Reading Jim from San Marcos' latest, it occurs to me that debt default looks like a seriously bad idea - cutting off your nose to spite your face doesn't come into it.
Saturday, August 29, 2009
Tuesday, August 25, 2009
Debt, unemployment and escape routes
Interesting observation by Steve Keen: unemployment correlates closely with the amount that debt contributes to demand in the economy.
Let me try to reason out the consequences, however inexpertly.
So, as everyone scrambles to cut spending and get out of debt, unemployment will soar. Since there is a great deal of international trade, the hit will be felt internationally.
Then government finances will come properly unravelled, especially in countries that have generous social welfare provisions. Worldwide, sovereign states will look for anyone who has real money to lend.
This should result in higher interest rates, but that would make the cost of debt, and its sustainability, extremely difficult, both for states and for corporations (and the burden on the latter will tend to result in even more unemployment and more claimants on the government). A rise in rates would also hit holders of long-term government debt, which may be one of the reasons the Chinese have been swapping that for shorter-dated Treasuries. A collapse in bonds will affect the capital value of pensions and investments, oh dear.
Another way out is default on debt. But who will be hit by that? Not just foreigners, but our pensions and managed investment funds.
A third way, which given that we have history to learn from doesn't seem likely, is the true hyperinflation approach. Germany in 1923, Hungary, Argentina, Zimbabwe... do you really see this happening here?
Then there's the downgrading of debt, with corresponding falls in the traded value of the currency. We've seen some of that - what, 20% off the pound? - so maybe there's more to come from that direction. Except other countries may follow suit. In 1922, if you were a far-sighted German, I suppose you might have sold marks and bought dollars; what currency would you buy now?
Or there's "more of the same" again - talking up the economy and pumping in cash until you spend because you daren't leave it to rot in the savings account.
Which way will it go? Where will it all end?
Let me try to reason out the consequences, however inexpertly.
So, as everyone scrambles to cut spending and get out of debt, unemployment will soar. Since there is a great deal of international trade, the hit will be felt internationally.
Then government finances will come properly unravelled, especially in countries that have generous social welfare provisions. Worldwide, sovereign states will look for anyone who has real money to lend.
This should result in higher interest rates, but that would make the cost of debt, and its sustainability, extremely difficult, both for states and for corporations (and the burden on the latter will tend to result in even more unemployment and more claimants on the government). A rise in rates would also hit holders of long-term government debt, which may be one of the reasons the Chinese have been swapping that for shorter-dated Treasuries. A collapse in bonds will affect the capital value of pensions and investments, oh dear.
Another way out is default on debt. But who will be hit by that? Not just foreigners, but our pensions and managed investment funds.
A third way, which given that we have history to learn from doesn't seem likely, is the true hyperinflation approach. Germany in 1923, Hungary, Argentina, Zimbabwe... do you really see this happening here?
Then there's the downgrading of debt, with corresponding falls in the traded value of the currency. We've seen some of that - what, 20% off the pound? - so maybe there's more to come from that direction. Except other countries may follow suit. In 1922, if you were a far-sighted German, I suppose you might have sold marks and bought dollars; what currency would you buy now?
Or there's "more of the same" again - talking up the economy and pumping in cash until you spend because you daren't leave it to rot in the savings account.
Which way will it go? Where will it all end?
Monday, August 24, 2009
More on Al-Megrahi
Should an innocent man stay in jail to assuage our feelings about Colonel Gaddafi? A member of the Scottish Parliament thinks not.
And the total number of visitors to Professor Robert Black's blog has leapt 50% in the last week. They also serve, who only stand and wait.
And the total number of visitors to Professor Robert Black's blog has leapt 50% in the last week. They also serve, who only stand and wait.
The world may not be flat, but the universe is... or maybe not
(picture source)Does dark energy exist? And if it doesn't, what about dark matter? These two are supposed to constitute 96% of the universe - and we get to see the other 4%. Or is it 5%. Or maybe not.
I'm sticking to Marmite. Though even there, theological problems rage.Credit contraction is outpacing monetary stimulus
"... the Eurozone, the UK, Japan, and essentially every county on the planet is all attempting some sort of stimulus plan or other. This is bound to cause a major distortion at some point, as no country has anything remotely close to an exit strategy for this. What kind of distortion and when cannot be certain because we are indeed in uncharted territory, worldwide."
- Mish.
The more I read around, the more uncertain I become. All I have is my instinct, that things are out of control and we're being told fairy stories to lull us.
Mish's argument is that "The credit bubble that just popped exceeded that preceding the great depression, not just in the US but worldwide. Thus, it is unrealistic to expect the deflationary bust to be anything other than the biggest bust in history. Those looking for hyperinflation or even strong inflation in light of the above, are simply looking at the wrong model." If he's right, it's cash is king, for a long time to come.
- Mish.
The more I read around, the more uncertain I become. All I have is my instinct, that things are out of control and we're being told fairy stories to lull us.
Mish's argument is that "The credit bubble that just popped exceeded that preceding the great depression, not just in the US but worldwide. Thus, it is unrealistic to expect the deflationary bust to be anything other than the biggest bust in history. Those looking for hyperinflation or even strong inflation in light of the above, are simply looking at the wrong model." If he's right, it's cash is king, for a long time to come.
Thursday, August 20, 2009
Freedom and healthcare
I've just watched Daniel Hannan's address to Americans on the dangers of a nationalised healthcare system. I, too, want America to carry on holding up the torch of freedom and democracy that is being doused here in the UK, so that one day we'll be able to re-light ours from theirs.
But it seems to me that if you want private solutions for problems which all have (or will have), but not all can afford, then you must address the question of inequality of resources.
Peter Rogers, co-creator and producer of the Carry On film comedies, once remarked he would 'do anything for my actors except pay them.' Similarly, so much is done for us in the UK, perhaps so badly, in the way of health and education (to name but two functions), when it might work so much better if we had the money personally and could make our own decisions.
We are witnessing a concentration into ever fewer hands on both sides the Atlantic, not only of power but of economic wealth. Every dollar and pound is a vote in the daily election of goods and services. To use the terms of the French national motto, if we wish for liberty but mistrust fraternity, then perhaps we should contemplate some redistribution of wealth to restore a greater degree of equality.
For example, how about some form of credit card (funded from general taxation and directed to individual accounts) that can only be spent on defined areas of need, but the holder to determine how to use his/her budget to best effect? Something like the educational voucher idea, but radically extended?
But it seems to me that if you want private solutions for problems which all have (or will have), but not all can afford, then you must address the question of inequality of resources.
Peter Rogers, co-creator and producer of the Carry On film comedies, once remarked he would 'do anything for my actors except pay them.' Similarly, so much is done for us in the UK, perhaps so badly, in the way of health and education (to name but two functions), when it might work so much better if we had the money personally and could make our own decisions.
We are witnessing a concentration into ever fewer hands on both sides the Atlantic, not only of power but of economic wealth. Every dollar and pound is a vote in the daily election of goods and services. To use the terms of the French national motto, if we wish for liberty but mistrust fraternity, then perhaps we should contemplate some redistribution of wealth to restore a greater degree of equality.
For example, how about some form of credit card (funded from general taxation and directed to individual accounts) that can only be spent on defined areas of need, but the holder to determine how to use his/her budget to best effect? Something like the educational voucher idea, but radically extended?
New fiction website
I've set up a new blog for fiction with a topical twist. The first story is about the euthanasia debate. The site is called Future His Story. I hope you like it; if you do, thanks for reading it and please let others know.
Wednesday, August 19, 2009
The long crisis, and the rediscovery of the family
Calculated Risk plots the actual and projected change in demographics from 1950 to 2050, adds the observation that over-65s cost 3 times as much in medical care as their juniors, and the rest is future history.
Meanwhile, Leo Kolivakis looks at the looming meltdown in US pension schemes, mirroring what's going on now in the UK.
Long term, it looks like down with house prices (since the younger generation will have much less free income to take on debt) and (thanks to the oldies' rising income need) down with stocks.
Nurture your young.
Meanwhile, Leo Kolivakis looks at the looming meltdown in US pension schemes, mirroring what's going on now in the UK.
Long term, it looks like down with house prices (since the younger generation will have much less free income to take on debt) and (thanks to the oldies' rising income need) down with stocks.
Nurture your young.
... and the money trickles up
... Americans will thus pay for the TARP and low interest rate subsidies to their financial rulers with erosion in the purchasing power of the dollar. What we are experiencing is a massive redistribution of income from the American public to the financial sector.
- Paul Craig Roberts (htp: Jesse)
- Paul Craig Roberts (htp: Jesse)
The ranks close
...the US has a finance and policy elite defined by college ties and related social connections, an elite with a strong sense that only people in their circle can really be trusted, and that their institutions must be saved at all cost at taxpayer expense if necessary.
- Robin Hanson
- Robin Hanson
The energy crisis
There's much talk of looming energy problems - it's a staple of Nick Drew's blogging and even The Economist has now turned its attention to it. Today I see Brian Gongol has netted a story about battery development and how it could support the energy infrastructure.
But how much could we still do in the way of more efficient use, and non-use, of energy? According to this DTI report based on 2001 stats, the home uses 31% of the nation's energy (see Chart 1.3 on page 9). Chart 1.6 shows that in 2000, space heating accounted for 40% of all non-transport energy consumption.
More woolly pullies?
But how much could we still do in the way of more efficient use, and non-use, of energy? According to this DTI report based on 2001 stats, the home uses 31% of the nation's energy (see Chart 1.3 on page 9). Chart 1.6 shows that in 2000, space heating accounted for 40% of all non-transport energy consumption.
More woolly pullies?
Tuesday, August 18, 2009
Law
We've been renting a house and now it's about to be sold; but the purchaser is delaying the exchange of contracts, with good reason:
The house has a fabulous view southwards, across fields and woods to the silver river and the sea beyond. This is an Area of Outstanding Natural Beauty, which is also a Site of Special Scientific Interest, so it should be highly protected. However, the field immediately in front is owned by a farmer who wants planning permission to build six houses on it. He's tried several times before, and although he's on the local council himself, he's been turned down each time, so far.
I jest to the owner of our house: "Have you tried dropping a few rare species in the field?"
"There are rare species. The Authority wrote a letter to him saying that they would be conducting a field survey. When he got the letter, he mowed the whole field - right down to the ground. Then he sprayed it all over with weedkiller."
The house has a fabulous view southwards, across fields and woods to the silver river and the sea beyond. This is an Area of Outstanding Natural Beauty, which is also a Site of Special Scientific Interest, so it should be highly protected. However, the field immediately in front is owned by a farmer who wants planning permission to build six houses on it. He's tried several times before, and although he's on the local council himself, he's been turned down each time, so far.
I jest to the owner of our house: "Have you tried dropping a few rare species in the field?"
"There are rare species. The Authority wrote a letter to him saying that they would be conducting a field survey. When he got the letter, he mowed the whole field - right down to the ground. Then he sprayed it all over with weedkiller."
Saturday, August 15, 2009
I see a bad moon rising
... sang Creedence Clearwater Revival. And as Panzner points out, inequality and growing poverty are factors that destabilise society.
He reproduces a graph (see below) that shows inequality is now higher than it was just before the Crash of 1929. The line also suggests that the rich do get hurt when the economy goes down - but they still do very well compared to the "ordinaries":
See where the least inequality came? Around 1980 - just when "it was decided" that lending and debt should take off and power a generation-long series of bubbles. Please see below my graph from June, which shows that political conservatives can be far from conservative when it comes to handling the nation's finances:
Friday, August 14, 2009
Market signals
At the hospital shop, a woman puts a £1.15 bottle of mineral water on the counter. The till operator says, "If you buy a Telegraph, the water's free."
"How much is the Telegraph?"
"90p."
"Okay." She rings it up. "Do you want the paper?"
"No."
She folds it and puts it to one side.
Everybody happy.
"How much is the Telegraph?"
"90p."
"Okay." She rings it up. "Do you want the paper?"
"No."
She folds it and puts it to one side.
Everybody happy.
Thursday, August 13, 2009
A gross miscarriage of justice?
The proposed release, on medical and compassionate grounds, of the supposed Lockerbie bomber Abdelbaset Ali Mohmed Al-Megrahi, is controversial and currently leads the TV news agenda here.
It is well known that GP Jim Swire, who lost his daughter in the atrocity, attended the trial in the Netherlands and became convinced that Al-Megrahi was innocent of the charge laid against him.
It is also most interesting to read a blog set up two years ago by Robert Black QC FRSE, Professor Emeritus of Scots Law in the University of Edinburgh. His blog supports Swire's contention and discusses the way in which the legal case against Al-Megrahi was conducted. The very first post contains this paragraph:
It is my firm view that the crucial incriminating findings made by the judges were unwarranted by the evidence led in court and were in many cases entirely contrary to the weight of that evidence. I am convinced that no Scottish jury, following the instructions traditionally given by judges regarding the assessment of evidence and the meaning and application of the concept of reasonable doubt, would or could have convicted Megrahi. So how did it come about that the three distinguished and experienced judges who concurred in the verdict felt able to convict him?
Black summarises and comments critically on numerous points of evidence and the court's findings in relation to each. He posts again today and says:
The families of Pan Am 103, as victims, deserve justice; they deserve to know the truth. My own dark thought is that any decision made by Mr MacAskill will not really be based on compassion but on political expediency. There seems to be a desire to get Mr Megrahi out of the country and to have the appeal halted at all costs. Perhaps the Crown Office and governments fear what might be revealed as the appeal continues.
Black's blog stat counter shows that he has had only some 33,000 visits since October 2007. Perhaps, reader, you will look at what he has to say and encourage others to do so.
It is well known that GP Jim Swire, who lost his daughter in the atrocity, attended the trial in the Netherlands and became convinced that Al-Megrahi was innocent of the charge laid against him.
It is also most interesting to read a blog set up two years ago by Robert Black QC FRSE, Professor Emeritus of Scots Law in the University of Edinburgh. His blog supports Swire's contention and discusses the way in which the legal case against Al-Megrahi was conducted. The very first post contains this paragraph:
It is my firm view that the crucial incriminating findings made by the judges were unwarranted by the evidence led in court and were in many cases entirely contrary to the weight of that evidence. I am convinced that no Scottish jury, following the instructions traditionally given by judges regarding the assessment of evidence and the meaning and application of the concept of reasonable doubt, would or could have convicted Megrahi. So how did it come about that the three distinguished and experienced judges who concurred in the verdict felt able to convict him?
Black summarises and comments critically on numerous points of evidence and the court's findings in relation to each. He posts again today and says:
The families of Pan Am 103, as victims, deserve justice; they deserve to know the truth. My own dark thought is that any decision made by Mr MacAskill will not really be based on compassion but on political expediency. There seems to be a desire to get Mr Megrahi out of the country and to have the appeal halted at all costs. Perhaps the Crown Office and governments fear what might be revealed as the appeal continues.
Black's blog stat counter shows that he has had only some 33,000 visits since October 2007. Perhaps, reader, you will look at what he has to say and encourage others to do so.
Tuesday, August 11, 2009
Liberty: a debating point
We've been arguing liberty vs addiction recently, and my own latest comment is:
Libertarian laissez-faire needs to mean more than simply standing aside and watching the rich and powerful cock it up for everyone. Paradoxically, libertarianism implies some kind of rule-setting and limitation of power.
Does that seem reasonable?
Libertarian laissez-faire needs to mean more than simply standing aside and watching the rich and powerful cock it up for everyone. Paradoxically, libertarianism implies some kind of rule-setting and limitation of power.
Does that seem reasonable?
Monday, August 10, 2009
Back where we started
As concern grows for the future of the dollar, we should reinterpret stock movements to take account of currency exchange fluctuations. The above chart shows the Dow since the start of the year (red line) and adjusted for relative value of the US dollar against the Euro (green line).If you have any suggestions as to what other currency to use instead, I'd be glad to read them. I fear that future weakening of the British pound and the US dollar may well undermine apparent future recoveries on their stock exchanges.
Sunday, August 09, 2009
Why are you doing so well, dummkopf?
The Economist has its needle so stuck in liberal economics that its leader writer almost audibly busts a gut trying to find something wrong with Germany. As far as I can see, the daft Krauts are to be roundly condemned for...1. Basing their economy on manufacturing
2. Running a trade surplus
3. Saving money instead of spending it on more imports
4. Not paying others to provide services they can perform for themselves
5. Not lending money to encourage more new businesses to start up (despite the fact that, as I learned years ago, 80% of new enterprises fail within two years)
6. Allowing women to stay at home
7. Saving jobs in order to preserve the skill base
We should all be so stupid.
A couple of days ago, I tried reading The Guardian newspaper again, and although there were one or two peanuts to pick out of the ordure, mostly it was, as I said to my wife, "Facebook for tw*ts". The writers even include their pictures in their by-lines so you can see they're still congratulating themselves on how well they used to do in the sixth form debating society.
But I think The Economist may have beaten them by a short head this week.
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