets served up on us in the second half of 2009").
And maybe diversify your currency holdings:
The Dollar will not collapse. This is not because we're in great shape or will truly recover, it is because the rest of the world is in worse shape than we are... The rest of the world is literally on the precipice of a full-on collapse. European banks are more-levered and less-transparent than our banks as just one example... I see the potential for the pound and euro to both reach par with the dollar.
I think Denninger on the one hand, and Faber/Janszen on the other, may both be correct. It's a matter of timing - deflation now, debasement of the currency later. Because nominal debt gets relatively bigger as assets and incomes decline in value, something will have to give.
Satire
The Amazing Stimulus Package.
Join us for an enjoyable night of illusion brought to you by Uncle Sam the Magnificent and Fed the Enabler. Sit back, relax while this magical duo performs feats of magic so astounding that they will have you reaching for your wallet, even while knowing neither of them ever left the stage.
Their world famous "Creating Money Out of Thin Air" will have you rubbing your eyes with amazement. Watch closely as they transfer that "Created Money" to the Wall Street elite, third world dictators, and ultimately out of the pockets of the audience. Try not to be caught as they captivate the audience with the hypnotizing phrase "Too large to fail". Try to follow their logic as they magically convince you and most of the rest of the audience that spending your future earnings today will turn their bumbled (or was it intentioned?) handling of the economy from crisis to stability.
Marvel as they nightly obfuscate their positions and purposes while they plunge the world economy into recession, and then depression.
You'll be astonished when they reward each and every member of the audience Gift cards, checks, or direct deposits worth many times their ticket price. You'll leave the auditorium scratching your head wondering how they can continually perform these feats of magic and financially return to continue the show night after night.
But most important be sure to buy tickets for their closing night. You won't want to miss their amazing final show as they make your money shrink and disappear right before your eyes, making even most wealthy people poor as they create a two class economic structure composed of the super rich and the poor. Watch as they finally render the U.S. Constitution a worthless piece of paper while magically converting hundreds of millions of American citizens to citizens of the WORLD with little resistance from a weakened, powerless middle class.
Robert Ladd
Blowing bubbles
It's a shame that I was counting on my State pension to eke out retirement income. Looks like many of us will be using Hamburger Helper instead.
Denninger demystifies "the Fed"
He explain that his beef with them is that they are acting ultra vires (very damagingly), and notes that there is, unfortunately, no statutory penalty for their doing so. The caning will, he thinks, have to be administered by the bond market instead.
Some, like Eric Janszen of iTulip, would say that's exactly what the government intends.
Is it officially permissible to be a Christian? Or indeed, anything?
Both parties seem reasonable and decent. What's worrying is what happens when officialdom gets involved, as the rest of the story shows.
But I'd love to see a Philadelphia lawyer let loose on the "Nursing and Midwifery Council code" (full text here) which Mrs Petrie is deemed to have breached. By implication, this code regulates not merely conduct, but opinions and even religious faith.
The code commands nurses to "Be open and honest, act with integrity" and straightaway gives a very contentious clarification of the term "integrity": "You must demonstrate a personal and professional commitment to equality and diversity." The managers at the health organisation for which Mrs Petrie works clearly understand "equality and diversity" to cover religions. The logic of this is that Jews, Muslims and Christians (among others) cannot work as nurses - for note the word "personal" in that order. It may be that atheists would also be precluded.
All this results from two things: the State getting too big for its boots; and in attempting to govern every aspect of our lives has delegated insanely wide-ranging powers to quangos, who make and apply rules with a whim of iron. The professions and semi-professions - doctors, teachers, nurses and so on* - all have their own little councils to terrorise them. Such prodnosing easily magnifies a "storm in a teacup" into an issue that could affect your job, wealth, family life and physical liberty.
We need a Constitution to limit the powers of would-be tyrants, even if they are now soft-handed, well-dressed ones. Resist the Red Armani Choir.
_______________________
* ... even foster parents.
Janszen, Faber: hyperinflation is government policy
In an extended "Titanic" analogy, Eric Janszen describes what he sees as the government's response to the crisis: "send rescue", "boil the ocean" and if terrified investors refuse to relinquish the security of Treasury bonds, "sink the rafts" by devaluing the currency. Around the world, he sees a policy of inflation and even hyper-inflation. So does chipper doomster Marc Faber, who now thinks we must eventually have 200% inflation in the USA. 1974 - 82, here we come again?
Saturday, February 07, 2009
Inflation bubbling up
Further to my recent post on whether gold is overpriced, it's worth pointing out that gold can remain for long periods above trend. Those who mock new buyers of gold may have overlooked this.
UPDATE
Marc Faber: "If I look at government debt in the US, and debt in general, I think the only way they will not default physically on their debt is to inflate." (htp: Michael Panzner)
Murphy: raise interest rates!
"... the high rates of the 1920–1921 depression had certainly been painful, but they had cleaned the rot out of the structure of production very thoroughly....Going into 1923, the capital structure in the United States was a lean, mean, producing machine."
Friday, February 06, 2009
Personal choices
Sometimes, however, I feel a surge of the draconian autocrat that comes from the Prussian part of my ancestry.
Such is the case today: Nadya Suleman, the mother of the octuplets born this week, is already the mother of six other children. She is unmarried, unemployed, and on disability for a back injury at work 10 years ago. In spite of all of those problems, and the fragile state of the US economy, she found a doctor willing to implant another 6 embryos in her womb (2 split later).
Investment Trust success stories
One factor helping these companies, says the article, is that they are permitted to keep up to 15% as cash in reserve. How much would you, now, be keeping in reserve?
A warning for world-improvers
Kontinuing cis proses, year after year, we would eventuali hav a reali sensibl writen langug. By 1975, wi ventyur tu sei, cer wud bi no mor uv ces teribli trublsum difikultis, wic no tu leters usd to indikeit ce seim nois, and laikwais no tui noises riten wic ce seim leter. Even Mr. Yaw,wi beliv, wud be hapi in ce nog cat his drims fainali keim tru.
For the whole thing, click here. (There are other versions doing the rounds, since the idea is so good.) (htp: Paddington)
Agreement is not the same as 50:50 compromise
It does look very valuable, though I'd be grateful for a clearer explanation, notwithstanding the participants evidently think they've already given it.
There's a story about Einstein from his time at Princeton. In the lecture room, he discussed his ideas in free-ranging talks, which were so revolutionary and complex that the students begged him to put some formulae on the board so they could follow him properly. He promised he would, and next time gave another dense, extempore peroration, at the end of which he said, "It's as easy as two and two make four". He then walked to the board and wrote "2 + 2 = 4". That's mathematicians for you.