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