Let them eat dirt

It begins, but so much sooner than I expected.

A panicky middle class moves from worrying about its bank account, to railing against those richer and stronger than itself, to turning on those poorer or weaker than itself. Then it seeks to connect the two:

"However you slice it this is ridiculous. FOURTEEN children as a single parent? Assuming she has medical "insurance" from somewhere, exactly how does a desire to have as many kids as humanly possible entitle her to this sort of abuse of that insurance? If she doesn't have insurance, who's footing the bill? And how do you possibly go out and earn a living while raising fourteen kids?

This is what the nation is up against.

This is why California is broke."

"...there are two Americas. A poor America on socialism and a wealthy America on capitalism...

A vast sea of perhaps well intentioned government programs, all initially set into motion in the 1960's, that were going to lift the nation's poor out of poverty.

A benevolent Uncle Sam welcomed mostly poor black Americans onto the government plantation. Those who accepted the invitation switched mindsets from "How do I take care of myself?" to "What do I have to do to stay on the plantation?""

"Because society no longer believes that it's appropriate to let these children die because of the gross irresponsibility of the mother, the only humane way to prevent this sort of stuff from happening again is to require sterilization of anyone who would receive food stamps or other sorts of welfare. "

Long ago, bailouts were unheard of; failure meant starvation, perhaps death. Consider the caveman: Ug's tribal chief couldn't afford to say, "It OK Ug no kill deer this week. It not Ug's fault. Tribe will bail out Ug."

If he wants his tribe to stick around, the chief must say, "Ug no kill deer: Ug family starve."

(For a moment, one has a vision: Ug family no starve; Ug family kill, eat Virginian economics professor.)

But the tendency... We must punish the wicked rich, correct the feckless poor, do something about the swelling ranks of the disabled, and then we'll all be jolly, prosperous and middle class. Without the bad, sad and mad, everyone would be happy. Patriotic citizens must form a united front... The communists are a deadly threat, and must be firmly suppressed... It's for the working man and the national good that we must for a while band together, almost as though we were socialists...



The clouds were boiling red and yellow over the Alps. Standing on the balcony of the Leader's retreat, the party gazed awestruck. A woman said to Him, "Das bedeutet blut, blut, und mehr blut." The Leader paled, trembled violently and said, "Wenn das sein musss, dann lass es sein."

So proud and lofty is some sort of sin
Which many take delight and pleasure in
Whose conversation God doth much dislike
And yet He shakes His sword before He strike

Symmetry; asymmetry

"China’s January surplus ($39.1b) is roughly the same size as the United States’ December deficit ($39.9b). It is reasonable to think it will roughly match the United States January deficit as well.

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.

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

It was the strength forged in fighting his personal Black Dog, that Churchill lent to us when we most needed it. And the poem he quotes in this broadcast has that mingling of suffering, determination and joyous tears. I give Clough's text in full after the link.

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

The Contrarian Investor gives a lucid explanation of the potential consequences of deflation.

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?

Then we become "distressed gentlemen". As the money runs low, we run up accounts at the tailor and the wine merchant, and write IOUs which we hope will not be presented to us soon. Maybe we begin to cut a few luxuries, but old habits die hard, not to mention ingrained addictions.

• What if they sell us things we can't do without, and won't cut their prices?

The money runs out. Unless we are Royalty, and too dangerous to dun, eventually the bailiffs must arrive. In the modern world, the sovereign wealth funds, perhaps.

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.

Historic inflation in the USA and UK compared

Just for interest...

The, er, credit, er, crunch

UK M4 official data here

No wonder most of us have difficulty understanding the financial equivalent of the matter-antimatter drive powering the USS Enterprise. You'd think lending would have decreased, wouldn't you? Smoke and mirrors...

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.

Denninger: deflation

Belatedly, I refer you to Karl Denninger's end-year review and forecast. He sees continuing deflation, and makes a number of other plausible and worrisome predictions - scroll to the end of his post for the horrid gallery of prognostications.

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

A very clever essay from the rec.gambling.poker newsgroup:

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

Nobody has made economic depression and its consequences seem so inevitable and at the same time so colourful and even attractive, as Jim in San Marcos.

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"

You tend to get a clear and concise explanation from somebody, when they either blow their cool or are in a hurry to get somewhere else. Here, in a very crisp and useful post, Karl Denninger blows away the conspiracy theories surrounding the Federal Reserve.

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?

Here in the Daily Mail is a sample of the hoo-ha about nurse Caroline Petrie, who was suspended for offering to pray for an elderly patient. (She also used to leave a mildly evangelical Christian pamphlet.) The patient says, "I have Christian beliefs myself, but it could perhaps be upsetting for some other people if they have different beliefs or thought that she meant they looked in such a bad way that they needed praying for."

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

(Graph reproduced by iTulip from NowAndFutures.com)

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?

Inflation bubbling up

Richard Daughty, aka The Mogambo Guru, comments on the sharp rise in raw materials prices.

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!

A striking article by Robert Murphy on Mises today, about the earlier Depression of 1920-21, and how raising interest rates was the painful, but quick way out.

"... 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."

Personal choices

I have always been a great believer in personal choice, as I defended in the recent discussion on drug use.

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

The Telegraph lists 20 ITs that have increased dividends annually for at least the last 20 years.

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

There are so many proposals to improve the world, and such a short supply of humility and plain, ordinary fear of change. Take spelling, for example, and read this logically-refined paragraph:

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

For a technical discussion of how we should adjust our opinions scientifically in debate with others, see Overcoming Bias. This follows an earlier post on the impossibility of disagreeing unless you (rather unreasonably) assume the other person is somehow misinformed, wrong-headed or stupid.

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.