Vacation

I will be leaving my domicile on Sunday--Dec. 21--for a long-awaited, if not deserved, Vacation. It will be a long one, and Conditions are fluid; but I may not be back online until after January 25, 2009. It is a Run for the Sun, and I am searching only for Heat. lgl

Bureaucratic Reality

Can a Tax drive an Economy? That remains the essential Question, and the Answer must be Yes. Taxes, unlike almost all other economic stimuli, affect the economic participation of the entirety of the Population; simply due to the operational effect upon the manner of doing business. There remains a definite flow to Investment development, and Tax policy changes the direction of that Investment flow; ofttimes in an undesirable manner. This article helps indicate that alteration which was caused to the Housing sector since 1997.

China acts as a prime example of the above criteria, where Tax policy after 1978 was specifically directed to the development of Export trade. Huge Investment, domestic and foreign, was focused on Export manufacture due to Tax breaks and other political measures. Vast Wealth poured into the Country, but domestic markets were ignored. The Chinese Consumer developed a dependence on foreign Goods, the Chinese manufacturer became slave to Export sales. Foreign Investment became addicted to the Tax advantages, and started to flee even at suggestion of their elimination for other underdeveloped nations promising Tax and Political advantages. China now still lacks development of domestic markets, especially the distribution networks already developed by foreign Products; who are about to abandon China because of retreating Sales as China Workers face unemployment due to the retardation of purchase of Chinese Goods in the World Market. China must evolve, but economic circumstances retard that movement even worse than their initial position in the late 1970s, as they now possess a trained labor force which lacks Work.

I will let Dean Baker explain the entire argument better than I can without a whole lot of effort, though his concentration was on asset bubbles. What Dean does not do is enter the Suggestion that the basic rationale for the asset bubbles was that Taxes were too low. Business and Politician insisted that Government Spending must not decrease, but that Tax revenues had to drop. Business insisted that the Tax revenues canceled must favor Investment, so People could not get the Tax advantages without Investment; creating the necessary environment for asset bubbles. It was great for Business, until Everyone realized that Returns could never match the inflated level of Capitalization (inflated due to the massive resource demand). Could the Economists have forestalled this Condition by Warnings, some did but were completely ignored. Spokesmen for any economic policy last only if those policies are Popular; Treasury and Fed officials obtain their positions through providing no disturbance to the popular Status Quo, Whistle-Blowers never survive though they are typically Right. lgl

Microfinance for Americans

Tim Harford gives Us a good article on Microfinance, but leads me to assorted questions. The paramount question asks Why microfinance does not reach into American society. It would be equally relevant, with only a change in the Numbers. I study the Issue, wondering how the basic matrix of microfinance accounting could be brought to American society. This brings on the idea of a altered format of microfinance, a relative new revision of the Credit Union format. The basic rationale would be that Subscribers would contribute Weekly or bi-Weekly with possible initial lump-sum Payment (the largesse of the lump-sum could be $300-$1000, with other payments to be $10-$50 apiece). The basic format would be that the initial lump-sum must be reached, thereafter loans up to the lump-sum limit could be taken out at anytime. The Interest on the Loan would be around 50% per year compounded bi-Weekly, but half of the Interest would be shared with the Subscriber/Depositor upon complete payment of the loan. It would likely become a valuable tool for Americans to Save, while initial Deposits would be helped by the federal and State Tax Rebate systems.

The genus behind the system consists of the ease by which the Deposits can initially be made, the normalcy of Payment size in comparison with Credit Cards, the alternative to Splurge spending upon receipt of lump-sum payments, the high Interest rate inveighing for quick payment of the loan, and a method of Saving in sharing half the Interest on the loan upon payment. The size of the Account, under proper handling from the loan institution, would practically increase automatically (aided by a base 4% Interest rate on unloaned amounts), while providing a rewarding rate of Saving through the simple repayment of all loans. The loan institution would have to be a Dept. of a larger Bank to be initially viable, but the Accounting methodology would be simple and straightforward, with attendant benefits for both bank and Depositor.

A major bank will have to be found to fund and establish the necessary networking, but compliance with the terms of the loan payments would be both lucrative and simple of construction. The bank would find itself absorbing Tax Rebates from many levels of Income, utilizing simple Math to determine monthly payments on loans for relatively rapid repayment of all loans, the ability to show Depositors definite Gains through normal loan reduction, and make a good Profit from the exchange. Bankers will claim there is not sufficient demand for such small loans, though I imagine that the investing Bank will find Depositors from all Income levels up to $150k, simply to have a small loan avenue without hassle which pays high benefit from early reduction of the loan; loan availability again renewed with a pleasant Return for loan repayment. lgl

I await Brain birth.

I have read these two paragraphs several times, and am still trying to define the gist of the material. John Quiggin evidently wants to write a dirge for hedge funds and money market funds in general. I am somewhat like dsquared, who would have a proper response to the development of credit derivatives since 2002. The big element in all of this might be research into the managed holdings of Corporate funds, which seems to stay out of market activity up to this Point. We all await the turn of the Year, to determine the Marketing strategies of the Majors who have lost Sale Weight over the last Year due to their association with Entities which have tanked. January will bring clarity, if only by the slashing of distractions from the financial crisis.

I first thought that this Post was a great addition to my Piece, because it would say something in defense of Peer Steinbrueck; I tending to side with the German view. Nick Rowe, though, quickly turns the arguments to assumed Equations; all of which have to be defined as accurate and fair in determinate solution. Then the ‘assumed’ part of the Equations take hold, and nothing is gained until actual Values are plugged into the Equations. I will make it worse, and state that capital mobility is sonic wave, and some half of all values will give Readings equivalent to perfect capital mobility. My mind is not working this morning, as I cannot define the sense of the Rowe argument, but a better explanation may come along.

Arnold Kling also has some difficulty with Modeling this morning, mentioning that de-leveraging has practically no association with standard finance models. Arnold would like the Parrot to fly away, but still thinks the bird is dead. There are too many liabilities associated with financial instruments, and the downward bow of mortgage securities will not straighten anytime soon. Arnold’s finite Recession will not replace the Great Depression II very soon. Mark Thoma brings on a set of data which gets me to inquire why Everyone descends to basic introduction Economics terminology which is as confusing as when first issued to me some decades ago. Do I want to go back to widgit finance? I barely have time to integrate compound Oil products. lgl

Old and Cranky

Japanese business begins to disintegrate the remaining Employee/Employee relationship which was so admired back in the days of my youth. Brand loyalty cannot seem to suffer in any part of the business matrix under the impact of rising Populations. A great part of this is the demanded high level of Profits from Investors, though it is a lesser part than Most would Think. Stock Dividends have been marginalized over the decades as a component. Most of the new Corporate fear resides in loss of Product demand to new entrants into the Consumption markets. Corporate leadership insists on maintaining the capital to finance an introduction of a new Product line to compete in an already over-filled Market. The Recession only heightens that fear.

I agree with this blog entry totally, and not at all. It is a prime period to renovate State Tax codes, if the objective is greater rationality–not Tax Cutting. We need to eliminate Tax preferments, special allowances, and complicated Tax payments dependent on the amount of Tax which is paid to the federal government. The Task would be helped by getting rid of the idea that the entire burden should be thrown on the Consumer, a common advocacy among business personnel, but a delusional attitude which ignores the real retardant to Consumption. Business is better placed both to Account and Pay for taxes, and to organize to suppress excessive taxation. Consumers are already overburdened with paying Bills and federal taxation, and don’t need large-chunk tax extractions for State revenues. Business should accept their own Share of Property taxes, a minimal taxation on their own Profits, and undertake payment of major Sales Tax imposts; charging the entire load off as normal Operating Costs. The Concept of throwing Tax payment off onto a disorganized Consumption market will only distort already erratic Consumption patterns.

I sort of like this Teaser from Tyler Cowen, though he gives only enough to tantalize. I decided to explore, and found the authors as reticent of expression as Tyler; neither Abstract or Introduction presenting much delineation of the three scenarios under discussion. I was most interested in learning of the long-term consequences of the scenarios, but was left wanting. It is my idea that long-term deficit financing of fiscal policy will inevitably lead to loss of normal economic incentives, and therefore produce a reduction of actual economic performance. I will have to break down and read the Paper, as the authors desire, or be left with my preconceptions; a circumstance not unfavorable as I dislike being contradicted, but not truly of good academic performance (Hint to Those Readers who are econ students). lgl

We Need to Get Creative

There is no way that this is wrong, but why in a Capitalist economy does the federal Government always represent the Guarantor of last resort? Bad Investment Counsel, Poor Investor, Bad Investment–no matter–the Government will cut your taxes for the total of the loss. Individual responsibility can be avoided at all Costs, and I await the Tax regulation where Those who are fired can deduct loss of future Income from their Taxes. It wants for Viability in a time where Jobs are scarce, and the urge is to blame the Government for all things. I would run a Test Case for the Return of back taxes because of future losses from loss of Job, if I had a Job Then or Now.

Frederic Mishkin may be stirring the waves of that famous ‘Tempest in a Teapot". He holds that the Federal Reserve still has multiple means to induce Market behavior, even though Most of Us cannot see it. Mishkin uses the undefeated Concept of comparing Fed action against a lack of action on the part of the Fed. I ask myself always when this reasoning is employed: What would have actually happened if the Fed had not interfered? Would the Situation have been that much worse, or would a quickly-operating Market have already placed this glitch behind Us? All I witness is a bunch of Managers whining about what they have lost, in order to get in line for Fed Cash, rather than Everyone moving on.

I might utilize Mark Perry’s line of argument to discuss the whole of the current American economy. It would be interesting to hear what Joseph Schumpeter would think of current federal economic policy. The Federal Reserve was originally founded to aid the cyclic flow of funds from the Cities to the rural areas where needed in Times of Harvest and Planting. The entire Concept was the adequate flow of funds in the proper direction when needed. That Need has disappeared over the Years, and the Regional Federal Banks have lost some validity. A central economic coordinating committee seems necessary, but is it important that it be composed solely of Bankers? My entire Point must be that We are afflicted with a wide assortments of outdated federal mechanisms to assault the economy, and it might be Time for Creative Destruction. lgl

Monetary Policy Error

James Hamilton presents some doubt to John Taylor’s assertions that fed policy actually aggravated the current Crisis, blaming the difficulty on a lack of regulation of the various financial institutions involved. I would forward a third thesis: that the Bush Tax Cuts actually provided inordinate levels of liquidity, straited that liquidity almost solely to Investment capital, and increased the Income generation of that liquidity. The increased volume of funds excited a laxity of loan policy in financial institutions, which grew with practice under the constraints of bonuses paid to Venders of the largest volume of loans and Investments. The intrinsic theory in my thesis states that low Taxes are not only a promotion of economic performance, but if too low, can over-fuel the economy; leading to excessive Resource Costs and multiple duplications of Investment capitalization. Economics need explore the regulatory empowerment of Taxation, also the dangers of Tax freedom.

The Above commentary holds real relevance in view of the Chinese plan to print Money to maintain liquidity. China already possesses an over-capacity in practically every production sector, and the input of extra funds can only have adverse consequences, unless those funds are directly distributed to Chinese Consumers. Any other program will lead only to a prolongation of the over-capacity of production with reduced incentive to develop Consumption for their Product. The worst aspect will be continued duplication of capacity in sectors already saturated under the current pattern of Consumption. Such monetary policy will only make an already bad situation much worse!

This is obviously the wrong path to take no matter whether my thesis is correct:

The author claims the RMB to be undervalued by 30% or more. How would he know? The only way to find out for sure would be if China freely floated its currency. I think the RMB would more likely crash than rise 30% if China floated it at this point. Furthermore, currencies have little to do with the inability of American manufacturers to compete against China. Wage differentials are 12-1 to 30-1 or higher and it is impossible to make that difference up with a RMB revaluation alone. Nonetheless, it is clear that China is playing a game of Beggar Thy Neighbor, "competitive devaluation". Then again, the US seems hell bent on destroying the dollar to boost exports and/or to get consumers spending again, and Japan has threatened to get in on the act by selling Yen and buying dollars. Brown is certainly hellbent on destroying the British Pound. With everyone in on the act, or threatening to get there, the dollar is far more likely to enter a trading range than to crash. lgl

Changing Times

I have long been fascinated by the reactions of different Generations to the same stimuli. An Economist must utilize such information to estimate changing Consumption patterns, especially under the constraint that Consumer buying patterns alter with the Age of the Generation. It may be a factor which will vitally impact the World Auto industry. Older Generations of Americans grew up accustomed to wide-open empty Spaces; I, as a Baby-Boomer, still enjoy travel on the two-lane Highways, and the solitude of an empty Car, while traveling great distance across the landscape. Succeeding Generations are far more attuned to crowded restaurants, packed Malls, and Raves. They break the isolation of the Automobile with the constant cellphone, and a committee-style decision process where you use the cellphone to contact the designated friend with expertise in the area of decision. Baby-Boomers such as myself have been known to even shut off such Instruments under the pressure of achieving Privacy. We are of that Generation where the Car gives Us peace in the midst of traffic jams. Our Children are used to a constant buffeting of larger crowds, and have an intrinsic ability to reduce their Privacy to their person with seeming ease. This characteristic may be the downfall of the Auto industry, as Sales decline because the Automobile loses its sanctity as a House of Privacy on the move; drive-in windows may even lose their appeal, as Consumers find the idling automobile too expensive to maintain with future fuel prices.

Here is the article Readers should read when considering Investment. Almost no portfolio manager made the right decisions before the last downturn, which has did much to crate the crisis conditions of today. Risk is not like a business loss where the losses can be accounted as a percentage loss of equity. Risk has the property of ‘all or nothing’ in that the Profits will be realized, or only a fraction of the equity may be returned; often only after there has been an expensive utilization of legal fees. An Investor must be attuned to the concept of dissolving assets, where Value disappears without initiate action. Risk insists that Participants must be ready to accept complete loss of equity in a process in which the Participant has little contribution beyond the initial investment. Those who think that the repayment process is automatic and always operates as planned, must learn or lose!

Retail Sales are still doing a Dance, with the imaginary Steps of Gasoline price declines hiding a respectable maintenance of Sales. The problem remains that it is the Christmas Season, and Consumers still hope for a joyous holiday; but they also may have already scheduled for a much reduced Consumption pattern with the New Year. Hard Times may be coming if this is the case, but We can always hope for the Best. lgl

Getting Serious about Politics

Congress did something sensible last night, when a resolute group of Senators insisted that the automakers work out their own problems or go through bankruptcy; it matters little that the Republicans did it for the wrong reasons–attempted attack on the UAW and retirement pensions. They showed their true heart with the fast track passage of the Pension Remission Act. The trouble here corrodes the viability of the Pensions, allowing Companies to avoid their responsibility under the 2006 Pension Act. This Act, by the way, was enacted to ensure to secure Pension benefits for the Retirees who will need those funds. Congress will eventually realize that they make a huge mistake in increasing the taxes on American labor (allowing Companies to renege on their Pension agreements is also a form of very high Personal Income taxation). Americans are getting tired of Congress taxing Labor and Consumer simply to give bankroll Cash to mismanaged Business.

Bernard Madoff may have established one fact: Hedge funds can only thrive in Boom cycles. Bust cycles make wrapping the Risk too expensive to make a Profit. The urge to cheat becomes huge when Investors expect high Earnings to stay in, and shredding of principle assets is the outcome as long as the books can be hidden. Bust cycles generate intensified draft of assets by Investors, and a lack of new Investors. Madoff was already in trouble in good Times, and crashed and burned because of the Downturn. Selling off assets is too simple and can be camouflaged, and therefore that Day of Reckoning can be delayed even if it makes things worse. Those Salaries and Bonuses of Wall Street are too lucrative to propel the necessary Honesty.

This missive drives an additional Spike into the unholy alliance of Politics and Business in this Country, where slush fund captures for Politicians allow for massive over-billings in Disaster relief. Only in America can natural catastrophe create a feeding frenzy. I talk with ordinary Citizens and they tell me how they can’t understand why Government costs so much. The Rich and Crooked make far more off Natural Events, than the Poor and Destitute ever will. Current American law places minimal Penalties on White Collar Crime. I would almost urge the passage of a Corruption law not outlining Prison Terms never Served (at least in full) or nominal stated financial penalties. The new Law would by Court Judgement detail the IRS to confiscate all financial and fixed assets of the Individual or Company convicted of illegal conquest of Government funds by Percentage formula established by the presiding Judge, within a range of between 25 and 75% of total assets held at time of the commission of the Crime. lgl

The New Economy

The Trade Deficit is growing again, which means We are importing a lot more than We are exporting; this being a chronic condition, but the spread is widening. A few Comments should be made on it. The Trade Deficit has many implications, though the long-term impact will be an equalization of Living Standards with the rest of the World. This is an acceptable practice if the living conditions of the World improve, another story entirely under a erosion of the quality of American life. Businessperson and Economist spot an advantage in the Trade Deficit, espousing the creed that it allows foreign Consumers to purchase American Goods, and that the Trade Deficit will disappear with increased Sale of American products. This will never happen! There remains a basic disconnect between American Consumption and American Exports. The later must be funded by foreign willingness to purchase, and that willingness to purchase will never arrive as long as the rest of the World can produce more cheaply than American production Costs. America will be saved by a Quality increase of American products alone, where both the life-span and durability of American products increase dramatically with Energy consumption in the usage of such products decrease. The American economy has long required a shift to produce less, but higher quality, products.

The Above is repugnant to American Business ethos, with its traditional award system based upon the rapid and high production of Goods. This policy fall before the Wind of loss of Consumers, or their loss of ability to pay. The Result is not pretty, with a drop of 1.1% in Wholesale inventories, because of a 4.1% loss of Wholesale Sales last October. November may look even worse than October, and Everyone can feel the crunch in the economy as Production seeks to downshift Production. A Switch to specialized, high-quality Production would reduce the immediacy of the dependence on Sales.

I will cite this Post to finish this Post, giving Reach to Readers who may desire access to the depreciation/appreciation methods of Currency exchange; a sophisticate arena with ramifications which might escape this author. China is in trouble because of a basic disregard for development of their own domestic Consumption market, while American Economists wish We could imitate the Chinese. Neither the Chinese or We Americans will be saved by wistful thinking, and structural changes are necessary in both Economies; the Question remains how much loss in Living Standards must be endured before a more realistic economic structure is adopted. lgl

All I Want for Christmas--Not!

This article seems horrid upon First Read, but then some Thoughts intrude. The first is that there are too many bottoms on the Water, all burning excessive amounts of diesel at high Average Cost over the last five years. The second Thought is that major Port systems are slowly starting to unclog, this totally due to the downturn in traffic; sitting in Port access costing more than $25,000 per day. Rail systems are slowing to the degree that Safety has probably been tripled, while still providing sufficient traffic for high marginal Profits. Air Traffic Controllers are starting to breath easier as all major airlines cut the number of their flights. American Consumers are attempting to restrict their Expenditures to stay within their Means–even if those Means include high Mortgage and a few maxed Credit Cards; something that they can hope to repay without shooting their elderly Parents. Developing nations have had years of extreme growth in which Time to start developing their own domestic Consumption; closing plants and lost Jobs might excite them into production for domestic consumption. The Comment that developing nations need accelerating growth rates to provide Jobs for expanding Populations ignores that fact most of these nations could not provide such Jobs even with a 14% per year growth rate; please give them the Internet address to Planned Parenthood.

Here is one of those rare Times where I wish George W. Bush would develop his plans with his usual speed. I am against the Auto Bailout because it is a waste of Money needed elsewhere. Congress and President could get equal distance with a decree that troubled Auto makers must enter Chapter 11 Bankruptcy, with the Congressional declaration to stop any devolvement into a Chapter 5 Bailout. This means there must be a mandatory Reorganization of any of the domestic Automakers who want Public assistance, though selling off the Companies in segments is forbidden without Congressional approval. Stockholders will be incensed at the loss, but they should get mad at their Management, not the American Taxpayers. The UAW will be angered at the loss of their Golden Parachutes, still Congress can direct the Bankruptcy Court that Retirees be paid a supportable Percentage of previous Employment Pay; One must understand that the current Retiree packages probably cost less than $300 per Vehicle, though Health Benefits probably cost another $100 per Vehicle; the problem is lack of Vehicle Sales because of doubtful Product. I would suggest Cradle to the Grave Servicing of the Vehicle for a Set fee of $50 per Maintenance Request, not to include the Cost of Part replacements. The Car companies must get their Act Together, and that will not happen with a CEO taking only his $14 million Salary.

I take a different attitude towards the Recession than does James Hamilton or Michael Dueker. The economy most definitely shifted Gears, and it was a rapid Downshift without previous slowing or braking. My philosophy was that the Economy tired of excess draft of Resources, with the resultant rise in Pricing, all due to One too many Consumption generations being present. It is not anything I would like to define precisely, but if it is true, then Job Recovery will pace Baby Boomer retirements. This is a complexion I enjoy no more than any of You, especially as I am a Baby Boomer myself. The only Benefit Recessions bring is a decentralization of economic performance, where small business units assume a local prominence with a localized labor force. It is really not enough to make a viable difference. I’m not up for Doom and Gloom in my dotage. lgl

The Christmas List

Here is my problem with the activity of the Treasury and Fed. The first bank ever chartered came into being for the sole purpose of obtaining investment capital from Those not normally accounted to be either Wealthy or possessive of Investment savvy. The establishment of Credit Unions took this impulse to the nth degree, thinking to take the Pennies of the Working Class, and turn them into fortunes; at least for Credit Union officialdom. The Thought behind the entire strategy was to dredge the depths to extract the last pfennig for Investment purposes. Suddenly, the Fed and Treasury is telling Us to Stop, and reverse the flow of funds. Huh? Bankers were supposed to be Paid for providing sustainable Investment from compartmentalized Deposits in Type Instruments. We are now told that Bankers did not maintain these sustainable Investments, mixed the compartmentalization of the Deposits, and removed essential distinction between Types of Investment. They follow all this gratuitous information with the statement that the poor bankers cannot make a Living anymore, and need be paid so they can maintain their previous Services (to Whom??) Now We have calls to rescue the Credit Unions, who cannot find the Investments for which they collected 8% Interest for the last half-Century.

We dropped 533,000 Jobs in November, and December numbers are getting somewhat obscene. No one seems to understand the real Costs which are coming Our way! Replacing those Jobs with alternate Employment will cost about $2.5 trillion–not $500 billion–and still fall about $200 billion short of normal Consumer Demand expenditure. New Deal-style Plans for Government action will be a Day Late, and many Dollars short! The real necessity of the current Recession is the most violently opposed by all leadership: consisting of the narrowing of disparity in Income. All leadership has worked to extend that disparity of Income, even when that leadership had proven to be a failure, or the ineptitude of that leadership was so bad they had to get Subordinates to explain Company policy to their Board members. The old program of stealing whatever you can in Salary will have to be revisited in the new, modern economy.

I decided to leave the Stage today with presentation of these three Links. Paul Krugman wonders if We are not going to imitate Japan of the 1990s, James Hamilton suggests We ignore the real Numbers–some of which are even worse than those of the Great Depression. Arnold Kling proclaims there was a systemic failure in the financial sector, though he might sow some confusion in its definition. It is lucky We are in the Christmas Season; What day of Christmas is it anyhow? What? Next Week? Sorry! lgl

An Acre on the Moon?

I have not blogged for three days, and feel no great interest in doing so now; nothing is so corrosive as a bad Cold afflicting the Soul. The Numbers appear bad everywhere, and I hate picking over Numbers in the first place; made worse by a tendency to impact worse than the traditional bad. Stephen Gordon actually found a new Canadian blog dealing with Economics, though I ask myself why Anyone would start such a Downer with the onset of the cabin-bound Winter? I cannot see much Salvation coming from Anyone dedicated to such a Crucifixation complex.

I suppose Now is the Time to inform Readers that I will be leaving in a couple weeks for a month of the Fun in the Sun; I would claim that I will lack the broadcast facilities at that Time, but I possess a Brother-in-law with full capacity. I will simply revert to the Time-honored: I most certainly can tell a Lie; and if I tell enough of them, no one will want to read what I say anyway. Stephan Gordon worries that the Canadians are getting insufficient absolute garbage from their American Cousins, so they need some of their own to pollute the environment in great clumps of noxious gasses. Paul Krugman is trying to spread his Hopes and Aspirations to Europe, and in the Process, collect his Prize. We are Not at that Time where Economists will eventually pick the right Topic, and find some value in developing it.

Every once in a while I get to read something on backwardation "that’s right, don’t ask me!" I always imagine it a article will start with a Come-One, like: "A Market finally developed for such and such item, where Buyer found Seller, and both deemed established Sale price acceptable to produce the Market." I have been declared persona non whatever far too often, especially in my anger at the entire World for my Cold; all criteria should be adjudged suspect, when I want to Shoot both my Bookie and my Banker as the same Time. Leaving off any rendition of potential venues of revenue for myself, I should be going somewhere interesting; of course, I have always liked Arizona. lgl

Truth in Lending

I fear to permit access to this Rodrik Piece, simply because I know that countervailing factors actuate to functionally freeze the Keynesian multiplier in a very inefficient position. The placement of that Position is very debatable, but Economists would spout the Numbers every other Word, if it ever exceeded 1.3 for the Keynesian multiplier. It highlights a genuine tendency in Economics; for real World work, put a decimal point and two zeros in front of that number. One can hear the murmur in every Econ Graduate Dept. in the Country: "I took Economics in the first place, because I thought these Numbers were important." Real Defeatism can be engendered within young Students by examination of the number of ways One can introduce a equal level of the Keynesian multiplier; and the maturity of the Student finally reaches the awareness that multiplier levels are always rather inconsequential.

Here is another blog, in this case by Paul Krugman, where he attempts to explain the innate resistance to real balance adjustments through equation modeling. The real reason why there is little real balance effects is Ownership delay in Consumption, allowing the real alteration in the Money Supply to affect all sectors before the Owners thought to utilize the Money. This is a simple Statement that the real balance effect of Money Supply changes will always revert to Zero over time, as Supply equalizes Demand. Sounds complicated? It is the old Story of Move It or Lose It, advantage to be gained only with the Ripple effect.

Cactus cannot understand the mentality which becomes entrapped within the fraudulent debacles of the World. He claims that they should have been smart enough to escape before the collapse, and does not understand the Criminal as Victim, which is common to all such escapades. The Front consists of first-time Criminals, they possessing a good Record and trustworthy appearance without skeletons. They have never before been given any type of personal power, making them totally resistant to Leave-taking from their Positions, and lacking any knowledge of how to escape Prosecutorial power. They become prime Scapegoats for the entire Injury, while having acquired a probable less than 5% of the criminal Profits, and truly befuddled as to where the rest of the Proceeds had disappeared. Cactus has to understand the connotations of the name ‘Fall Guy." lgl

Better Economic PR

I send this blog to the Reader because it is a relatively clear Picture of the decline of the Spanish economy, and the potential depth of the Crisis on Spain. I miss the lack of data on the Capitalization per Worker in Spain, but little else in the analysis. The later item gaining importance for comparisons of the Spanish economy with the other industrialized nations. The Reader should understand that the same Recession Worldwide affects separate nations differently, solely due to this level of Capitalization; the greater the level of Capitalization, the higher the loss of Investment Profits on that Capitalization. This represents a ridge-line of economic activity which has to be surpassed before the Economy must underwrite the loss of this Capitalization due to deterioration. This foreshortening of the Life expectancy of Capital due to production delay is one of the unexamined aspects of every Recession, and exhibits a binding Cost against previous Boom Profits.

That idea leads me to another contemplation: We Baby-Boomers may be facing our last Recession as labor, which means that We may be leaving the economic stage in an under-capitalized state, where our retirement coffers are disadvantaged from the outset. This will mean that We will not likely enter into full Retirement like our parents, but will retain Part-Time employment in which we continue to skew Employment models, while delivering a reduced level of performance. Refusal of Retirement will restrict the hierarchical rise of competent labor to upper management positions, and loss of experienced labor to greater opportunity. Baby-Boomers have always been a problem for Economists, and We will continue in that vane.

Here is an article which will give the Reader some idea of the troubles of retiring on the Downside. The 401(k) Plans are underperforming in the economic climate ( ratio of over 80%, rather than the usual 40%), and potential Retirees are already altering their Retirement schedules and Expenditure patterns; another circumstance which argues for a lousy Christmas season. It is rather bad form to disturb Those contemplating an End of a Work-life in the near future, a dragging long-term restriction of Consumer Demand from a most important segment; they possessing the aggregated assets to maintain Consumption through a Downturn, except when in fear of their economic future. It does not help that they are also the Class most able to defray Purchases until future Times, due to a recent upgrade on their Household equities. What I am trying to say is that Economists are frightening that group of Consumers, who they should be most interested in keeping calm. lgl

Recessionary Times

The Drug companies maintain a position of charging what the Market will bear. This article highlights a drug which was initially offered for $6 per Pill, but increased to $180 per Pill due to the fact that it was effective against Cancer. The Concept of Charging what the Market will bear is bankrupting the Market. The worst aspect of the Situation comes in the form where Drug companies only have to declare some life-saving benefit with a few millions of Advertizing dollars, and then collect several billions of dollars in Profit in the decade required to prove the Drug ineffective in drug Trials. The installation of false hope in Patients should carry felony penalties, but modern Politics only considers it to be smart Marketing. The worst element is the medical degradation involved, where all Participants gravitate to the most profitable venues–old people with lots of Cash who do not want to meet their Maker; intensely aided by a lot of political clout.

I love the manner in which contemporary discussion can imply that usurious labor demands are inhibiting economy recovery. A previous Study finds that tuition costs have gone up 439% in an interval where median family income increased by only 147%. The idea of a level Playing field has been decisively defeated by the college Administration offices. Check out what a percentage of Income is required to pay for a college education in lower income families. As a man who has attempted Working a full-time Job while attending college full-time, I think it important that future Studies consider the number of Students who work more than 25 hours per Week while going to College. We are in a World driven by Incentives, and a college education lacks Incentive in a primary Recession impacting mainly White Collar occupations.

The horror of the Recession bites home with these Reports, all relying on Private Sector employment, which is cited to be down 250,000. Readers may not think this important, as Economic numbers like These come out every month, and no one understands the true economic costs. Government Tax revenue loss can be considered approximately $1000 per Individual loss in Income Tax, a probable average of some $600 per Individual per FICA tax loss, a Government welfare payment of $2500 per Individual in Unemployment Insurance, and Private charitable contributions (as in Food Banks) equal to about $300. The Individuals involved draft about $4000 from their Savings and Investments on average, and raise their Credit Card debt by about $6000 with sustained Unemployment. Any Mortgage Holder will likely become Two months in arrears because of the Employment loss. I am sure almost all of the Above numbers will be contested by Economists, but this assessment is given to simply provide a manner to look at the Numbers. lgl

The 'End of Tunnel' Syndrome

There are many forms of ‘Mad Cow’ disease; almost all of them only a reaction to the actual illness. Canada filed Suit with the WTO because of American country-of-origin labeling demand which limits their Sales, but the article does not mention Japanese and European refusal to purchase Meat processed through Plants which process untested Meat. Is it a Trade war? Yes! Everyone is trying to sell as much as they can in a slowing Market, and Concepts of Free Trade wane in such an environment. Canadians cannot expect much of an indemnity from such American practice, as long as the attitude of Japan and S. Korea continue on processed Meat. The EU, by the way, have regulations which require the Pork labeling to gain Sales which are disappearing anyway. The humor consists of the fact that Canada sells to both Europe and Asia, and wants to eliminate the labeling solely to gain position in these Markets while dumping inferior Meats upon the American Public.

The ISM (Institute of Supply Management) said that manufacturing activity fell to 36.2 on their index where anything less than 50 means the economy is in contraction. The National Bureau of Economic Research has finally admitted that We have been in Recession since December 2007; only a half-year late according to my estimate. Overnight Oil futures actually dropped below $48 a barrel as Nymex trading finds a lack of Investment capital ever since August. The real trouble comes in the fact that declines are still more rapid than Economists predict, they very conservative with the Numbers; not wanting to promote greater panic than already exists. The National Bureau advises that the slump will last until the middle of 2009, but neither Private Sector activity or Government policy is geared to bring Us out of Recession even by then.

Mike Shedlock shows that California suffers from Overspending; the fact being that other States are in about as much trouble. The real problem pressuring all States is the methods of Taxation adopted over the Republican years: where Taxes were reduced to eliminate all revenue reserves, while Taxes were redirected so that lack of Production performance first reduced Tax payments before all else. States now need revenues and possess no way to raise those funds. Mish’s Solution is to cut Waste at State level, ordinarily a good thing, but disastrous within a Recessionary climate. Right now I am in the ‘Wringing of Hands’ stage in consideration of the economy, but will have to devise something soon! lgl

Economic Differences

Paul Krugman repeats a traditional argument where the Government must intervene any and all times that an Economy is threatened with Recession. I have been following that argument the entirety of my life, and have always had reservations about it. A Recession is first and foremost a Correction, where an omnibus of bad economic decisions all face termination in a quick, and violent, relocation of economic forces. Government intervention purports to intercede to prevent the violence and depth of the Correction, slowing the speed of hazard through artificial transfer of financial assets. Herein lies the Problem, which I will hopefully explain.

The first element of Government intervention which may be adverse comes in the fact that Those who made the worst economic allocations receive the assistance of the Intervention. Stable economic units in the Economy will never hope to find financial aid from the Government; they forced to accept the Penalty of being economically sound. It is only the unstable, poor operation, economically unstable units of the Private Sector who obtain the funding; giving them a wide advantage in resource recovery, provision of Wage differentials, and maintenance of unreliable production methodology. Government intervention does not promote the economy per sec, it simply forestalls the implementation of natural Corrective forces.

Here is the quandary about Government intervention. They defeat the natural Corrections innate within a Recession, by the simple expedient of funding inefficient economic operations. Spurious Profits taken in earlier, successful economic times are protected by Government sanction and funding, while stable economic enterprise can only endure excessively high resource and Production Costs because of the Government intervention. It is a State rift with the forces inherent to motivate future Recessions, even if the current Recession can be avoided. I am not necessarily against Government intervention, but it should be Government action promoting successful Government Needs; Government resurfacing Roads programs rather the construction of new Roads, increasing the size of military reserves rather than underwriting the employment at the Big Three Car companies, or employment for widespread Social Cleanup programs revitalizing poor areas. lgl

The Modern Reality

I always agree with what Greg Mankiw has to say, though I invariably disagree with the importance of the information. Keynes stands as a defunct Economist, but Greg does not understand why Keynes fails; a simple Case of the specialization of labor, We insist on putting too much Capital behind every laborer so that Keynesianism fails. Government Spending will work when you hand out Picks and Shovels, and fails when you hand out Back-Hoes and Bobcats; not even Government able to support Swarm labor under such conditions. Such commentary, though, does not provide a lucid description of why Keynesianism will not Work.

The first error behind the Economy is not an element of Keynes, but of neo-conservative Bushism. I am talking about the Bush Tax Cuts, which promoted too high a level of Consumption in the first place, inciting too much Production capacity, and funding that over-capacity in the Down Payment stages. Consumers ran up personal debt while paying excessive Prices in comparison to Production capacity, racking up overly large Debt service charges alongside great inability to Pay, and choked the Credit system with bad Debt. Investors, buoyed by Taxes never paid, generated too much Production capital for unneeded Products; placing only minimal money into it, stretching long-term payment on mortgages even when Debt reduction was easy, solely to grab more Tax writeoffs. Economy policy according to Bush dictated huge Debt, ill-Covered by Collateral, and refusal to reduce the Debt even when capable because of potential loss of Tax reductions.

Bushism also reduced the effectiveness of Keynesian Spending by the artificial expansion of the economy, shrinking the size of Government Spending in relationship to the total economy. Government Spending, to meet the specifications of Keynes, must be about five times as large to possess the same Effect, as seen in Keynes’ Time. This is not due to the degree of Inflation, as that expansion of Keynesian Spending must be in real terms. Much can be said about Our current economy, but Everyone should realize there is already too much Cash in the system, and the Fed and Treasury are intent on pumping more Cash into the system. The entire Question becomes whether We will still have a viable Monetary system, when the necessary Losses are finally taken. lgl

My own personal advocacy

Robert Reich started a sort of debate at his blog concerning Keynesianism. There are several important differences between Keynesian Times and the Present. A basic disconnect has been introduced between Capital Investment and Labor Capital utilization. Swarm labor has never been in force, even in the CCC camps of the Roosevelt era. Today, if it is a Choice between human labor and robotic mechanics, then Business will chose the Robots at a rate of about 80/20. The primary must be asked is whether Keynesianism can operate as it did in the time of Keynes; the Answer being No! Can it operate at any measurable Scale of Assistance? Keynesianism must always be based upon Consumer Spending, otherwise no additional Cash flows through to absorb the production of Business. Nothing is accomplished without the later, and the current Choice matrix of Business for Robotics could mean that Keynesian Spending will even lead to a reduction of Consumers due to Investment.

The obvious response is to state that the Government should employ greater amounts of labor, either directly or indirectly. This brings up another Problem in itself, as there is much hazard to absorption of Private Sector industry, just to promote Employment. I favor universal plans which would impact the entire economy, so that adverse effects are spread, and local controls are not displaced. My second favorite Option is for the Employment to be indirect. I also think any Plan will fail, unless it is centered upon the individual laborer. Ideas become striated under such strictures, but it is the function of academics to change the ridiculous into project able Planning.

Here is my Gift to the confusion of the era, which might lead Obama to shake his head, and Wright to curse White men again:
1) Unemployment Regulations should be altered, allowing Part-Time employment of up to 20 hours per Week, without loss of Benefits. Part-Time Employees need a Consumer Spending Assist even though they are Working, and the limitations of Weeks of Benefits will limit the Gaming of the system; though the interim period will get Us hopefully past the Recession.
2) A Law should be passed stating that Businesses can employ unlimited numbers of Part-Time Employees, where Employers can deduct up to the Minimum Wage level from their Profits for each of the number of Hours of Part-Time labor utilized. This is Double Dipping, with the Wages first deducted from the Operating Revenue, then redacted from the resulting Business Profits. Both Employees and Employers gain from this program, and there is double advantage to Consumer Spending; all for an estimated Loss of less than 4% of the Business Tax revenues which can be recovered.
3) There is a real Need for a universal Optional Health Care system. This System cannot guarantee the best medical care available; We are talking about warehouse hospitals, a Drug list of only outdated Patent rights, and medical procedures limited to reconstruction of lifestyle or immediate life-saving operations. Does it remind of the old VA hospital system? It should, because that is what it is based upon. Government can assure the necessary number of Beds, extort whatever medical insurance is in force, and will insist upon reversion to Home health care upon capability in order to save on Budgets. There will be maintained desire for individual health care to obtain the best medical treatments available, but there would be no patients without some form of Care; especially if the enabling law insisted on Out-Patient clinics to relieve Emergency room clogging; total Costs could be less than the current Medicare/Medicaid system, and quality Health Care would still be available. lgl

Orwellian Sense

I have been asked to explain this article and will, though I sincerely do not want to do such a saddening thing. We are in four straight months of Consumer Spending decline, which is still accelerating. Consumer confidence is retreating, the article claims the wave of Layoffs and Cutbacks, though Consumers worry more about the lack of New Hires; the Condition which worries them if they lose their Job. The Orders for Capital Goods dropped 6.2% in October, not particularly worrisome except for the 4% drop in civilian Capital Goods (which excludes aircraft, but aircraft should not be considered civilian because of airport organization). Housing numbers are lousy, down some 7% year over year in Price (I remember a previous Post where I stated that Housing need to drop over 20% because of the runup since 2004; I amazed by how difficult that was going to be). We are backing away from a balloon Boom where far too Many were tied to the balloons, and the experience is scaring Everyone.

The Fed and Treasury generate more despair than hope as well, as they seem to restrict their activities solely to keeping the balloons inflated, rather than normalizing the economic state. Both Paulson and Bernanke remain too close to the Banking system, and don’t seek advise outside of the Communities which brought on the Crisis in the first place. Every action taken has been a effort to protect the Bankers from the Injured Parties (Investors and Depositors), where the Bankers can maintain their own Pay schedules. This level of insulation has already cost the American Taxpayers hundreds of billions of Dollars, and will do nothing for the economy, until the degraded corruption of bad debt is driven from the system along with the management who produced it. We have to move forward, and current Government economic policy will not recognize that Need.

Obama promises a Change, and hopefully, it will come to pass as rational economic policy. I fear for major change, though, as he allowed Everyone to stampede him into rapid choice of economic Team. What is needed in America and the World today consists of a very Public discussion of the current crisis, and the Pick of his economic team could have allowed Obama to open a Public forum to discuss the crisis. As it is, Obama is trapped in a backroom deals format, from which he will likely be incapable from extraction; an entrance which will color the rest of his administration. My only advise to Barrack is to learn two well-known expressions: ‘Do it’ and ‘No'. lgl

Draft of Resources (you figure it out)

The Bush administration has at least taught Us How Not to do things, which I guess may be one backhanded benefit. Here is a tirade against Contractors which has some merit. The real error in Contractors consists of a lack of Accountability, both in the general sense, but also in the specific sense of details. I once heard that F-16s had radar systems which had to be maintained after every 20 minutes of actual use, because the design Contractor knew that the system overheated, but utilized the overheating design because of the huge R&D Cost drain over a couple years when success was not ensured to cure the Problem; when the system could meet Test qualifications for the short period Military Procurement would demand. That was my classic Example, though a little research can produce such malfeasance from every sector of Contractor performance.

The role of Contractors may be the epitome of the failure of the bonus system. The Promise of an End to the lifetime struggle to maintain Income leads to erratic and inferior Workplace performance, if the Shortcuts will get past the Pay queue. The Object becomes the necessity of getting past the Paymaster, not the provision of sound practice. News Services had a field day pointing out the shortcomings of contracted Construction in Iraq, where electrical systems were not grounded, and set Concrete crumbled after mild hammering. The Investment bonuses used by Wall Street were as equally damning; the Object becoming to get the bonuses when a year of bonus was worth a lifetime of labor. Who cared if the impact would bring down the system? They needed the huge Numbers to gain the bonuses; it did not matter if the bad decisions led to Bankruptcy in the long run.

Do you know what Knightian uncertainty is? Mark Thoma presents Us with this practical manifestation of the difficulty of talking People into risking their Money, when it is not definable risk, and the potential loss cannot be determined. The current Crisis in the financial world can in one way be laid at avoidance of the Knightian uncertainty, when it should have entered the calculations of all Participants in the underlying transactions. It might not have saved Us, but it would have put an upper limit to the Capital at Risk. The authors criticize the observance of Knightian uncertainty now, but they should have studied the loss of it from previous Business practice, and proposed methodologies to forestall such loss in the future. lgl

View from 'On High'

Can one estimate the multiplier effects of a Stimulus Package before the Package has been spent? The Answer is No. This is not a Critique of the Analysis, simply a Statement that the multiplier effects will alter every time, based upon method of dispersal, rate of adoption by Private Sector business, speed of Hiring, and the rate of Expenditure. Large-scale projects will have a longer Period of Dispersal, double or triple the Share of funds taken as Business Profits, and is affected seriously by the Cost of resources used in the Stimulus decisions. All of the Above portends a suppression of Wages, and therefore; it is counter-productive to generation of Consumer Demand–the prime rationale for Stimulus in the first place. There is a natural corruption of Stimulus by Profits-taking by Business as well; the Businesses involved immediately spotting the opportunity, with both Labor and Government Supervision brand New, and untested in conflict with tightly organized Business structure. The later entities will aggregate a normal half of the Windfall for themselves. Consensus multipliers generally hide more than they reveal.

I disagree with this Post by Alex Tabarrok, but it highlights the hazard of provision of Tax Credits to economic performance. Universal Tax Credits always brings multiple Players to whatever production sector is defined, Most without the requisite qualifications to actually produce successfully in the sector, and all inhibited from utilizing Market conditions to determine Production schedules. Ethanol production consumes Animal Feed at outrageous rates, Wind farms generate too much electricity for Power Grids which must introduce a safety factor of off-Wind capacity which must be paid in a high-Cost, high-Interest environment, and all Business seeks high Profits on total Capital investment. I would favor a guaranteed Profit level rather than Tax Credits, based upon actual Units of Power delivered and Sold.

I might as well introduce all the articles with which I disagree to some degree. John Taylor assumes that the Bush Tax Cuts were actually beneficial without Proof, and his thesis states that We should continue like behavior rather than expensive Stimulus measures. I would first like to say that the necessity for Stimulus developed under the system which he advocates. I truly believe that the Bush Tax Cuts supplied an excess amount of Investment Cash to the Markets, and subsequent efforts to absorb the Cash reserves brought the bad Lending practices to the fore. Funds which should have been drained from the Production process as Taxes later generated a Demand for Profits which could not be matched by the Production practices in force. The Reader is advised to read the article, and determine for himself what the Bush Tax program did for Us. lgl

High Finance

I don’t know what to say, but this is not the way to do it! The Fed and Treasury keep effectively printing Money, and We are reaching the Point where We will have both Recession and high Inflation. Nothing will cancel the Recession; it being basically an incapacity of Consumers to Spend, because it was fundamental over-consumption in relation to their Incomes. Most Consumers had increased their Consumption by about 45%, when their Incomes increased by only 25%. We cannot base a Recovery upon the principle of maintaining this over-consumption. The underlying factor is to employ more People, not to keep Bankers at work, when that labor simply continues bad practice or underwrites Production which has no Market.

Felix Salmon does not think much of the Citigroup bailout. The killing element stands as the $3.4 billion which has to be paid back each year, before Stockholders can even begin to draw a Dividend. Citigroup Stock will not appreciate in Price where the Government takes a probable 30% of the Profits off the Top, and the bad Securities are still within the Citigroup portfolio to the tune of in excess of $670 billion based upon mortgages which will be beat up. The guarantee of $250 billion seems hardly enough in consideration that $1.3 trillion of their assets must be judged Sour; where there will be delays in Payment, if payment comes at all. I begin to wonder who is going to bail out the Treasury, as Paulson chameleons it into a Goldman Sachs Look-Alike.

Greg Mankiw presents Us with an interesting Post with an analysis of the proposed Obama package to promote Employment. It is obvious that Obama plans to save the Jobs of Bankers and Businesspeople as well; it being the only possibility for the shortfall in Job numbers under the Obama plan. I wish Greg had analyzed the Cost per Job Saved for each Banker, and the potential Cost for each Business Job saved. The discrepancy clearly portrayed that saving Jobs is more expensive than creating Jobs, especially when it comes to Bankers and Business. One-Percenters, it seems, are always the most expensive Welfare recipients! lgl

Wading through the Swamp

Tyler Cowen and Christina Romer are very bright people who have faith in monetary policy, though I really have doubts of its efficacy. It works great when opportunity exists to absorb created Cash, but may fail drastically without mechanism to transfer that Cash to the Consumer for Consumption. The current Outcome of monetary policy has no structure to deliver the Cash to people who would buy the increased amount of Product hoped for by the Regulators. One should remember that this Crisis could be called the Consumer Cash Flow Recession, where they had incurred too many liabilities while lacking any Income increment avenue. Monetary policy can mean nothing in such an Environment; it reminding of the old adage that Generals are always fighting the last War.

Tyler advocates getting the small things Right, then enters a condemnation of the Roosevelt system of agricultural subsidies; he doesn’t like them, and I don’t particularly care for them either. The qualification, here, remains that Farmers will be planting next year at a Production Cost about $2 per bushel higher than the Market price for that grain. The ideal Economic argument states that the Market price of these Grains should rise to pay for agricultural Production Costs; the qualification being that such a Rise would absorb about 30% more Consumer Discretionary Income, when the greatest danger to the Economy is a decline in Consumption of large-Ticket items by Consumers. The first thing to go from Household Budgets under stress is renewal of large-Ticket items. One has to ask why there is such animosity to agricultural subsidies, while there is no critique on subsidizing financial institutions.

We really must increase Employment. It would help if the Government would cease declaration of a reduction of employment by venue of Unemployment Benefits running out; it being an immense gain simply to honestly state the Unemployment rate. Obama’s new Green policy could and should employ Millions, and in a manner which is self-perpetuating; actually producing a Product which can be sold–Energy, even if it is not immediately Profitable. The Answer to a loss of Consumption remains a solid increase in the number of Consumers. I also am old-fashioned in a belief that Employment will increase with greater Productivity with the good old venue of decentralization of sector industry. I would advocate a law stipulating that Product must be sold within the State into which it is distributed; this would provide greater Consumer satisfaction due to distributor access, and greatly raise Employment at a Cost equivalent to less than the current Bush Tax Cuts. Current policymakers must be imaginative. lgl

Revisionist Theory

Daniel Gross highlights the fallacy of comparing the current Crisis to the Great Depression. Right or Wrong, his comparisons all end up viewing the alternate Conditions of the two Periods, rather than the root causation of the Two. He makes a powerful argument, but also a hollow thesis. We have instituted massive programs to cancel the Results of adverse Conditions, but is there an substantial improvement in the actual curative treatment of the Economy? We are close to Eighty years away from the impulses inciting the Great Depression, and still not sure what impelled the economic breakdown, or can even answer whether We endure a repetition of the horror.

My thesis, fortified by the knowledge that all good Economists will think it to be Bull, states that Everyone pushes what seems to work farther than it can work. Social Welfare Spending may have reached its apex; further devotion of assets may only generate less economic production as excess funds absorbed reduce Production. The Liquidity issue may become self-defeating, as it narrows the Profitability of Investment by low Returns, while pressures on Resources bring high Price increases, and saturation of Consumption markets constrict viable Employment in the sectors. The promotion of Business through low Business taxation obviously promotes spurious Capitalization of Business ventures to escape taxation, while low Business taxes require Consumers to replace the funds; their increased Tax burden eventually translated into reduced Consumption. The Economy is a complex snarl, reminiscent of the Tower of Babel, where humans are challenging the powers of God.

I must first take that all these measures of various types can be introduced, and they may appear to work for years or decades. There is a maxima and a minima to such initiatives; definite boundaries beyond which these efforts are counter-productive. It is my Contention that all the Measures adopted since the Crash of 1929 have functionally ran their course, distorted the Economy with artificial funding of unusual economic activities, and introduced a false Price mechanism to the Commodities markets; the End-Result being that Production Costs have been woefully inflated, to the detriment of normal Profit ratios. We witness a process where industry capable of normal Business Profits under normal Production Costs cannot survive under the new Price structure for Resources. Further economic propellent simply will drive an increasing share of Business into Bankruptcy, when and if they are dependent on normal Production Costs. I believe We extended beyond the maxima boundary of Business promotion with the Bush Tax Cuts, and the slowed development of the World finally forced American Business back to a normal Production matrix; one dependent on normal Production Costs. Continued Economic propellents may yet cause another Depression. lgl

The Three Major States of Life

John Quiggin writes from one End of the spectrum, believing there is only doom and gloom ahead. The Problems are most assuredly there, and the Banking community will take the major Hit. Simply put, too much Cash has been loaned with insufficient collateral, and pumping Cash into the system will not provide Profits to the bad loans; let alone simple repayment which will not occur. The many Fat Cows are being rapidly eaten by the Lean Cows as the Bible does state, and is causing Meat prices to go up. There is the Rub, as the cannibalism not only consumes the Fat, but also the Meat. The pretense that Banks can ignore their insolvency by refusing to take Bankruptcy is not only ridiculous, it remains quite expensive for Depositor, Investor, and Taxpayer. We need Recovery, not Cosmetic surgery.

Here may be the opposite End of the spectrum. Mark Perry condemns the utilization of Socialism to provide Personal Services as only a form of Slavery. I would agree with his assessment to greater degree, if he would join me in condemnation of the $700 Billion Bailout Package. There is nothing different between a little old lady and a multi-national Corporation, if they are both looking for a Handout from Taxpayers. The one significant difference may be Cost, the little old lady being satisfied with much less expenditure than is the multi-national Corporation. Look into your Heart, and if the Solution seems to shoot the old lady and pay the Corporation; you probably require Empathy Training. I favor a good solid, "Pax on all your Houses", but would grant preference to the old lady, if only because she is cheaper to keep in the style to which she is accustomed.

I would imitate the little old lady, and beg some charitable organizations to pay for my legal fees, before I filed a Class Action suit for Bankruptcy for the American Taxpayers. I would assert that the current Debt load was too large to be repaid out of current Revenues, and improper Management was increasing the Debt as a tremendous acceleration without a proper program of repayment scheduled. The Problem, here, stands as most law firms would charge a Quarter-Million Dollars simply in Investigatory procedures to determine if there was justifiable grounds in the eyes of the law (basically a Review of large Bankruptcy outcomes, and study of previous Class Action proceedings). Lawyers like to get their House payments completed, before even entering real Billing stride. I remember decades ago when I went with a friend to file for personal bankruptcy for him; the lawyer heard his desire to file for Bankruptcy, pulled a set of Papers from his desk, and asked my friend’s Name, Address, and Social Security Number. The lawyer then put the Papers in an envelope, and delivered the Envelope to a Court Clerk, paying the small fee entailed. It was thirty years ago, and Money was worth a lot more, but the lawyer still billed my friend some $700 for such complicated legal maneuvers. Watch out for the Parasites who pose as hard-working Sheep. lgl

Enlightened Hindsight

Read this Thing, and find out what a failed Investor felt some 75 years ago. Irving Fisher got it right Then and Now, but that being said; there is far more to be said on the Debt which is out there. The first element to be discussed is the irresponsibility of the Lenders, whose failure to ensure adequate Cash reserves and Borrower collateral, functionally guaranteed an insecurity of Debt; all in the insistence on Bonuses for themselves, rather than safety of funds. The second factor is that Borrowers built their empires on unsecured assets with original debt against it, and hired good liars (called Investment bankers) who told such complex Lies that no one can define the exact Lie to this Day. Derivative authors can be directly challenged for Fraud, and would be liable for criminal penalties if they were not dressed in tailored Suits. We are basically in the Business form of Watergate, and Everyone is trying to hide the Evidence, all while the economy tanks.

One has to read this article to know why you feel Depressed. Andy Kessler lists the progress of the Market downturn, giving a rationale for each Trend. Remember that this is all happening in Real Time. People have been watching their Fortunes drift away for a long time, and wonder where it will stop. A mild Secret about the Market states that Gains and Losses are supposed to be canceled out, a Buyer’s success is countered by a Seller’s loss, or vice versa. Markets are supposed to Gain itself, only because of technological innovation or Capital Investment. The trouble here revolves around the fact the technological innovation must generate Productive Gains, not be simply Capital consumptive; and Capitalization must be hard Investment in Plant and Equipment, else extension of Capital is only Inflationary. Corporate diversification solely for Tax purposes is a Disease which eats Productivity, and Paper Investment Instruments are a Cancer that grows only with the absorption of Profits. Far too many Investment designs have been created not to increase Productivity, but simply to grant Originators a Profit or Tax advantage.

The Bailouts may be the Problem anymore. Everyone is maneuvering to fall within the canopy of the TARP, ever since the amount of Money was announced. The economic downturn, if other Recessions are any indication, would already be in containment by Six Weeks into the falling Markets. The turmoil in the Markets stays only because Everyone is jockeying to get a piece of the free TARP pie. No One wants to take a Chance until the Winners and Losers are determined. The distributors of the Bailout funds cannot speak on TV without generating Market losses, as Players abandon likely losers in the battle for Taxpayers’ freebie Cash. I would advocate the Statement of "Shoot the Politicians", but that will get the Secret Service on my tail. Instead, I will say,"Hang the Politicians!"; to be Politically Correct, I will add, "Only cloth Puppets please." lgl

Resurfacing in more ways than One.

David Leonhardt still cannot define the Problem. We don’t need new Roads, We need the Roads that exist to be in better Driving condition. I here propose Congress pass a $50 billion Stimulus Package, each State to get a billion dollars, which can only be used to improve existing Roads within each State. It does not matter whether it is new Bridges, expansion of Roadway, or simple resurfacing; it is all devoted to improvement of Roads. The widespread dispersal of funds would maximize the employment of labor, correct the most pressing Need, and eliminate current desire to Name highways after themselves. The Cash will actually get something done, and there will be more value in the dispersions.

New Cars are building up at the Ports, and creating a congestion at the facilities. This is because Everyone is producing Cars, but no one is buying them. Henry Ford, during the Depression, cut the Price of the Cars dramatically to stimulate Sales. Car companies today will not follow like practice, even as the Stockpile of Cars grow. Congress should pass a law charging $200/month Tax on all Vehicles warehoused over 30 Days; this Tax to be doubled if Production is cut at any Production line to less than 2000/month. This Tax would serve two Purposes: removal of the vast overstock of Vehicles; and an advantage given to Consumers by lowered Transportation Costs. The Tax would mean little Now, when most of the Automakers seemingly destined to enter Bankruptcy, and heavy Sale of Vehicles would bring temporary sources of Revenue; even if the Vehicles were sold below Production Cost. This is an idea far better than the Country turning Socialist.

Here is an article which angers Me. There is only one factor behind the Credit Crisis today, and it is the promise of Bailout Aid. Bankers are all looking forward to vast sums of Cash from Congress and Taxpayers, knowing that this flow of Cash will disappear if they return to natural Banking practice. None of the Banks have significant imbalance currently, but real Greed for federal dollars forestalls natural performance. It is Time for another Tax, one on hoarded Reserves. I would advocate a 2% Tax on questionable Reserves higher than 12% of Deposits, if they cannot justify the greater Reserves to Fed regulators. Readers should understand that the promise of something for nothing is the most corrosive element in the Business world. Federal Bailouts and Stimulus is a two-edged Sword, which can easily defeat the intended purpose if not carefully controlled. lgl

Body and Soul

I don’t want to do anything important today, so I will waste some Time on this article. The simple economic aspects of the Subject state that the stele ( 3'x2') was quarried by two Workers off original stock for probably $200 in Today’s Prices. The Shaping and Inscription on the stele was probably done by one skilled Worker over a probable 4 Workdays with an estimated Cost of about $700 in Today’s money. This was not the Price paid, though, which was likely to be around $7-8000 to the Purchaser at the time in Today’s reevaluation; the area being within a highly-developed Trade route; things have not changed all that much! Excavation of the stele can be expected to have required a Team of Eight some three Weeks, and probably cost somewhere around at least $70,000; all depending on how many good artifacts will be found on-Site, and the method chosen to redistribute the Costs. One can define that it is an expensive Piece of Stone, and some museum will be estimated to fork over a quarter-million Dollars to display the Stone. It is good to know We are still in business.

We can now turn to the Inscription, since I have established the economic context. The Site resides inside the old Hittite Empire, was an independent kingdom, and later a part of the Assyrian Empire, and was abandoned in the 7th Century. The importance of the City in which the stele was found was it’s position upon one of the Trade routes; it’s abandonment was probably caused by abandonment of the Trade route, due to climatic changes which altered the desirability of the route itself, probably a Water shortage. The City probably made less than $10 million per year from the Trade route in Today’s prices even in it’s heyday, and likely was abandoned when that Profit dropped below $2 million per year; especially if Agricultural products for Food had to be imported. Readers should realize these are only loose Estimates, having little to do with Reality in the scope of modern economic modeling.

The Meaning behind the Exercise states that the Student of Economics should always keep an Overview of the Subject under discussion, simply as a Countercheck of economic models where mistakes on inputs or resolution can lead to wide errors. It is like unto the separation of body and Soul under the Indo-European tradition to which I subscribe: the Soul basically being a Template which cannot be altered or destroyed; Conception of the body simply drawing the Imitation of the Soul into the physical world. One has to have some belief in the shape of what you search for, before you can even begin to accomplish that which you desire. Economics, like the Soul, crosses all boundaries–political, religious, and even Time. lgl

Copycat Killers

It took Me forever to read this Post from Tyler Cowen this morning, because my Mind kept cycling out into Space. I could say that it is too early for either Patinkin or Burstein; maybe I could make some argument about ‘weakly dominant game-theoretic strategies.’(in case Anyone is interested, Weki-up). The Bored and Resentful (like myself) must survive with the knowledge that the Math works out, but that definition of herd behavior is not the totality of economic description. One has to separate between primary impulse and 2nd Generation response, and no one has defined a clear separation along theoretical lines, at least not satisfactorily to me. The entire Subject is starting to give me a Headache, and People should not make me think about such things!.

One should read Gary Becker even when One is not much interested in what he is currently talking about (if you begin thinking like he does, it won’t get you a girlfriend, but might get you a Job in a Depressed economy). Here is one of those Times when I agree with Mr. Becker, but not his line of Thought. It is common Today to rile against the UAW, but the poor Union did not do what it should have in the 1970s, and everything turned into disaster Today. What should they have done? Way back when they could make Demands, they should have demanded Profits-sharing, and financed their own Health Care and Retirement Plans. Now, they are tied to their Opponents, who are going down because of widespread Expenditure of those Profits with no Gain, when they could have had a viable Investiture in a stable Fund. I must say in their defense that no one even suggested such a Course back then, not even Me.

One can always take the low Road, and blame it on poor Product; the out-of-synch element here is that Auto Sales are down everywhere in the World, across all companies and Products. Here is a breakdown which clarifies that good operation varies little from bad operative behavior amongst Car companies, and the quality of the Vehicles have little to do with the End-Result. The real causation remains that the Car companies continually spent their Cash Reserves through the Years, and the fault was that of Management not Labor. It is obvious that Bankruptcy will be the only instrument which will get rid of bad Management, the real necessity in the Equation. lgl

That Vision Thingie

Every time you glance at a Newspaper, there are an additional half-dozen Advocates of some economic plan or other; all purported to Save the World. I read these things, and ask myself How people can complain about financial institutions using leverage of 30 to 1. We are already in Recovery efforts equal to a Year’s federal Tax revenues (which happens to be the World’s largest pool of financial capital), and Everyone states We need to spend more; talk about leverage. What is sickening lays in they are Plans only designed to restore the Mess we had prior to the Downturn. Nowhere is there the slightest hint or suggestion that the Recovery will ever pay for itself, probably the epitome of a bad Mortgage! We need to discuss the systemic improvement of the economy, not how to increase the efficiency of our Credit consumption.

Mike Shedlock comes in with another good Post that Everyone should read, especially at the bottom for a list of G-20 accomplishments and failures. These Group things are like Group sex; they tell each other that it feels Good, though everyone feels degraded and like Crap. Somewhere down the Road, people will call this whole corruption the Leadership Depression. Everyone claims that Stimulus is the Answer, but examination proves that it only a never-stated inflationary policy. The foundation of these policies effectively calls for greater Government debt for some Two years out of every decade, just to avoid any constriction of Consumption and Income during the bad years. It sounds good as Everyone is allowed to be an American Consumer, but where do Countries go to file Chapter 11 Bankruptcy?

The only major statement to come out of the G-20 meeting is that all Countries are pledged to not cap executive pay. What is this? An agreement to allow executive salaries to float upward at unimpaired rate, even though their errant decisions are more of the Cause of the latest Recession than anything else; what happened to the 99.5% of the Labor Pool of the World not covered? It seems they are to still endure Wage and Income suppression while maintaining even higher Consumption, all for the good of the Economy. Could this be an unlisted Demand for higher Consumer Debt, even though Consumers cannot pay for the Service of their Consumption debt now? I think We need a Sea Change in economic thinking, because such Planning has brought Us the current Recession in the first place. lgl

The Race for the Gold

Some 110 Banks, 4 Insurance Companies, AIG, and hundreds more Banks are expected to ask for Bailout funds. The buzzards are beginning to cluster, and an estimated 46 have already been granted assistance–if not Cash. There is a lot of Promise but little Cash coming out of Treasury, except to the big Corporate Investment Banks. It is beginning to represent a Lottery, one where the winning Tickets are all picked in advance. The trouble emitted by this ad-hoc Selection choice of beneficiary means that there is huge amounts of Cash disappearing for the most nefarious of rationales. One questions the feasibility of Organizations granting Hundreds of Millions of Dollars as Bonuses and Salaries, while receiving Billions of Dollars of Bailout Dollars from the American Taxpayers. There is a level of Graft coming out of Treasury not seen since Teapot Dome, and all of it coming from former Goldman Sachs employees; it does not play well in Main Street, Rural America.

Greg Mankiw has a good Post about Inferior Goods doing well in the current drop of Income among Consumers. He fails to point out the Backlash Effect which Inferior Goods always induce, as Consumers are forced to adopt Goods they are not used to Consuming. Consumer irritation rises rapidly after only a Short Interval of such Consumption, and leads to increased family quarrels, a rise in juvenile delinquency, and vast increase in the anger against Governmental authority. Some 1930s Soviet historians, I could not even hope to cite them anymore, even insisted that enjoined Dietary change was the primary impulse generating Revolution. I cannot verify the thesis of these historians, yet I would accept their Thought as authoritarian until more relevant data is found.

I guess it is up to me, to tell a Nobel Prize Winner and Goldman Sachs that they are approaching a Problem from the wrong way. Goodie-Goodie! They both think that expansion of Cash volumes is not enough, and there must be a vast Stimulus program. I approach the Problem from a different direction. About 55% of all Incomes are relatively Income Inelastic; this means that Prices must increase for an average 14 months, before they begin to enjoy an increase in their own Incomes. An expansion of liquidity, on the other hand, allows for free movement of Prices among those Products having high Price elasticity. This spread of liquidity actually pressures a Decrease in Consumption, and reinforces Recessionary conditions. The United States and Japan are just as irresponsible as any Government entity, We cannot presume any aura of Innocense. The real Curative for modern ills in both the U.S., Japan, EU, and China is to spike the Interest rates (think a standard 4-5%), control Government Spending, and grant reverse Income Tax payments to lower Incomes; this will induce reduction in Price in Price elastic Goods, and thereafter induce higher Consumption. Prove Me wrong!! (I still won’t get a Nobel Prize!) lgl

Diatride Against Most Everything

October Retail Sales were down 2.8%, and October Deficit was highest monthly toll in history–some $237.2 billion. Everyone can say what they will, but the Two numbers are Constraints which restrict the economy. They integrate with each other in adverse ways: low Retail Sales curtail the extension and assumption of Credit, while high federal Spending absorb the ready Cash in the Credit Markets–forcing States to raise Taxes–mostly notably their Sales taxes which further retards Retail Sales. Most Economists would claim such activity has little impact, but additional State taxes this Year probably cost a yearly loss of 0.37% loss of Retail Sales alone, and will probably triple the Cost to such Sales in the new Year. It is not a small thing when transferred to the national level.

Mark Perry is not completely correct about the Pay Scales, though his Numbers are basically right. The reason he is not Right comes in the fact that the Big Three did not maintain the Set-Asides to keep up the Medical and Retirement programs, and they shove such Sums off on the current Labor force. This is not the fault of Labor, or does it express a usurious Wage demand by them. It is a Question of Management malfeasance in not maintaining Reserves, and it most clearly becomes a judicial decision of redistribution of funds, so that Bankruptcy Court and Chapter 11 makes far more sense than a Bailout. I agree with Mark on that! It is also a fact that any Congressional dispersion of Cash will bring a host of Scavengers with their Hand out.

Arnold Kling comes close to the Truth, but again misses the main Point: Bailouts, by their very nature, are a profound redistribution of Wealth. Government take funds through Taxation, or more likely course of funds absorption of Credit avenues, to give Money to Individuals and Individual Corporations who have already shown an inability to manage Money properly; the sole criteria consisting of giving such Individuals the power to blow the Money again. Too Harsh! What I think is too harsh is Thousands of people getting Pink Slips because they did their Jobs efficiently, especially when the sole factor behind those Pink Slips being that Management had overspent their financial reserves, and cannot maintain reduced full staff operations. It appalls Me that the epicenter of every Boom and Bust Cycle has always an over-grasping Management mentality. We need Management replacement, not more efficient Labor. lgl

Another Reality Show

Anyone want to feel Sorry for the lawyers? They seem to be going through their own form of Downsizing. It appears People are not accepting the Billing hours for those individuals hired to make other Peoples’ lives miserable. I once thought to become a lawyer, until I learned what the Job description entailed. Even my Cousin, with the most questionable Morals in the family, gave up his Position with a prestigious law firm to become a Lobbyist. Any individuals who spend 2000 hrs of research simply to harass another Individual for an hour under Court testimony could possibly be applauded, but not at $200 per billable hour. At least that is the decision of the modern Corporation, afflicted as they are with lamentable Profits ratios. The concentrated Corporate law firm may be facing Extinction–it seems that People like the Clintons and Obamas cannot longer afford to lose an Election.

Another source of further Downsizing will come in the Import/Export business, where both are suffering from basic systemic downturns. Foreigners will not buy American Goods, unless they are selling a wide range of Goods to the United States; the solid Dollar actually having little input in the Trends, it not being of such an impact to cause dislocation in and of itself. It may also indicate a new direction of economic Investment, as new enterprise opts to utilize American Job Skills under a regime where both Exports and Imports become more expensive, and foreign Wage levels rise to conform to American levels. A national Health Care system might be all it would take to develop a domestic Manufacturing boom.
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I have been put way behind schedule this morning, by people who think I should be doing other than what I am doing; I enduring numerous delays getting to this Point, the worst being a medical appointment rescheduling–I should bill by the Hour for the malfeasance of Others. The Big Three Bailout reminds of such debacles, where neither Management, Labor, or Stockholders are willing to take the Hit; so the common theme is for the Taxpayers to endure the loss. One should read this article with the retentive Thought that this comes only with increased Taxation or greater National Debt. An idea to be held is that the vast stock of Vehicles which are 85% of the Assets of the Big Three is only worth about half of what is claimed, and decreasing about $2000 per vehicle per year. Americans do not have that much invested in the Big Three–either in Present or Future Needs–and Chapter 11 is the best Option for All. lgl

The Deviant Root

Jeff Cornwall would seem to be suffering from a little paranoia, if thee was not a Reality in his statements. The High-Brows of the Economy imagine there is something inferior about a Business structure, which cannot magnify itself multiple times rapidly, and draw itself into compound Debt where it can pay it off only by maintenance of Boom conditions. Small Business fail at about the same rate as the Growth machines under Recessionary conditions, but Small Business failure rarely destabilizes the Banking system; a consistent pattern whenever the Rapid Movers collapse inward upon little actual capital assets. What amuses Me is the actual dependency that the Corporate world has upon Small Business; where a lack of small Service Providers lead to outrageous Operating Costs for their Big Brothers–even Walmart.

I seldom agree totally with Robert Reich, basically because I have always seen him as a little too utopian. I do agree with him about the intrinsic value of Bankruptcy rather than Bailout. Bailout attempts no alteration of Management or policy, simply flooding past mistakes with Cash so as to hide the bad performance which brought the crisis. I disagree with Robert at the Thought that the Big Three should not go through Chapter 11. Bailouts presage the ability to resume normal Business course, if adverse financial liabilities are paid. The Big Three have a huge Inventory of Cars, which are quickly Ageing into Junk; they possessing little other tangible assets. There is no Expectation their Sales will increase markedly in the near future, and loss of Jobs from Downsizing will automatically deteriorate the sanctified Call to Save Jobs. I Vote No on a Bailout of the Big Three.

I include this Post from Mark Thoma because every Student should have some understanding of this Issue. A singular Solution to correct one factor will inevitably affect other factors as well, meaning that you obtain an alteration of the Whole; a meaningful result often undesired. The common Solution has been Bang-Bang as Mark identifies; a Solution where modification is completely On, or completely Off. This creates the actual least intrusion to model operation, with the smallest corruption of model desire. There is mathematical substantiation of this form, and enforces the Chaos theory of deviation along ordered lines. I am sure that most Students who study this Outline will understand it more than I. lgl