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.

Stimulus

(htp: QandO)

Go drugs!

Gary Becker thinks we should legalize and tax drugs. Look at how this approach has decimated alcohol and tobacco usage, for example.

And the joys to be had from drugs! As the Moroccan saying goes,"A pipe of khif before breakfast is worth a hundred camels in the courtyard." Though I think the Devils' Dictionary needs updating: we need slogans like, "A six-pack of wife-beater in the morning is worth a hundred business calls", "Sixty a day is worth death before sixty", "Dropping a tab is worth the risk of grinning at the backs of your hands for the rest of your life."

So what's it to be, Falstaff or the pain-in-the-mule Puritans?

I think it's to do with work. In the old days, the ordinary person couldn't afford (financially or otherwise) to be almost constantly intoxicated; now, most of us are richer than Roman Emperors: central heating, carpets, hot water, ice cream, multimedia entertainment 24/7, no starvation if you don't work. Once, the Tree of Idleness was for the few surviving old men, who were past it; now, while we still have The Energy of Slaves (ie. machines and fossil fuels) to do the hard stuff for us, we don't know what to do with ourselves.

Freedom makes you fall apart.

What goes up

Todd Harrison of Minyanville is predicting a big stockmarket rally soon (htp: Kirk Report). Others (Elliott Wave followers, for example) have suggested this will happen, but as part of a longer pattern of overall decline. In other words, a "bear market rally".

My feeling? This is (a) a market for bold day traders, and (b) an opportunity for some less adventurous types to cash-out at a less dismal price than they've been offered recently. In fact, I think this situational psychology is part of the process that will help limit the rise and confirm the downward trend.

Restoration, not revolt

"What is a cynic? A man who knows the price of everything and the value of nothing," says Lord Darlington in Wilde's Lady Windermere's Fan. That perfectly describes the man who doesn't understand inflation.

Inflation is The Mogambo Guru's bete noire, and he gives us another comedy riff on that today. His principal cure for it is gold, the stock in trade of another ranter, Jim Willie, who sees the price of the yellow metal breaking out in various currencies (it's soared in sterling, for example).

Both men habitually connect gold, the US Constitution and the decayed professional morals of the politico-judicial elite, and try to stimulate the people to restore the old, good order. In short, they are prophets, and there's plenty more out there at this time.

For it is a sign of societal stress that ranters, dreamers and revolutionaries begin to drag out their soap boxes and declaim to passers-by. We had it in the Old Testament, the English Civil War, the American Revolutionary War and most other times that the world was turned upside down.

If buttercups buzzed after the bee
If boats were on land, churches on sea
If ponies rode men and grass ate the cows
And cats should be chased to holes by the mouse
If the mammas sold their babies to the gypsies for half a crown
Summer were spring and the t’other way round
Then all the world would be upside down

There is a difference between civil war, and the revolt of colonies from their distant parent. Having said that, the crisis is now cracking the cement between the States and the Federal Government, as we see in New Hampshire and elsewhere. America, remember history and avoid secessionary talk.

The results of revolution are rarely pretty. Norman Cohn's famous book , about the horrifying aftermath of prophet episodes in the Middle Ages, shows that once the mix is brought to the boil, it becomes very volatile. The outcome is often not what the prophet expected; and always, the people suffer. Rather than overthrow our rulers, it would be far better (if possible) to make them see the danger to us all of continuing their course, and have them turn back.

But can they see it? Do they know the difference between price and value? Will they permit the theft of real wealth by inflation? Or is it, worse still, their intention?

The best we can hope for, is that our leaders are not cynics, and so do not need correction from dangerous idealists.

Stock market could halve again - more evidence

I've been following this alarming idea recently. Now Russell Napier chips in, citing Tobin's Q as a measure to predict a further 55% stockmarket decline within the next five years (htp: Financial Sense).

I had a look at Tobin's Q last April. Are we coming to some gloomy consensus - except for Karl Denninger, who fears it could be worse?

Learned fools

Forbes suggests that college education can be financially ruinous. The association of education with wealth only works when both are in limited supply, otherwise the Hedge Schools would have made Irish peasants rich. A silk hat does not make you a Bradford millionaire.

A doctor friend often used to quote some factoid that if the average doctor had left school at 16 and become employed in some capacity suited to his abilities, his hard-studying medical counterpart would never catch up in terms of total lifetime income earned.

I've heard it said that after the Revolution, the French trained thousands more lawyers, in order to devalue the profession.

Man to the plough;
Wife to the cow;
Girl to the yarn;
Boy to the barn;
And your rent will be netted.

Man tally-ho;
Miss piano;
Wife silk and satin;
Boy Greek and Latin;
And you'll all be Gazetted.

Global monetary inflation and the threat to peace

Last week, I suggested that we could be entering an era of competitive currency devaluation. Now, Mish sees it happening in Russia, Mexico, Indonesia - and hints of intervention in Japan. The Canadian National Post predicts a drop in the US dollar, too (htp: Jesse).

Can the Euro -already strained by member countries moving in different directions - take this pressure? A friend told me recently of an old restaurant incident involving people he knew, where first one "did a runner", then another, so that the last man left at the table was stuck with the whole bill. This is a game that punishes the virtuous.

Gold is supposed to be a haven in such conditions, but is already above its long-term post-1971 trend, as I show here. So the bold investor might buy in now, knowing it's high but hoping it'll go higher (or fearing that other things will go lower still). Others say silver, or oil, or agricultural land. "The best lack all conviction, while the worst / Are full of passionate intensity."

These are tricky times. As in revolutions generally, it's hard to see which faction will be victorious, but loss, injustice and confusion are certain: "we are here as on a darkling plain / Swept with confused alarms of struggle and flight / Where ignorant armies clash by night."

This may seem over-dramatic; but when money ceases to be dependable and deadly dull, everything else becomes much too exciting. If the middle classes suddenly find their savings wiped out by inflation, their assets generally devalued and their businesses and employment under threat, watch out.

Civil liberties in Britain further eroded

Taking a photograph of a public servant, even if it's to record his wrongdoing, is to be illegal. That's if the photograph is 'likely to be useful to a person committing or preparing an act of terrorism'. How could you prove it wasn't?

Nazi comparisons are horrid cliches; yet my mother watched Nazism take hold as she grew up in rural East Prussia. Tyranny advances step by step, and one of its most useful allies is a natural disinclination to believe where it is heading.

Another ally of the tyrant is woolly language used in law - the freedom of the individual is in the precision of the language that grants powers to his incomparably mightier government.

I made the Gongol list!

In at 79.

Though I'll be recommending some worthier sites and so I guess I'm going down - for now.

Shoot the B******s

A piece by the columnist and Nobel-prize winning economist Paul Krugman: http://www.nytimes.com/2009/02/02/opinion/02krugman.html?_r=1&em

To me, it gives a strong argument for temporary state ownership.

Shares: why bother?

The Contrarian Investor raises an issue I've been pondering recently: in today's financial climate, are stocks and shares old hat? They're only a market in what companies are willing to let the public invest.

If I were a rich entrepreneur who'd been smart enough to get into cash a year or two ago, I'd be looking to take my company back into private ownership, or buy another for a suitcaseful. Who wants to be told what to do by shareholders with bees in their bonnets, institutional investors looking to maximise profits like, NOW, and other goons? It's like being in a three-legged race with the fat kid.

Venture capital - is that the place to be?

IN- vs. DE- and an upcoming opportunity

Jesse echoes my hunch: deflation now, inflation soon-ish, with high interest rates for a bit. At that latter point, get your annuity and /or bonds, and benefits as rates subside. A guess, but it's comforting to see wise owls coming to the same conclusion.

You now have our investment gameplan for what is likely to be the rest of Jesse's life.

No, no "Jesse"; live long and prosper.

Number crunching - fractional reserve banking

Supposedly, banks lend 10 times (or more) what they have on deposit. Yet in June last year, it was estimated that total UK consumer borrowing (mortgages, loans and credit cards) stood at £1.444 trillion, and in October savings and deposits reportedly totalled £1.17 trillion - a ratio of c. 1.2 to 1.

By contrast, total U.S. household debt at the beginning of last year was estimated at $14.4 trillion, and in October the Mises Institute reckoned the True Money Supply to be $5.5 trillion, a ratio of around 2.6 to 1.

On the face of it, the American consumer is in twice as dire a state as his British counterpart.

I expect that's an oversimplification - but simplicity is in very short supply. I'd like to understand more, but I can't find reliable, user-friendly data on where all the money and debt is. There's far too much secrecy, complexity and obfuscation in this business.

Gold overpriced?

Gold's price since President Nixon closed the gold window on Aug 15, 1971 has been generally higher than in the era up to then, but still very variable. If we adjust it for inflation as measured by the Consumer Price Index (CPI) in the USA, and take September 1971 as being a "1", the mean and median values since then are of the order of 2.8 - 2.9.

Currently the gold/CPI ratio is about 4, which is somewhat above trend, though nowhere near the spikes of the early 80s. So I'd regard gold's price as a bit high for getting in now, unless you're speculating, which is not my game. But if you got in 9 years ago, well done, and I guess you'll want to hold for some time yet.

British jobs for foreign workers

Wanted:

738 foreign (EEC domiciled) labourers, for casual work in comfortable and extremely well-appointed factory premises. Existing postholders need not apply.

Why has this contract become available?

We are seeking workers who will perform their duties solely for the official remuneration offered, without the payment of additional incentives from third parties, such as "consultancy fees" etc. The management feels that it is important to make a fresh start in order to establish a new working culture, without contamination from previous elements.

Duties

Reading and revising proposed laws. A good command of English is essential; it is therefore expected that applicants will have been educated abroad.

Legal revisions must be conducted solely and entirely on the merits of each case, for the benefit of the nation as a whole, without fear or favour.

Days worked per year / holidays

This varies, but in 2007-2008 the number of days the factory was open was 148.

Hours of work

From the following start times until 10 - 11 p.m., but sometimes later and occasionally throughout the night:

Mondays and Tuesdays from 2.30pm
Wednesdays from 3pm
Thursdays from 11am
some Fridays (10 in 2008 - 2009); on these days, from 10am

On average, 6 hours 46 minutes per session (in 2007-2008).

Thus, hours worked per year = c. 1,002, equivalent to less than 21 weeks at the EU maximum of 48 hours/week.

BUT adjusted for average attendance figures (see below), actual time worked per worker in 2007-2008 was the equivalent of 11 weeks 2 days per year.

Sick leave

N/A. But attendance is voluntary, and average attendance in the last 3 years was c. 54%.

Minimum attendance by the workforce as a whole is 3 workers per shift (30 on days when the product is due to roll off the assembly line).

Job security

Extremely good. Under current terms, workers cannot relinquish their position once appointed, even if they wish to; but they may take indefinite leave of absence without notice or permission. One current worker has stayed away from the workplace since 2001.

Pay

£335.50 per shift, plus other expenses.

Outside employment when not in attendance at the factory is permitted, provided that it has no bearing or influence whatever on the worker's primary duties at Lawmaking plc.

Important note

Applicants must be prepared to endure some initial unpopularity from protectionist malcontents (many apparently disguised as Santa Claus), but may be assured of the full protection of the law.

Davos: inaugural address

Sorry, I keep getting it confused with Davros. One has a plan to take over the world with the aid of heavily-protected, ultra-aggressive, lunatic invertebrates, and the other...

DIY? GSI, say I.

Doing the rounds on the Internet...

DRILL PRESS: A tall upright machine useful for suddenly snatching flat metal bar stock out of your hands so that it smacks you in the chest and flings your beer across the room, denting the
freshly-painted project which you had carefully set in the corner where nothing could get to it.

WIRE WHEEL: Cleans paint off bolts and then throws them somewhere under the workbench with the speed of light. Also removes fingerprints and hard-earned calluses from fingers in about the time it takes you to say, 'Oh sh*t '

ELECTRIC HAND DRILL: Normally used for spinning pop rivets in their holes until you die of old age.

SKILL SAW: A portable cutting tool used to make studs too short.

PLIERS: Used to round off bolt heads. Sometimes used in the creation of blood-blisters.

BELT SANDER: An electric sanding tool commonly used to convert minor touch-up jobs into major refinishing jobs.

HACKSAW: One of a family of cutting tools built on the Ouija board principle. It transforms human energy into a crooked, unpredictable motion, and the more you attempt to influence its course, the more dismal your future becomes.

VISE-GRIPS: Generally used after pliers to completely round off bolt heads. If nothing else is available, they can also be used to transfer intense welding heat to the palm of your hand.

OXYACETYLENE TORCH: Used almost entirely forsetting various flammable objects in your workshop on fire. Also handy for igniting the grease inside the wheel hub out of which you want to remove a bearing race.

TABLE SAW: A large stationary power tool commonly used to launch wood projectiles for testing wall integrity.

HYDRAULIC FLOOR JACK: Used for lowering an automobile to the ground after you have installed your new brake shoes, trapping the jack handle firmly under the bumper.

BAND SAW: A large stationary power saw primarily used by most shops to cut good aluminum sheet into smaller pieces that more easily fit into the trash can after you cut on the inside of the line instead of the outside edge.

TWO-TON ENGINE HOIST: A tool for testing the maximum tensile strength of everything you forgot to disconnect.

PHILLIPS SCREWDRIVER: Normally used to stab the vacuum seals under lids or for opening old-style paper-and-tin oil cans and splashing oil on your shirt; but can also be used, as the name implies, to strip out Phillips screw heads.

STRAIGHT SCREWDRIVER: A tool for opening paint cans. Sometimes used to convert common slotted screws into non-removable screws and butchering your palms.

PRY BAR: A tool used to crumple the metal surrounding that clip or bracket you needed to remove in order to replace a 50 cent part.

HOSE CUTTER: A tool used to make hoses too short.

HAMMER: Originally employed as a weapon of war, the hammer nowadays is used as a kind of divining rod to locate the most expensive parts adjacent the object we are trying to hit.

UTILITY KNIFE: Used to open and slice through the contents of cardboard cartons delivered to your front door; works particularly well on contents such as seats, vinyl records, liquids in plastic bottles, collector magazines, refund cheques, and rubber or plastic parts. Especially useful for slicing work clothes, but only while in use.

DAMM-IT TOOL: Any handy tool that you grab and throw across the garage while yelling 'DAMM-IT' at the top of your lungs. It is also, most often, the next tool that you will need.

Laptop computer for sale, perfect condition: $10

This report says it's coming. (htp: Upside Trader)

UPDATE: Not so - think $100!

Michael Panzner interview

Some salient points in Michael's answers:

• The crisis could continue for another decade;
• investors will have to tread carefully and consider the risk of dealing with others;
• dividend yields could increase 2 - 4 times (suggesting that current stock prices could halve or quarter);
• after some more deleveraging during this year, it may be useful to accumulate precious metals

Read it all here; htp: Abnormal Returns

Also linked on AN is a story about Warren Buffett's firm insuring third parties against a long-term market drop. Berkshire Hathaway has taken $4 billion in bets; are they right? Or are they right only in the sense that nominal prices will hold, while inflation will mask the real reduction in value?

U.S. Bankruptcy Map

(source; htp: footnoted.org)

The banking crisis: did we have a choice?

Could any of the leading nations have retained their moral fibre during the monetary inflation of the last decade and more? Wouldn't prudent, restrained lenders have lost out to foreign sellers of "liar" and "fog a mirror" loans? Wouldn't the currency have risen and crippled exports? Could considerations like this form part of the "don't shoot me" defence of our busted banks and discredited politicians?

Or would it have been a trial by fire, where the virtuous are rewarded at the end? Denninger: "It is also increasingly clear that there are literally hundreds of midsize and smaller banks that are perfectly fine. They did not lever up, they did not write a bunch of crap commercial or residential construction paper that cannot be serviced and they most certainly did not drink the KoolAid of securitized synthetic garbage debt. Even in bad economic times traditional banking is a very profitable business - so long as you lend money to people who can pay you back or you have sufficient collateral so that if they default you don't lose your shirt."

In which case, the original offence of reckless finance has been compounded by the failure to punish it. The bailouts whisk away the deserved reward of the good, and teach a hugely damaging lesson to all onlookers: you can Get Away With It.

Of course, you can't - or rather society can't, though individuals will. And when injustice finally falls, it will take down with it many of the good, the poor and the powerless.

Not Chicken Little: the sky could really be near falling

Jesse is not an air-filled doomster, yet here he has become really sombre. Pound heading for parity with the Euro, major banks insolvent, action ineffectual, hush-hush all around so the common people don't realize the gravity of the situation. It's rumour, but rumour that Jesse, clearly an experienced financial man, finds plausible.

Like I said, you've had your warning. Prepare for the worst, hope for the best.

Every picture tells a story

Money and life

The previous post is a summary of Brad Setser's views on China and the dollar. What with the oil price coming down and the trade deficit reducing because of declining demand, it seems reassuring for Americans. But Michael Panzner also returns to one of his themes, the inflationary phase that he (and many others) fear may succeed the recession-depression.

Marc Faber has observed that this is the first time in history that economies around the world are affected simultaneously, since we are now much more inter-connected. So if inflation should take hold, perhaps it will not be fully reflected in the exchange rates - it might be that the dollar remains relatively buoyant against the pound, Euro, renminbi etc.

So maybe the real victims of global inflation, or hyperinflation, will not be this nation or that, but cash savers as a class. They have set aside some of the rewards of work, instead of spending it, and will come back to the cupboard to find it turned half-rotten, as happened in the 70s (if they'd put it in the stockmarket instead, it would only have been a bit mouldy).

How is it that China can award death sentences to those who adulterate milk with melamine, but adulterating the currency - the accumulation of millions of years of human labour - is not even punishable by loss of office? In the year George Washington took Presidential Office, "coining" in England was treason, and perpetrators were accordingly hanged, drawn and quartered (or, in the case of women, burned).

Money is stored life, and devaluing money is stealing life. Next month will be the 20th anniversary of my becoming a financial adviser, and the people I have advised would mostly not bother with investments if only their cash savings could hold their real value. What a scam this all is.

The Greenback is Red-backed

Brad Setser returns to a favourite theme, China's investment in the US. If I can summarise:

1. China buys American bonds directly, but also via the UK. Practically all the UK's purchases are on behalf of China.

2. American government bonds are either Treasuries (debts of the government of the USA) or Agencies (debts of US States and local government). Concerned about risk, China has recently been selling Agencies to buy Treasuries, because the latter are backed by the Federal Government.

3. China will continue to invest in the US, because this keeps up demand for the dollar and so keeps down the Chinese currency, the Renminbi. This means that Chinese exports to America will remain very competitive in terms of price.

4. China's continuing support will stop the US dollar from collapsing in the world currency market, as many have feared. Other countries who are also running a trade deficit and need financing, have much more reason to worry.

Dow 2,000: confessions of an optimist

Karl Denninger looks at one of the shapes chartists use to guess market movements, and concludes that a Dow fall to 2,000 points is one possible outcome.

Back in November, I did my own work on the "in-real-terms" Dow (i.e. adjusted for CPI), and if history repeats itself, a fall to below the equivalent of 2,000 points would merely be a repetition of what happened twice in the 20th century. But the second low (1982) was not so deep as in 1932, and in December I re-drew the graph with (sort of) reassuring curvy lines, which suggested that maybe the low point next time might only be c. 4,000 points.

This latter attempt of mine sturdily ignored two facts: debt, and its recent monetization (look at Tim Iacono's second graph here) have gone far past all previous levels; and so did the Dow in its "twin peaks" episode of years 2000 and 2007. Maybe the next low will be as devastatingly deep as the last peaks were dizzyingly high.

I will comfort myself with the illusion that the Dow will merely halve, until reality proves me wrong.

An answer to global warming

Grow Azolla.

Preparing for the Abolition of Freedom in the USA

How many Americans are aware of this?:-

Establishing Martial Law in the United States

(htp: Global Research; referred to me by Paddington)

UPDATE: see this from Jesse re New Hampshire's Resolution HCR 6! Freedom is in the air again!

New Market Terms

[Making the rounds]
CEO --Chief Embezzlement Officer.
CFO-- Corporate Fraud Officer.
BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.
BEAR MARKET -- A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.
VALUE INVESTING -- The art of buying low and selling lower.
P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.
BROKER -- What my broker has made me.
STANDARD & POOR -- Your life in a nutshell.
STOCK ANALYST -- Idiot who just downgraded your stock.
STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves.
FINANCIAL PLANNER -- A guy whose phone has been disconnected.
MARKET CORRECTION -- The day after you buy stocks.
CASH FLOW-- The movement your money makes as it disappears down the toilet.
YAHOO -- What you yell after selling it to some poor sucker for $240 per share.
WINDOWS -- What you jump out of when you're the sucker who bought Yahoo @ $240 per share.
INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse. PROFIT -- An archaic word, no longer used.

Radical chic

(Pic left: Ken Kesey's bus)

QandO has a good go at Bill Ayers, an education prof who once led the violent radical underground Weathermen movement (and is married to a former member). For those who want to know about one strand of the Baby Boomers, Ayers (born 1944) may be a touchstone.

The connection between radicalism and education is a very old one; modern mass communications also come under this category of vectors of revolution. Readers might like to consider how many other Ayerses there are, not actually getting their hands dirty anymore but getting well-paid and respected for influencing the agenda in classrooms, TV and the print media.

I'm not quite going to take the simplistic guntoting redneck line on them. People like this meant well, but they thought in abstracts, always dangerous with earthbound Man. If there is one thing we must learn from the past 40 years, it's that meaning well isn't enough. But they always wanted to do well for themselves out of doing good to others, and have fun doing it - isn't that human.

Is "double jeopardy" wrong?

My apologies to readers who may find the following a bit scrappy in style - it is Sunday and I ought to be doing other things in my real life!

Scotland, where the murder rate is double that south of the border, is now considering allowing “double jeopardy”; that is, trying someone more than once for the same offence (this has been possible in England since 2005). Libertarians will worry that the State can persecute individuals using judicial process; even that possibility is something of an extra burden on the citizen.

Penalties for the most serious crime, murder, are not so severe as they once were. There is no death penalty, and life imprisonment rarely turns out to be that: the average time served for mandatory lifers in the UK is 14 years. (Other, non-mandatory life sentences end up as 9 years served, on average.)

Perhaps one could work out the change in penalty as some kind of life-related formula. Let's assume for the sake of argument that life in prison is the same as no life at all. In that case, the death penalty is the loss of 100% of the rest of one's life, irrespective of the time between conviction and execution.

By contrast, how much of the criminal's life does life imprisonment take away? It depends on how old he is when the crime is committed, and how long he might be expected to live afterwards. I can't easily find statistics on the average age of murderers in the UK, but in the US it appears to be around 27. In the UK, life expectancy at birth varies for males according to social class, from 80 to 73 years (further complicated, I should expect, by variations in infant and juvenile mortality rates). Thus the penalty of life imprisonment represents 14/(73 - 27)% = 30% of remaining life.

I've read that before capital punishment was abolished, British juries were more reluctant to convict in cases where the death sentence might be imposed, but I can only guess at how far this might alter the probability of a "guilty" verdict. Shall we say, a difference of 20%? That would mean a penalty factor of (100*0.8)=80% for the death penalty, versus 30% for "life".

The discrepancy may well be less than this, since for many convicts, prison is safer and healthier than the life they face outside. The retired prison doctor "Theodore Dalrymple" has often noted how his patients throve "inside", where largely they were off illegal drugs and were reasonably well-fed. If after serving his time the ex-convict lives a shorter (nastier, more brutish) life, then his prison sentence has consumed a greater proportion of his post-conviction existence.

Wrongful conviction is always a concern. In Parliament in 2006, Mr O'Hara asked "how many miscarriages of justice there have been in capital cases which have resulted in a payment of compensation in the last 30 years", to which the answer was, that there were only four cases. Perhaps it's because forensic science has advanced very considerably since 1964, when the last execution was carried out in England. But the American experience suggests other factors masking miscarriages of justice, including: "Lawyers in many capital cases are lousier than the norm." There's no making up for a mistake, in the case of capital punishment (unless we return to the ancient principle of "weregeld").

What about deterrence? From the foregoing, "life" seems to be perhaps half as onerous as the death sentence. Yet US criminologists appear to agree that the death penalty does not have a significant deterrent effect. Could we argue that in many murder cases, the circumstances of the crime are such the perpetrator simply doesn't consider the potential consequences for himself? Would the same number of such crimes be committed, even if there were no legal penalty at all?

One might argue that deterrence is not the main point, and the penalty, whatever it may be, is simply a punishment that fits the seriousness of the crime. In which case, why is the crime treated so much less seriously than before?

On the other hand, maybe deterrence is an argument, after all. The journalist Peter Hitchens has argued that the murder rate in Britain would be far higher (I think he said, by a factor of about 10), were it not for huge improvements in medical procedures over the last 40 years, that now save the lives of many victims of violent assault. If that is so, then there may well be a correlation between severity of punishment and the crime rate, after all.

Perhaps greater certainty of conviction is the greatest deterrence; but that can't be easily achieved. If re-trial significantly increases the probability of successful and just conviction, it might go some way towards evening-up the odds in terms of deterrence. But I doubt that it will greatly improve conviction rates overall, not least because there will be opportunities for the defence to claim that the outcome has been prejudiced in some way by matters relating to the previous trial and the associated publicity. And I would think there would not be many re-trials approved by the Crown Prosecution Service (or its Scottish equivalent), since they will have to consider the chances of "a result" second time round, and also bear in mind the issue of the presumed-innocent citizen's right not to have his life consumed by legal pestering, for which monetary compensation may never be sufficient.

So I think it's always going to be extremely important to "get it right first time," and I don't think a second pop at the target is going to make enough difference to justify the inconvenience to the accused in cases that don't succeed.

As to sentencing, an incorrect conviction is always wrong, but a death sentence for the innocent is absolutely wrong. Yet for the guilty, the penalty for murder is far less heavy than it used to be, and that, too, seems unjust and quite possibly it has also been one of the reasons for an increase in potentially lethal assaults.

So to me, it would be better to increase time actually served in jail, in cases where the judge determines that consideration of consequences was, or would likely, or (after making allowance for emotion) ought to have been in the criminal's mind at the time of committing the act. (a) I think it would increase the deterrent effect, and (b) opinion may differ, but I think it would be deserved, at least in "serious" cases.

There should also be the swiftest and fairest treatment of appeals, so that where there has been a miscarriage of justice, the innocent should be released as quickly as possible, and compensated handsomely. The State itself needs a deterrent.

You've had your warning

Lord Myners has been criticised for telling the truth too early, i.e. 3 months after the general public could have done anything to save themselves. On October 10, "major depositors" in the USA and Japan were preparing to withdraw their money, and were willing to paying any attached penalty to do so.

For the rest of us, the corralito: "The Mail on Sunday has been told that the Treasury was preparing for the banks to shut their doors to all customers, terminate electronic transfers and even block hole-in-the-wall cash withdrawals."

Even if they had caught wind of it, would we have learned anything of this from the mainstream media? (Scornful laughs) But what were MPs doing with their own money? Perhaps they'd have abandoned us to our fate, like Lord Jim. (I have often thought that the main reason for getting into politics is the opportunity to trade - in all sorts of ways - on inside information and networking).

Do you think the banks have been saved? Mish doesn't think so. Is the pound safe? Jim Rogers doesn't think so (though this business associate of the sterling-busting George Soros may be playing a nasty little game of market manipulation - which is, scarcely credibly, not an incarcerable crime but merely a civil offence.)

Within the past 12 months, the pound has gone from USD $2.12 to $1.43 and Euros 1.40 to 1.06; to put it another way, imports now cost 48% more from the States , and 32% more from Europe. (O&A typical cash rates)

At least you can still get your hands on your money; but for how much longer? It may be that the crisis is over; but it may be that we are in the eye of the storm. Personally, after settling debts I intend (a) to draw extra cash, keep the slip to prove it's been legally obtained, and store it safely away from a bank; (b) to keep at least some of my money in foreign currencies - perhaps the Yen* and Euro*; (c) to look for a variety of non-cash stores of value - and not all of them with Government guarantees, either.

My trust in banks, politicians and journalists is broken. My faith in them is gone, because they did not keep faith with me.

*Though The Big Picture thinks Japan will move to weaken the yen and the Euro-zone is struggling to hold its members together. So, US dollars?

Where in the World?

Birinyi Associates give their forecast for GDP growth in 2009:

A turning point in the market?

Jesse has been doing some scrying, and perceives that a sudden market move is imminent.

"What's the McClellan Oscillator?" My understanding of this site's explanation is that movements in the share prices of a few large companies, heavily weighted in a stock market index, can mask what is going on in the market generally. And when those large companies quieten down, investors may notice an opposite trend has been developing, and they'll pile in after it.

For example, if shares in major banks have been crashing, but other companies have been rising, the market as a whole may drift down, but then...

Signs and portents, signs and portents.

Rolling back the State

... won't happen. Only a major disaster is capable of breaking the hands that are strangling us. But maybe that is what is now on its way.

Mish reported yesterday how the banks are insolvent, and in his opinion monetary reflation can't work , for three reasons:

1. Putting more cash into the system to create inflation to reduce the real burden of debt, won't create jobs, raise wages, or stop outsourcing (China's nominal GDP per capita is $2,483, America's $45,725, according to IMF figures).
2. But "quantitative easing" - monetary inflation - will lead to a currency drop (if it succeeds) and the reaction will be a raising of interest rates as lenders try to protect the real value of their loans.
3. And if government creates jobs directly, it again skews the economy, giving higher importance to the objects it chooses than the market would, if left to itself; in short, what economists call "malinvestment".

A longish essay over on Mises looks at how the State has seized the wealth and assumed many of the functions of the private citizen, and how the First World War and subsequent events helped accelerate a process that had begun long before.

Back in the 70s, I came across the work of Ivan Illich. His general thesis was that the State takes over activities that previously we performed ourselves - teaching our children, tending to our sick and injured, etc. These functions are then made into organisations with big buildings, many workers and officials, and large budgets - all paid for by taxation. Sociologists call this "reification". It increases the size and power of the State - and here we are.

They don't even do the job well.

As someone in education (as well as finance), I don't subscribe to the airy assertion that "our youngsters leave school illiterate", but they don't read or write as much or as well as they did, and what the liberals have done to the curriculum in English (for example) is painful to see. Heads of English in secondary schools in the 70s literally burned or threw out their schools' textbooks and coursebooks (I remember hearing of three separate cases); but the temptation to micromanage returned. It's like the historical irony that saw the French kill their King and end up with an Emperor.

And having seen the medical service in action on my wife a few years back, I no longer have the blind faith in doctors that I used to have. Phil Hammond (the GP/journalist/entertainer) tells us that the NHS kills or maims about 10% of its hospital patients, and Illich was ahead of him again (Medical Nemesis, 1974).

That's not to say we don't need doctors or teachers, but once created, institutions develop a will to live and purposes of their own, and can drift perilously off-task. Individuals who join them can become sidetracked by career opportunities and political hobby-horses, and in any case have to accommodate themselves to working in a structure run by others who have already done so and altered the operational rules to fit their interests.

Looks like the banks have done the same.

We have to hope that, however painful, after the coming changes there may be some better balance between the citizens taking care of their families, and that black hole of wealth and power, the State.

Abolish the Federal Reserve

On The Big Picture, a rude but concise video by Neal Fox about the Federal Reserve. As his catchy song points out, its existence defies the Constitution - the same Constitution that made President Obama say his Presidential Oath again.

Yet again, I say economic issues resolve into democratic ones. The Constitution is very clear that the power to create money (using gold and silver) must remain with Congress; yet in 1913 that power was given away to a newly-invented quango, run by people whose names and organisations are not permitted to be publicly known (which secrecy gives rise to some very paranoid theories!)

Why wait until its centenary to abolish it? No "four more years", please.

And while I'm on, let's have a massive cull of quangos in the UK, too.

Very scary

Mish doesn't come across as eager for Armageddon, which make his posts today really worrying. Is it time to get one's cash out of the dispensing machine, to avoid the Argentinian corralito?

Could US interest rates rise?

Brad Setser notes that far from declining in this recession, China's trade surplus is increasing, because although exporting less, it is also importing less. He estimates that China owns $900 billion of US Treasury bonds (and rising), some purchased indirectly via the UK.

However, enormous spending by the US means that it will have to issue a further $900 billion in bonds, and Setser opines, "China isn’t going to double its Treasury holdings in 2009."

If America needs to borrow more than China is willing to lend, the money must come from somewhere else, at a time when it's getting short generally. I have also recently read reports of concerns about the credit rating for US government bonds, which also supports the idea that rates will have to rise to pay for the increased risk of default.

How far will the dollar will be supported by this tendency? At least, in relation to sterling?

The UK is supposed to be an even worse basket case in terms of overall indebtedness, and that may make it politically very difficult to match rates with the US, because it could accelerate the rate of British house repossessions and business bankruptcies, even faster than in the US. So the pound could possibly fall even further against the dollar.

Perhaps Mr Cameron is right to warn that for the UK, the money may run out soon. Then we will have to pay high interest rates after all. And at last, we may be forced to borrow from the IMF and retrench savagely. Back to 1976. And will 1979 return? Cometh the hour, cometh the strong woman?

So, what's the implication of all this for the investor? Sell bonds and buy gold (despite its already high price) now, then reverse the process when high interest rates hit us?

Wise choices?

To my mind, having studied history, the equation is simple: a strong economy is dependent on control of the latest technology, which relies on strong basic science, and requires a core of well-educated scientists, engineers and mathematicians.

The British education system of the 60's and 70's that served me so well was very pragmatic: identify the students with obvious ability and work ethic, and pay them to learn. It was a cruel, elitist pressure cooker, but it produced the best university graduates in the world.

It has been replaced by a more inclusive American model. Standards are down, and many students are now under a crushing debt burden.

Why exactly did we change it?

Running repairs

VoxEU describes the international economic strains in the Euro area and the need to patch up the collective fuselage so it can continue flying. I'm not an expert, but it looks like a mess to me.

Pic: "A rocket fired by an enemy fighter inflicted this damage on The Sack, a B-17 of the 379th Group. A 14-inch fragment of the rocket tore the pants off of the turret gunner without hurting him."

The Oath

President Obama has re-taken the Presidential Oath, merely because he'd said the word "faithfully" in the wrong place (though still correctly, in grammatical terms). But it matters, because the wording is precisely set by the Constitution. And what a serious oath it is:

"I do solemnly swear (or, affirm) that I will faithfully execute the office of President of the United States, and will to the best of my ability, preserve, protect and defend the Constitution of the United States."

The Vice-President's oath is set by Congress, and in its latest (1884) wording is even more determined to leave no room for lawyerly ratting-out:

“I do solemnly swear (or, affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter: So help me God.”

A foreigner who wishes to become a US citizen must say:

"I hereby declare, on oath, that I absolutely and entirely renounce and abjure all allegiance and fidelity to any foreign prince, potentate, state, or sovereignty of whom or which I have heretofore been a subject or citizen; that I will support and defend the Constitution and laws of the United States of America against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I will bear arms on behalf of the United States when required by the law; that I will perform noncombatant service in the Armed Forces of the United States when required by the law; that I will perform work of national importance under civilian direction when required by the law; and that I take this obligation freely without any mental reservation or purpose of evasion; so help me God."

My brother took this oath last year, and knowing him, will have meant it and will uphold it down to the last punctuation mark.

Compare that with the British version, with its room for legal manoeuvre and evasion:

"I (name) swear by Almighty God (or, “do solemnly, sincerely and truly declare and affirm”) that on becoming a British citizen, I will be faithful and bear true allegiance to Her Majesty Queen Elizabeth the Second, her Heirs and Successors, according to law."

I could wish that all our holders of political office in the UK would be compelled to use the American wording, substituting only "Kingdom" for "States of America".

And we appear to have forgotten (and compare it with the current US citizenship oath above!) the following extract from the Oath required by the 1689 Bill of Rights Act:

"I do declare that no foreign prince, person, prelate, state or potentate hath or ought to have any jurisdiction, power, superiority, pre-eminence or authority, ecclesiastical or spiritual, within this realm."

George III, whose actions were part of the causes of the American Revolution, knew the power of his Coronation Oath: “Where is the power on earth to absolve me from the observance of every sentence of that Oath? [...] I can give up my crown and retire from power. I can quit my palace and live in a cottage. I can lay my head on a block and lose my life, but I cannot break my Oath. If I violate that Oath, I am no longer legal Sovereign in this country.”

The Monarch's Coronation Oath has been amended (e.g. in 1937 - removing a vital reference to the "law and Customs" of the Kingdom) since then; and although the Common Law is enshrined in the 1701 Act of Settlement, it may have to give place to Europe's directives and such rights as its legislators are minded to grant (and, presumably, amend, suspend or withdraw).

In some senses, Britain is a younger country than the United States of America; and perhaps the worse for it; for here, I fear, one's word, oath, anciently (I believe) one's gesa, and the law itself, have become sandy; not a rock on which to build.

The Good Earth, Bad Money

A review on Triple Pundit of a book by Woody Tasch, about how the financial system incentivises damage to soil fertility. Or is this more eco-wibble?

Desperate diseases call for desperate remedies

Mervyn King at the Bank of England refers to "unconventional unconventional measures". One seems to be to stop publishing what he's doing; what else can he have in mind?

Brad Setser thinks the pound sterling may crash through the floorboards.

"If you cannot bring good news, then don't bring any."

Newsflash

All is well: the Dow has just sailed (well, snailed) back through the 8,000 barrier. But what's this? Brad Setser doesn't know what to think about China's role in US debt financing.

Here he thinks that a downturn in China's production will be panic their already-prudent populace into saving even more money, and
they'll also import less, which will screw our deflation down even tighter:

Bottom line: A big fall in activity in China will tend to drive China’s trade surplus up. It thus would tend to increase — not reduce — China’s (net) purchases of foreign assets. Someone in China will still buying foreign assets — and likely providing indirect support for the Treasury market — even if it is not China’s central bank. A big fall in activity also means less Chinese demand for the world’s products — as well as less Chinese demand for China’s products, which frees up capacity to export. That adds to the deflationary forces in the world economy.

... and here he worries about the switch from long-term purchases of Treasuries, to ones with short maturity dates:

At the same time, it is risky to finance a large external deficit with short-term debt. Even for the US. If the US deficit starts to head back up again — as, for example, the effect of the recent fall in oil prices wears off and a large fiscal stimulus in the US stimulates the world economy — without a shift in the composition of inflows, there would be cause for concern.

It's said that Charles Colson, an aide to President Nixon, had this motto framed in his office: "When you've got them by the balls, their hearts and minds will follow." Funny, until you're on the receiving end.

And as the Baby Boomers lindy-hop into old age...

Drugs are the answer to everything. Or maybe not, James wonders. What a spoilsport. Awww, maaaan...

WeaselWordWatch update: "Quantitative Easing"

"Aaahhh, that's better... Look out! Aaarghh!!"

Google references now up to 320,000 but news references down to 3,347 in the last 24 hours.

If QE is the answer, what was the question?

Worry-wart corner

From Brian Gongol:

Three badly-underestimated risks to humanity What's happening in the financial markets is a mess; there's no doubt about that. But it's a mess that has the public's attention. Here are three huge risks to the modern world that aren't getting their fair share of attention:

We don't have enough food to survive a natural calamity. A volcanic eruption in Indonesia in 1815 left behind a cloud of ash that blocked much sunlight for months and led to food shortages all over the globe. A similar eruption could happen at any time today. The population of the world was around one billion then; now, it's approaching 7 billion. We've dramatically improved food production, but we haven't improved food storage at a similar pace. World food reserves amount to only a few weeks' worth of normal consumption. If another volcanic eruption of similar magnitude were to occur today -- and it could -- then we could see a global hunger emergency on a scale never before seen nor comprehended.

Our computers are susceptible to catastrophic electrical attack. Virtually everything important in the world today depends upon computers. Yet, aside from the work of one member of Congress, almost no one seems to take seriously the threat of attacks on the computing infrastructure by electromagnetic pulse. In short, hostile governments and groups either already have access to or will soon possess the tools they would need to cripple most of the electronics over most of the continental United States in a single stroke. We have the capacity to create resistance to such an attack, but for the most part, nothing significant has been done. Lest the threat sound fictitious, it should be noted that NATO used special weapons in the campaign in Yugoslavia to disable the electrical system there during the late 1990s, in order to suppress the fighting power of the Milosevic regime.


We still don't have a real plan for containing a contagious pandemic. While avian influenza hasn't really made the leap to human-to-human transmission yet (as far as we know), the threat still exists, and people are still dying of the infection. At some time, whether it's H5N1 bird flu or something else, a disease outbreak will reach pandemic status, just like the Spanish flu of 1918. And when it happens, it will shut down many of the human systems upon which we depend, unless alternatives are put into place.

Frightening? Certainly. After all, each of the disasters in question has happened before. But these risks are surmountable, if we're willing to apply our minds, technologies, and resources to the solutions. Let's find better ways to store food -- perhaps by improving our capacity to freeze-dry food on a massive scale. Let's figure out how to protect our electronics from attack -- perhaps by making use of Faraday cages where appropriate. And let's take some of the lessons from Y2K preparations and apply them to the risk of a pandemic. These things can be done, and if we had more foresight as a species than the common goldfish, then we'd actually put our knowledge to good use.

Unfair advantage and reward, and how to get them.

It's not all in the genes.

This is a very intriguing post by Half Sigma, on memory versus active intelligence. There's a rich field to be explore here, about getting and maintaining advantage.

It's also about starting early - as early as pre-pregnancy, according to a doctor friend (and Phil Hammond). For example, the womb needs to be in good condition, not shrivelled by a smoking habit. It''s said that the foetus will steal whatever it needs, so surely there needs to be plenty of the right vitamins and minerals in the mother's body. And after birth, early, plentiful and positive emotional and intellectual stimulation.

Then there's education - being taught principles and strategies. I read somewhere that in Japan, trainee professional Go players aren't allowed to learn through play until their reading has brought them up to 1-Dan level (sort of like Black Belt). That's instead of learning the hard way. In any case, does the hard way actually teach you? Or do you decide to try harder next time? Or tell yourself the other guy was lucky? Or maybe just give up?

And the right social and professional connections. And choosing the right career, and the right place for it to flourish.

Some years ago, I watched a programme about a very senior British civil servant/politician in Hong Kong at the time of the handover to China. He quoted what appears to be an old saw, though I hadn't heard it before: "Eat right, work right, marry right."

The replacement of democratic government by carte blanche

Secret inflation: Mish relays a Telegraph article about yet another unscrupulous legal change to make government less accountable - the BoE will be able to increase the money supply without reporting it.

Increasingly, the British Government seem to me to have become a coup by loophole.

Pardon? Get your kicks on Route '66 (that's 1866)

He can't do any more, so here is Wikipedia's list of the people George W. Bush has pardoned, or whose sentences he has commuted.

Perhaps the smart thing to have done would have been to charge the entire American financial establishment and pardon them. *

Still, if he listens to the Village Voice, President Obama now has the chance to pardon Bush and Cheney.

* Perhaps unnecessary. The VV article quoted above says an 1866 Supreme Court ruling means you don't even have to be charged to be pardoned.

Obama's speech

He certainly delivered it confidently. Whoever wrote it, this is President Obama's inauguration speech.

Oscar Wilde said something to the effect that the best, sincerest response to a fine piece of writing is the attempt to write one of your own, and as I listened I couldn't help wondering what I would have said had I been on that podium. If he can pull the American nation together, that will be a great start.

But for the irreverent (or habitually drunk and cynical), here is a cheeky cod-Obama-speech generator.

Gold, silver, what you will... but not sterling

Jim Rogers says exit the pound and sterling-denominated assets. (htp: Wat Tyler)

Inflation and gold

(1) Times of Malta (htp Jesse)

Gold is a currency and Phillip Manduca is proving this once and over again.

He seems to have gambled his entire professional reputation on gold, reaching the $2,000 threshold by the end of 2010.

He is well worth listening to. His words are illuminated by a previous outstandingly successful record.

The high gold price seems, for the time being, to have reached a plateau, but Manduca of Titan Investments sees a price of gold at $1,000 a troy ounce as a distinct possibility in the near future. He said so a few days ago.

China is now moving part of its massive dollar reserves from the dollar into the euro and gold.

Madoff can be said to have harmed Wall Street, but he has certainly helped the prospects of a booming gold price. The money the Fed is pumping into the economy is proving insufficient to reignite it.

(2) Article from the Economic Times on our options (htp: Jesse, again). It thinks there are three: writeoffs/bankruptcies, increase GDP, inflation. The first is politically unacceptable, the second cannot be achieved by monetary means alone, so it's to be the third:

The stage is set for a long period of slow growth as debts are worked down and a rise in inflation in the medium term.

Vice versa

“Good morning, Bank. Customer here.”

“Er, good morning...”

“I’ve been looking at your account with me –“

“I was going to give you a call...”

“ – and there are some matters we need to discuss.“

“I’m very busy at the moment..”

“ Tomorrow morning at nine, if you please.”

“Er, nine, yes.”

Click.

Maybe it's not really so bad?

The Coyote points out that redundancies are happening faster than drop in output, so he thinks at least part of the crisis is anticipatory behaviour.

Another possibility that occurs to me, is that the credit crunch is a pretext for businesses to become more efficient and cut out deadwood in a way they'd long been planning to do anyway.

Monetary policy: chameleon on a tartan

Our government has contradictory objectives, and something will have to give.

1. It has ordered banks to rebuild their cash reserves, because they loaned out far too high a multiple of what they kept in their vaults. Normally, the way to do this would be to widen the margin between the interest they pay and the interest they charge, making bigger profits that could be salted away; or to become far more cautious in their future lending, increasing the ratio of good loans to bad ones. In a recessionary economy, where many businesses are more likely to fail, this would also imply calling in business loans and trimming their overdraft limits

2. It has called for banks to pass on the full benefit of recent cuts in interest rates, and to maintain lending, especially to businesses.

If (1) is not done, the crisis continues. And if (2) is done, it counteracts (1).

Besides, unless the government nationalises the banks, it's not in a position to force them to do (2). It must know this. Maybe (2) is merely for us punters and voters to hear, not for real action.

As Aeschylus said 2,500 years ago: "In war, truth is the first casualty. "

Hi yo, Silver

Jesse surveys measures of monetary growth in the USA. He concludes that inflation is likely to drag the dollar down and shares upwards (N.B. in the 70s, they didn't rise as fast as inflation); as to commodities: "silver may be one of the first commodities to break out because the government maintains no significant physical inventory of it as it does for gold and oil."

UPDATE (re silver): Tim "Mess that Greeenspan Made" Iacono thinks so, too.

Limits to growth: rare elements

An article from the New Scientist, first published in May 2007, discusses another challenge to our current way of living: modern technology's dependence on rapidly-shrinking supplies of rare earths. (htp: Paddington)

Greens take turn this into a message about reuse and non-use; selfish investors may consider the implications for funds specialising in industrial metals, metal recovery companies and associated technology.

"End lending altogether" - Waldman

I've been wondering why we shouldn't bust our criminal banks immediately and replace them with a system that simply transfers money. For a half-serious proposal to end lending altogether, see Naked Capitalism on Steve Waldman.

Evolution Inaction

Some time ago, on this forum, Sackerson discussed the disdain that the ancient Greek philosophers had for those who actually made things, dismissing them as 'artisans', and noted that this attitude appeared to be alive and well in the UK, where engineers are treated much worse than their counterparts in Germany.

As early as 1959, C.P.Snow noted in 'The Two Cultures' that engineers and scientists were not considered 'real' academics at universities. That attitude is alive and well still, and the ranks of academic administrations are full of professors of education, philosophy and psychology.

The recent bailouts in the US add another data point. Wall Street, which produces nothing, was given over $350 billion with no conditions, yet the auto industry was raked over the coals for asking for $25 billion in loans.

I don't think that it is a coincidence that the amazing US Constitution was written by men who were not only were versed in the classics, but knew the science and mathematics of their day.

It is a fact that most of the ruling elite in China have engineering degrees, as do many of the business leaders in Japan. The CEO's of BMW and Volkswagon have always been doctors of engineering.

I am convinced that one of the reasons for our current problems is that our social and political structures have not adapted to the Scientific and Industrial Revolutions. While living in imagination may be more fun than being constrained by reality, we need leaders who can make the hard decisions.