I will forward this link to my Readers, though I have suffered too great a Saturday inertia to have read all of it myself. I glanced at it, and quickly noticed the 952 Days without a Bank failure, and the 630 Banks started between 2004-2007.Note the emphasis on high-tech IPOs, where the privileged Few were acclaimed as the new Vast Wealth. Daniel Gross waxes large on the impression that Everyone thought a ‘Fundamental Change’ had taken place in the American economy. I possess a different Thought. My surmise goes that marketing bidding was Runaway, with Everyone wanting a piece of the Action. IPOs sold out for huge Price, and a Few could claim huge Wealth. The Problem, here, was that the Few had to pour their wealth back into succeeding IPOs simply to create the huge Sell Out prices of following IPOs. The Concept of ‘Too Big to Fail’ might be interpreted as ‘The accumulated IPOs do not want to lose all their Funds". I might have to Someday write a Piece on the serious Danger of prolonged Periods of lack of specific Taxation. The entire thesis would be that excess Profits can be drained off naturally through rational tax policy over a continuous Period, or explosively in periodic episodes of financial crisis. I would do so, that is, except I doubt it would be a Best Seller, and I need a major IPO Sellout of my own!
Here is sincere attempt to confuse your average Graduate Student, who is bewildered by how much emphasis to palce on the IS-LM model. The Philips curve proves durable, but only under striated Conditions hard to duplicate in functioning economies, and resonant to patterns of economic magnitudes. I won’t even enter into Milton Friedman’s argument about constant assumed Inflation, or what it does to academic stamina. No one really likes to explore the full expectations under conditions of Deflation, though this is only aversion to consideration how their academic expectations could explode. Robert Waldmann explores much of the confusion present in the economic community today, but my own personal bias has channeled my exit from the Post before completion. I can only say it is to be hoped that the Reader understand the ruminate nature of the arguments by the time that he leaves Graduate School.
Greg Mankiw can claim a consistency of complaint about the Deficit, having exited the Bush administration before the real Over-Spending started. I could carp a little bit, and state he was still there for a corruptive reduction of the Tax rates, though I should be generous as I agree with his basic Post of today. My basic Suggestion for handling the long-term Deficit may be to transfer your assets to Gold in Swiss Banks, and move to Mexico where Consumer Prices are still relatively cheap–just don’t get kidnaped by any of the Border gangs; try middle Mexico, where the climate is nice, and the People are wonderfully Polite. The rest of you who are attempting to survive without Movement–become a Doctor; they seem to be able to charge what the market will bear, at least where there is still a market established. lgl
Saturday, February 28, 2009
Friday, February 27, 2009
Spreading Risk and Bull
Isn’t This a Case of the Pot calling the Kettle black? I will be honest, and say that the Obama budget hides as much horror as it outlines; let’s face it, the Man comes from the Senate. There is the old western quip asking: What do you get if you put enough Liars in one Room–Answer is: Legislation passed. The Committee for a Responsible Budget has a regrettably unbiased grasp of the Obama Budget. Why is it that Everyone except for Budget writers knows how to Add and Subtract? The current Budget tells Us everything except how you can cut the Budget deficit in half, by increasing Spending in all areas with a Tax Cut. (Notice: Obama only suggested getting out of Iraq, Eisenhower could give advise on obstructionist Truce makers if he were still alive; oh, of course, We still have the Commitment level in South Korea which We had in 1953).
Toyota has a Parking problem so bad they decided they needed a floating Parking garage, which they don’t even intend to Move. My Advise is to have an Auction open to Everyone without floor Prices. This will at least indicate at what Prices the markets will clear. The interesting Thought here is that Losses are instant Tax Cuts, and lead to Production policy changes. It is the old question of facing down the Skunk, before the Skunk turns around. It is not going to smell any better in the near future, and could get a lot worse if remedial action is not taken.
I am the Son of a Farmer, and Grandson of a Farmer; and have performed just about every Job which farmers do. I would still relate that I do not have much experience with Farming. The worst aspect of life comes from Those who would say they are a Son of an Investor, and Grandson of an Investor. Even the Best of Investors can be taken in by fraud, and Investment instruments rarely have a valid, long-term, Track record. Due diligence must be observed, but there is no way that Criminals can be stopped by any set of Conventions; Some are quite inventive–Criminals I mean. It does not help that even the Brightest (Madoff for example) will turn Criminal, if the Bottom Line fails to produce the Profits desired. We have already witnessed that Banks are a poor median for storing Cash, without close observance of Banking propriety. Trust nothing absolutely, and spread your Risk over a wide spectrum, no matter how interesting the seeming Profits. lgl
Toyota has a Parking problem so bad they decided they needed a floating Parking garage, which they don’t even intend to Move. My Advise is to have an Auction open to Everyone without floor Prices. This will at least indicate at what Prices the markets will clear. The interesting Thought here is that Losses are instant Tax Cuts, and lead to Production policy changes. It is the old question of facing down the Skunk, before the Skunk turns around. It is not going to smell any better in the near future, and could get a lot worse if remedial action is not taken.
I am the Son of a Farmer, and Grandson of a Farmer; and have performed just about every Job which farmers do. I would still relate that I do not have much experience with Farming. The worst aspect of life comes from Those who would say they are a Son of an Investor, and Grandson of an Investor. Even the Best of Investors can be taken in by fraud, and Investment instruments rarely have a valid, long-term, Track record. Due diligence must be observed, but there is no way that Criminals can be stopped by any set of Conventions; Some are quite inventive–Criminals I mean. It does not help that even the Brightest (Madoff for example) will turn Criminal, if the Bottom Line fails to produce the Profits desired. We have already witnessed that Banks are a poor median for storing Cash, without close observance of Banking propriety. Trust nothing absolutely, and spread your Risk over a wide spectrum, no matter how interesting the seeming Profits. lgl
Thursday, February 26, 2009
If the River don't rise
One often can find a ‘nasty surprise’ in Economic data, often when one least expects it. I know the Fed has already run the data through their Economic models, but they have yet to apply that data to the rigor of Accounting principles, which the so-called ‘Stress Test’ does imply. It might be so bad, that Dr. Zarnowitz could have died just to avoid it. I suspect that it will not show the rosy sweetness which Fed and Government officials hope it will. There has been systemic centralization of funds in the Banking system, with outlying community banks still hiding their extended involvement with the Credit Swaps. It will probably be the first time that such an assessment has been made, and could be a little frightening.
Stephan Quake would take Us through the horror of potential bias produced by ‘Conflict of Interest’ in academics. The entire issue amuses me to a great degree, as no academic study has any impact until some business medium adopts the consensus of the reportage, and no one criticizes the avowed predatory interest of the business leadership which ensures that adoption. Neither Businessman or Politician makes the slightest claim to bipartisanship in coopting their desired program, yet there is universal demand that academic studies exhibit an egalitarian attitude held almost nowhere else. Academics feel threatened by their own insecurities, not by any sensible fear of damage.
Here is an example of perfect academic evaluation of Public policy. All of the ‘i's’ must be dotted, and the ‘t’s’ crossed. The avowal of Intent must be explicit and precise, or rejection must be the course of action. It does not matter that the Intent has been previously set, or that the rigor of Program accounting will set up the limits of expansion. The Whole must contain the exact essence by exact definition, or the rigor of academia would call for refusal of publication. I can not tell whether Politics would be aided or hindered by such exactitude, but am extremely grateful that Business ignores such qualifications. lgl
Stephan Quake would take Us through the horror of potential bias produced by ‘Conflict of Interest’ in academics. The entire issue amuses me to a great degree, as no academic study has any impact until some business medium adopts the consensus of the reportage, and no one criticizes the avowed predatory interest of the business leadership which ensures that adoption. Neither Businessman or Politician makes the slightest claim to bipartisanship in coopting their desired program, yet there is universal demand that academic studies exhibit an egalitarian attitude held almost nowhere else. Academics feel threatened by their own insecurities, not by any sensible fear of damage.
Here is an example of perfect academic evaluation of Public policy. All of the ‘i's’ must be dotted, and the ‘t’s’ crossed. The avowal of Intent must be explicit and precise, or rejection must be the course of action. It does not matter that the Intent has been previously set, or that the rigor of Program accounting will set up the limits of expansion. The Whole must contain the exact essence by exact definition, or the rigor of academia would call for refusal of publication. I can not tell whether Politics would be aided or hindered by such exactitude, but am extremely grateful that Business ignores such qualifications. lgl
Wednesday, February 25, 2009
Basic Survival Skills 101
I would warn the World about agendas, which bring on many of the conditions which this excellent blog Post highlights. There is a fairytale place called the land of professional reputations, where positions are a Gravestone on which One writes his Name: once sculpted in stone, such position must be defended to the Death. Admission of Error is a fate worse than Death, the academic attribution of Hell. One must fall upon his Sword before a Public acceptance of being wrong. There is no Escape from the remedial evil, no matter how many times you might think that a previous argument was a load of Crap. I can only advise that One becomes a Pimp in a Midwest small town as where I live, and pretend that you only relate what Others have told you. It doesn’t work, but it is a lot of fun after a while!
Ben Bernanke tries a different style, and does a creditable Job of it. His real accomplishment was to appear relaxed under the bombardment of the Witch Hunt. He established the principle that it is stylish to be Wrong, something which Paul Krugman still must learn. Paul outlines that the Fed would still be buying bankrupt entities by nationalization of the banks; a factor which is true, but Paul loses Points by becoming excited by the argument over it. He would do much better to liken the process to buying a truly overused Car, defining the Banks are real Lemons. I have always advocated immediate Writing Down of losses for all Public Utility institutions, where they must announce said losses immediately upon being found; the context of Corporate privacy being surrendered to the necessity of Public Knowledge to save individual Investment decisions. One has to remember to defer to the above assessment repeatedly as to being full of Crap, just to keep your feet on the ground.
David White endangers himself by making the absolutely true allegory that the common people cannot understand the complex concepts of Economics. It is completely valid, but he forgets that he is demeaning the intellectual capacity of Those who cut the Economist’s Paychecks in the first place: Never call your Employers stupid, even if this is a Truism as well. Non-Economists often can have a definitive Point as well! Governor Jindal was not totally reactionary in his decision to refuse parts of the Stimulus plan which would further commit his State to financial expenditures. There is always the danger that One can step into a Firing lane when One acts as an advocate advancing any policy; so step lightly while maintaining a line of Retreat. lgl
Ben Bernanke tries a different style, and does a creditable Job of it. His real accomplishment was to appear relaxed under the bombardment of the Witch Hunt. He established the principle that it is stylish to be Wrong, something which Paul Krugman still must learn. Paul outlines that the Fed would still be buying bankrupt entities by nationalization of the banks; a factor which is true, but Paul loses Points by becoming excited by the argument over it. He would do much better to liken the process to buying a truly overused Car, defining the Banks are real Lemons. I have always advocated immediate Writing Down of losses for all Public Utility institutions, where they must announce said losses immediately upon being found; the context of Corporate privacy being surrendered to the necessity of Public Knowledge to save individual Investment decisions. One has to remember to defer to the above assessment repeatedly as to being full of Crap, just to keep your feet on the ground.
David White endangers himself by making the absolutely true allegory that the common people cannot understand the complex concepts of Economics. It is completely valid, but he forgets that he is demeaning the intellectual capacity of Those who cut the Economist’s Paychecks in the first place: Never call your Employers stupid, even if this is a Truism as well. Non-Economists often can have a definitive Point as well! Governor Jindal was not totally reactionary in his decision to refuse parts of the Stimulus plan which would further commit his State to financial expenditures. There is always the danger that One can step into a Firing lane when One acts as an advocate advancing any policy; so step lightly while maintaining a line of Retreat. lgl
Tuesday, February 24, 2009
No Free Lunch
Identification of the source of Terrorism should be the goal of Economists; it is a pity so little has actually been accomplished in the field. Almost all Terrorists, including American students who create Shooting incidents in School, seem to be of above-average intelligence, have had a great deal of economic resource devoted to their education, and present Indicators of some degree of failure in their personal or economic life. They tend to express little aptitude to adjust to their environment, and face considerable family pressure to succeed. They adopt personal lifestyles and behavior which allow them to claim superiority to their Peers, no matter how ludicrous may be this assertion. The entire adjustment simply allows Escape into fantasy, and reduces their involvement in Terrorism to a movie role where they get to play an assumed ‘Hero’ part. Economists need to be able to identify such personalities, and close the portal into destructive behavior; a process which the Israeli Prime Minister does not understand, as he desires to punish the most sustaining elements of society, such families exhibiting a high degree of success and performance.
Here is a Piece which should be read, for it gives an accurate portrayal of the economic development of the financial crisis. It does nothing, though, for the generation of economic policy. The observances are general in nature, and present no directional context. There is no prognosis of likely Outcomes, nor even proposals to alter or amend the current status of developmental trends. Every Reader needs to understand what the article tells Us, and I suppose We should be grateful for the basic outline of economic development, but We all could wish for directional avenues. The primary note must be the Reserve cushions created under the Chinese system will be valueless to emerging economies, unless and until they can keep their own labor forces employed; interior economies cannot be left to collapse, whether it is an emerging or developed economy. This financial crisis is creating a disconnect between Developed and Emerging nations, one that neither style of economy can withstand.
China shows the destruction of the financial crisis, as Mike Shedlock points out. He states there is a 14-year supply of Commercial Property in China. Huge construction was conducted under the impact of cheap Cash with devotion to commercial property, all because of the high Profits involved in the construction. There real need was for Housing, then and now, and the buildings stand empty waiting for non-existent commercial Renters, while Housing is too expensive for Chinese labor; Americans are easily familiar with spending half their Income on Housing; almost impossible when your Income is less than One-Seventh of Americans (renovated Houses probably average more than $60k, while American-quality Housing starts at a probable $200k in China). The Post speaks or a return to rural areas by labor, because it is too expensive to be unemployed in the major cities. China and other emerging markets cannot help themselves, and can provide no aid to the developed economies. We must solve our problems ourselves! lgl
Here is a Piece which should be read, for it gives an accurate portrayal of the economic development of the financial crisis. It does nothing, though, for the generation of economic policy. The observances are general in nature, and present no directional context. There is no prognosis of likely Outcomes, nor even proposals to alter or amend the current status of developmental trends. Every Reader needs to understand what the article tells Us, and I suppose We should be grateful for the basic outline of economic development, but We all could wish for directional avenues. The primary note must be the Reserve cushions created under the Chinese system will be valueless to emerging economies, unless and until they can keep their own labor forces employed; interior economies cannot be left to collapse, whether it is an emerging or developed economy. This financial crisis is creating a disconnect between Developed and Emerging nations, one that neither style of economy can withstand.
China shows the destruction of the financial crisis, as Mike Shedlock points out. He states there is a 14-year supply of Commercial Property in China. Huge construction was conducted under the impact of cheap Cash with devotion to commercial property, all because of the high Profits involved in the construction. There real need was for Housing, then and now, and the buildings stand empty waiting for non-existent commercial Renters, while Housing is too expensive for Chinese labor; Americans are easily familiar with spending half their Income on Housing; almost impossible when your Income is less than One-Seventh of Americans (renovated Houses probably average more than $60k, while American-quality Housing starts at a probable $200k in China). The Post speaks or a return to rural areas by labor, because it is too expensive to be unemployed in the major cities. China and other emerging markets cannot help themselves, and can provide no aid to the developed economies. We must solve our problems ourselves! lgl
Monday, February 23, 2009
Proper View of the Economy
Stephanie Flanders put out this Post which is almost a Must-Read for the younger Generation. I will go with the old misquote: ‘It was the best of Times, it was the worst of Times.’ Recessions hold exactly as much opportunity as Booms, and a certain segment of the economy will be quite successful in a Recession, less so within a Boom. Another percentage of the Labor force will have an automatic rise in Pay, as their immediate Predecessor retires, and open up a high Income range for themselves. Some present a viable alternative to a failed or failing competitor, to their immense benefit. One has only to find what People need, and fulfill that Need; the rest becomes history with substantial Profits for the Provider. One should always study the markets, and adopt procedural behavior which maximizes economic success.
Arnold Kling expresses the same sentiment with this Post, where he basically states that the Past will never return identical as once was; new industry and business will replace older industry which has proved itself derelict. New Participants will direct new enterprise to fulfill new Needs, or older Needs never adequately covered. The World moves on, and failed Participants are left to reorganize. The only Question about the process We have to ask is How much We as an economy and society should aid in that reorganization of failed performance. I suspect that the Answer is no Aid at all, where Government action will always turn into impediment rather than help. There is something cruelly efficient in simply allowing the markets to grind and eat failure for whatever Nutrient value does exist.
David Leonhardt points out the misplacement of most stimulus in the first place, as stimulus becomes a political football in a Game where Everyone can play. All efforts becomes a process of picking up necessary Votes, and economic need gets lost in the scramble for personal positions. Stimulus became a Process to provide Funding for innumerable political programs previously left without funding, because of the lack of political support and the worthlessness of the social and economic impact. Now, We will be left with excessive Spending without Sunset, all determined by a minority of political sentiment. Only in America can Democracy be converted into a dictatorship of a polity of less than 5% of the Population; simply because an even more minute membership of the Court system states that the Government cannot renege on its Promises, even if those self-same Promises were extortion to gain support for some immediate Issue. One gets economic growth through Stimulus, but at what Price, and does it lead to long-range corruption of economic efficiency? lgl
Arnold Kling expresses the same sentiment with this Post, where he basically states that the Past will never return identical as once was; new industry and business will replace older industry which has proved itself derelict. New Participants will direct new enterprise to fulfill new Needs, or older Needs never adequately covered. The World moves on, and failed Participants are left to reorganize. The only Question about the process We have to ask is How much We as an economy and society should aid in that reorganization of failed performance. I suspect that the Answer is no Aid at all, where Government action will always turn into impediment rather than help. There is something cruelly efficient in simply allowing the markets to grind and eat failure for whatever Nutrient value does exist.
David Leonhardt points out the misplacement of most stimulus in the first place, as stimulus becomes a political football in a Game where Everyone can play. All efforts becomes a process of picking up necessary Votes, and economic need gets lost in the scramble for personal positions. Stimulus became a Process to provide Funding for innumerable political programs previously left without funding, because of the lack of political support and the worthlessness of the social and economic impact. Now, We will be left with excessive Spending without Sunset, all determined by a minority of political sentiment. Only in America can Democracy be converted into a dictatorship of a polity of less than 5% of the Population; simply because an even more minute membership of the Court system states that the Government cannot renege on its Promises, even if those self-same Promises were extortion to gain support for some immediate Issue. One gets economic growth through Stimulus, but at what Price, and does it lead to long-range corruption of economic efficiency? lgl
Sunday, February 22, 2009
Cutting the Deficit
Does this seem realistic to Anyone? We have a Stimulus Package which is unlikely to stimulate, a desire to tap Retirement accounts with taxation, the intent to militarily Downsize, and reinstate Taxes which were always too high. Everyone has lost Sight of the one thing which could bring down the federal deficit: stop Government Spending. There are sure-fire methods to accomplish this alternate Plan, but no one will adopt it. The reason is that Politicians make political capital with Spending, and make nothing by cutting Spending. I will explain How to cut Spending before I will explain the potential methodology of getting Politicians to stop Spending.
The How is simple: Government passes legislation which forbids the payment of any individual personal bills. All individuals again become responsible for their own Accounts. The Government is entailed solely to pay off any debts incurred by Citizens by the previous process, if their Income is less than a detailed magnitude; a factor which is to be changed yearly, based entirely upon a basic Needs formula. The individual will have to obtain their own finance, find Bankers willing to underwrite the Risk, and convince these Bankers they are a viable Debtor who can repay the Banks if the Government denies their claim. Government takes a draconian stance in paying for anything–whether it is Social Security, Medicare, Medicaid, or any other form of Welfare; the Government refusing Payment if alternate funds are there.
The truly Poor will be protected by the provision of Emergency Services staffed solely by permanent Staff on Salary. There will be long Waits, filled reception rooms, and medical staff providing least-Cost medical care. No one will go there unless they have to go there, but they will at least be fully-Staffed; the Government will itself provide ombudsmen services to aid in Firing unqualified or negligent care. Applicants for Government Spending otherwise must submit their own Proposals in detail, in which they themselves have paid the Developments Costs for such initial Planning (guaranteed to eliminate over half of the Spending Proposals from the Get-Go). Congressional and legislative staffs will only get expert Opinion as to whether the Projects are viable. Allocations will only be made upon Applicants’ projected Budgets, and application for future refunding cannot be made for 3 fiscal years. The Costs can come down, and come down drastically, but it takes a hard-line approach. lgl
The How is simple: Government passes legislation which forbids the payment of any individual personal bills. All individuals again become responsible for their own Accounts. The Government is entailed solely to pay off any debts incurred by Citizens by the previous process, if their Income is less than a detailed magnitude; a factor which is to be changed yearly, based entirely upon a basic Needs formula. The individual will have to obtain their own finance, find Bankers willing to underwrite the Risk, and convince these Bankers they are a viable Debtor who can repay the Banks if the Government denies their claim. Government takes a draconian stance in paying for anything–whether it is Social Security, Medicare, Medicaid, or any other form of Welfare; the Government refusing Payment if alternate funds are there.
The truly Poor will be protected by the provision of Emergency Services staffed solely by permanent Staff on Salary. There will be long Waits, filled reception rooms, and medical staff providing least-Cost medical care. No one will go there unless they have to go there, but they will at least be fully-Staffed; the Government will itself provide ombudsmen services to aid in Firing unqualified or negligent care. Applicants for Government Spending otherwise must submit their own Proposals in detail, in which they themselves have paid the Developments Costs for such initial Planning (guaranteed to eliminate over half of the Spending Proposals from the Get-Go). Congressional and legislative staffs will only get expert Opinion as to whether the Projects are viable. Allocations will only be made upon Applicants’ projected Budgets, and application for future refunding cannot be made for 3 fiscal years. The Costs can come down, and come down drastically, but it takes a hard-line approach. lgl
Saturday, February 21, 2009
Descriptions of Selectivity
Tim Harford can give One a prospective of the current Downtime. Everyone knows of the occurrence of a Recession, though Most only get prepared to endure hardship in paying their mostly unchanged Monthly bills. I was once asked what a Recession consisted of: I thought for a moment, then said it was a nebulous economic circumstance where Communication companies freeze their billing Prices for a year or more. I have since been forced to alter my definition since, as the Communication industry has found Price reductions or suppressions does little to halt Cancellations. I now tentatively suggest Recessions are a Condition where Routing schedules can be delayed 96 hours without fear, due to the lack of compression at the delivery site. This highlights the fact that Recessions are in the eye of the Enduring. It is surprising how many successful businesses have started in the tail of a Recession; Success seemingly generated by the revised business format.
Calculated Risk itself attempts to quantify a Recession, based upon empty Office space. The trouble with the Graph lies in its inability of its forecast to predict the modular temporary increase under Crisis conditions, where Conditions seem to get better for a short Period before a continued descent. This consists of the Period of continued business reorganizations in which the lost Clientele is expected to be recaptured; the businesses not recognizing that this Clientele has altered in nature: currently lacking in size, magnitude, or market share. The recognition of development of a brand new Clientele will again incite a Downsize effort with reduced Headquarters. The depth of this second dip is the real indication of the severity of the Recession.
A lot of People attempt to explain when it is the best time to buy Stocks. I hear that a lot! What amuses me is the fact that I get asked for my formula often, and then by Those who occupy Positions which are supposed to express expertise in Investments. After all of this discussion and commentary, no one can give definitive expectation of how the markets will open on Monday. I once mentioned after Madoff that a Ponzi scheme was solely in the eye of the law enforcement officers; Everyone else had to wait to see if the business format made Money, or not. I had a Mother, plus additional Aunts and Grandmothers, who claimed my Morals were too loose; of course, I have never seen some Bill Gates or Warren Buffet charged with truly scandalous financial scheming. It seems that Profitability has something to do with the equation. lgl
Calculated Risk itself attempts to quantify a Recession, based upon empty Office space. The trouble with the Graph lies in its inability of its forecast to predict the modular temporary increase under Crisis conditions, where Conditions seem to get better for a short Period before a continued descent. This consists of the Period of continued business reorganizations in which the lost Clientele is expected to be recaptured; the businesses not recognizing that this Clientele has altered in nature: currently lacking in size, magnitude, or market share. The recognition of development of a brand new Clientele will again incite a Downsize effort with reduced Headquarters. The depth of this second dip is the real indication of the severity of the Recession.
A lot of People attempt to explain when it is the best time to buy Stocks. I hear that a lot! What amuses me is the fact that I get asked for my formula often, and then by Those who occupy Positions which are supposed to express expertise in Investments. After all of this discussion and commentary, no one can give definitive expectation of how the markets will open on Monday. I once mentioned after Madoff that a Ponzi scheme was solely in the eye of the law enforcement officers; Everyone else had to wait to see if the business format made Money, or not. I had a Mother, plus additional Aunts and Grandmothers, who claimed my Morals were too loose; of course, I have never seen some Bill Gates or Warren Buffet charged with truly scandalous financial scheming. It seems that Profitability has something to do with the equation. lgl
Friday, February 20, 2009
The Badge of Dishonor
I wish to state for the Record that, for once, I agree with Robert Barro, who thinks the multiplier will be close to zero. Gary Becker and Kevin Murphy can give the Reader some sense of why the multiplier will be low, though they are more optimistic than Barro. My personal vendetta with the Plan (Everyone else can call it a Package, but it is not tied up in a pretty box) devolves upon its few elements of Production expansion, its spread across the landscape to give Everyone a piece of the Pie, and its real potential to balloon Resource Costs. I would change the name of the thing to: How to ignore Consumer Demand Decline by letting the Government Spend It.
I just listened to a Radio Advertising Spot which mentioned Elvis, Spaceships, Big Foot, and a State lottery inside 30 Seconds; why does this remind me of the Stimulus. Maybe this Commentary may enlighten about the overall effect. It talks about Government taking Risks. Who is taking the Risks? All the Policy-makers will be out of Government by the time any of the Loans come due. Who is spending the Money? I can assure Everyone it is not the Households struggling to pay their bills; though I guess they also struggle to pay their Taxes. If Luck holds, the Money will all be spent and Government policy-makers will have found alternate employment before the real Crisis of repaying the debt occurs. Risk to Reputations? Get real! They had no reputation to preserve after announcement of this Plan.
Here are the real Nuts and Bolts of the Economy (Are they talking about the Crazies and Terror-stricken in the Market?). They are trying in the article to convince that Inflation is not actually here, but they only mention no Price change when Consumer Demand is way down. What happens when the later returns to normal, and there is competition for the Goods and Services? The Readers should understand that economic models tell you whatever you may want to find, when Production is below par; a full employment economy never present, but necessary for economic accuracy in models. Don’t blame me–I don’t design these things! lgl
I just listened to a Radio Advertising Spot which mentioned Elvis, Spaceships, Big Foot, and a State lottery inside 30 Seconds; why does this remind me of the Stimulus. Maybe this Commentary may enlighten about the overall effect. It talks about Government taking Risks. Who is taking the Risks? All the Policy-makers will be out of Government by the time any of the Loans come due. Who is spending the Money? I can assure Everyone it is not the Households struggling to pay their bills; though I guess they also struggle to pay their Taxes. If Luck holds, the Money will all be spent and Government policy-makers will have found alternate employment before the real Crisis of repaying the debt occurs. Risk to Reputations? Get real! They had no reputation to preserve after announcement of this Plan.
Here are the real Nuts and Bolts of the Economy (Are they talking about the Crazies and Terror-stricken in the Market?). They are trying in the article to convince that Inflation is not actually here, but they only mention no Price change when Consumer Demand is way down. What happens when the later returns to normal, and there is competition for the Goods and Services? The Readers should understand that economic models tell you whatever you may want to find, when Production is below par; a full employment economy never present, but necessary for economic accuracy in models. Don’t blame me–I don’t design these things! lgl
Thursday, February 19, 2009
Tyler Cowen has to be read to understand the ramifications of the Mortgage Deal, as I call it. Mortgage-holders may be helped by the package, but I have to wonder. Does it actuate if the 43-38-31 percentages concern One or more of the 2-Income Households losing their Jobs–an increasingly likely Event? Again they are having the Government pay Mortgage banks, but insist that debtors maintain the Mortgages, rather than get ability to renegotiate Contracts originally designed to gouge Money from debtors; who were told that any mortgage gained equity for the household. It only goes to show the traditional methods of foreclosure remain the simplest and most effective Means to cancel such debt. What it needs is only a Government-backed Realtor at the auction Sale of foreclosed property buying a current Market value, and reselling to previous mortgage-holders at that Price; if the individual households can prove viability. Read Mark Thoma if you want the views of all Those who have already paid their mortgages; I especially like the commentary of Robert Reich.
There is a good Post by Calculated Risk on the problem of over-production. There are too many Housing units, cars, trucks, and flat screen TVs. No one doubts that! That is only the grounds for the real Problem: these Markets will not clear until such time as the Price of these Products reflect the over-supply. Everyone, inside and outside of the business clime, insist that this descent be fought ‘Tooth and Nail’. The necessary condition for moving beyond the Crisis is for the markets to clear, but Everyone fights this because of the Write-downs which would have to be taken. How stupid is it to claim that everything is alright, when you are sinking in quicksand? I wrote almost two years ago that the Situation could be saved only if Banks and Businesses wrote down their losses rapidly; We are now far into this Downturn, and most are not admitting their deep losses.
There is a good Post by Calculated Risk on the problem of over-production. There are too many Housing units, cars, trucks, and flat screen TVs. No one doubts that! That is only the grounds for the real Problem: these Markets will not clear until such time as the Price of these Products reflect the over-supply. Everyone, inside and outside of the business clime, insist that this descent be fought ‘Tooth and Nail’. The necessary condition for moving beyond the Crisis is for the markets to clear, but Everyone fights this because of the Write-downs which would have to be taken. How stupid is it to claim that everything is alright, when you are sinking in quicksand? I wrote almost two years ago that the Situation could be saved only if Banks and Businesses wrote down their losses rapidly; We are now far into this Downturn, and most are not admitting their deep losses.
Why do illegal scams seem to multiply during bad economic times? Is it, as I believe, honest businessmen decide to adopt illegal practice, simply to avoid bankruptcy? Soon the Government will not be able to communicate with Taxpayers, except through formal Court process; as One can no longer trust Form letters. I await the first Taxpayer who insists that the IRS verify its rectitude, before filing their Tax Return. There is something corrupt at the heart of the American psyche, and it starts in the format of the original American business style. I think it started with Government abandonment of the hinterland, continually moving Government Services to conglomerate massive offices in major Cities. Out of Sight means unknown, and the later means disrespect. Even military bureaucracy knows One has to have Sentries standing on Street corners to ensure military occupancy, even when greater Costs are entailed. lgl
Wednesday, February 18, 2009
My own Position on the Stimulus Package
The Student should recognize the Points where aggregate models get into trouble. Read this Post, and figure where it fails; one should remember that it was written by a very good Economist with an excellent Track record. Hint: Mine Cleanup is a highly specialized Occupation, shrouded in major Safety and Environmental regulations. There are few Companies which devote themselves to Mine Cleanup (employing about 16,000 Employees who utilize highly expensive equipment), who treat specific Location cleanups in serial form; maximizing the utilization of the Equipment and steady employment for their Employees. The rest of the analysis is quite correct, there only being discrepancy in the Time Component; one can estimate the Time required will be about 15 years of duration. Readers should understand many Work Schedules cannot be hurried!
Casey Mulligan places this Recession among the three previous Recessions, and explains that the economic times are not so unusual. We are on par with two mild Recessions, but below the Recession of the 1980s which proved to be the worst of any of the Three. The trouble for me is the Question of whether the Stimulus Package passed will be a Plus or a Minus to economic performance. We have a relative stability based upon a steady Product Profit ratio, and the Stimulus will throw a huge amount of Cash into the Economy; which will have a huge impact upon the Product Profit ratios. The Stimulus will work as expected, if the actual change in the Product Profit ratio is mild; the Stimulus will actually be counterproductive, if that change is relatively severe. Unaffected businesses who are not impacted by the Stimulus (some 70% of the total businesses) will be adversely curtailed if their Product Profit ratios have to rise over 4% above the expected Inflation rate of 7%, simply to meet rising Resource Costs. Here is the core of the Problem, and where I believe the Stimulus Package was wrong!
I have been asked what Stimulus I would advocate at the current time. I replied that economies operate differently based upon their total and relative size. Stimulus packages acting upon the total economy did well when Employment was around or less than 100 million Employed; economies affected by capitalization per Worker, and total number of Employed. We are simply too large with massive Labor force to simply throw Cash around, and expect Things to get better by the spread of Cash. We need to create new Sectors of Employment, with an eventual Sector enrollment of 6 million highly-paid Jobs apiece; likely to require a minimum of three such sectors where the Work is of at least 15 years duration, and costing a minimal 30 billion dollars every year of that time interval. Understand that with the Stimulus Package which has been passed and will be spent, it will cost a likely $40-50 billion per year per Sector. This is the basic reason why I did not like the passage of the Congressional Stimulus Package. lgl
Casey Mulligan places this Recession among the three previous Recessions, and explains that the economic times are not so unusual. We are on par with two mild Recessions, but below the Recession of the 1980s which proved to be the worst of any of the Three. The trouble for me is the Question of whether the Stimulus Package passed will be a Plus or a Minus to economic performance. We have a relative stability based upon a steady Product Profit ratio, and the Stimulus will throw a huge amount of Cash into the Economy; which will have a huge impact upon the Product Profit ratios. The Stimulus will work as expected, if the actual change in the Product Profit ratio is mild; the Stimulus will actually be counterproductive, if that change is relatively severe. Unaffected businesses who are not impacted by the Stimulus (some 70% of the total businesses) will be adversely curtailed if their Product Profit ratios have to rise over 4% above the expected Inflation rate of 7%, simply to meet rising Resource Costs. Here is the core of the Problem, and where I believe the Stimulus Package was wrong!
I have been asked what Stimulus I would advocate at the current time. I replied that economies operate differently based upon their total and relative size. Stimulus packages acting upon the total economy did well when Employment was around or less than 100 million Employed; economies affected by capitalization per Worker, and total number of Employed. We are simply too large with massive Labor force to simply throw Cash around, and expect Things to get better by the spread of Cash. We need to create new Sectors of Employment, with an eventual Sector enrollment of 6 million highly-paid Jobs apiece; likely to require a minimum of three such sectors where the Work is of at least 15 years duration, and costing a minimal 30 billion dollars every year of that time interval. Understand that with the Stimulus Package which has been passed and will be spent, it will cost a likely $40-50 billion per year per Sector. This is the basic reason why I did not like the passage of the Congressional Stimulus Package. lgl
Tuesday, February 17, 2009
Where Wea are At today
Paul Krugman has a nice Post on the Business cycle, with admission that advocates of Keynesian theory took it far beyond Keynes’ desires and comments. He is kind enough to place the focus on the Wear-Out theory of Capital Construction; a basic Statement that there is a Point simple Mechanics cannot preserve continued Production operations (check Cuba under the American embargo, or the Philippines’ final loss of the Jeep Taxis of WWII). Paul does not mention the altered loci inherent in every Recovery, where the economy reorients to a new system of Goals. I mention this factor because it most adequately reflects the stall in the Economy, and the Means by which Recovery is attained.
The Economy runs along in a Boom generating all those great effects that Everyone loves about Booms. Everything is going fine until there is a Point where most Business managers realize that their facilities have the capacity to produce what Consumer Demand wants, and they need to find Investment opportunity outside their own area of expertise. They quickly perceive that real Productive capacity needs little funding beyond what it already does possess. Business talent lack real capacity to switch from Investment to Consumption; they possessing neither Time or Inclination (personal embellishments being quickly funded and realized–I knew one Corporate leader with 7 Homes in all the Vacation Hotspots in the World, while he spent 95% of his time at his New York home). Business leadership invariably adopts the proposition to extend Credit to Consumers, so they will buy more Product and make the Business leadership more Money. Trouble appears in this program, because Consumers have a limited capacity to borrow, based upon their capacity to pay off the loans. Business again finds itself with a build-up of Cash drawing a limited capacity of Profit; the limitation of the Profit ordered by the build-up of Cash.
It is obvious that economies stall because of the failure of technological evolution. Busts occur when previous Production practice has been fully-funded, and new technological opportunities for Investment fail to appear is sufficient quantity to provide the actual Stimulus for Production. Government can attempt infrastructure construction, but there is a primary limitation here; infrastructure sufficient to present Travel opportunity and Business Product movement has no Time-component Restraint, and will not attain the Speed necessary to accomplish the Stimulus required. Welfare Transfers only maintain previous Production schedules; they do not expand them. Business expansion depends on factors hard to duplicate by Government, and attempts to do so can make Business conditions more difficult for both Consumer and Business. It is where We are today! lgl
The Economy runs along in a Boom generating all those great effects that Everyone loves about Booms. Everything is going fine until there is a Point where most Business managers realize that their facilities have the capacity to produce what Consumer Demand wants, and they need to find Investment opportunity outside their own area of expertise. They quickly perceive that real Productive capacity needs little funding beyond what it already does possess. Business talent lack real capacity to switch from Investment to Consumption; they possessing neither Time or Inclination (personal embellishments being quickly funded and realized–I knew one Corporate leader with 7 Homes in all the Vacation Hotspots in the World, while he spent 95% of his time at his New York home). Business leadership invariably adopts the proposition to extend Credit to Consumers, so they will buy more Product and make the Business leadership more Money. Trouble appears in this program, because Consumers have a limited capacity to borrow, based upon their capacity to pay off the loans. Business again finds itself with a build-up of Cash drawing a limited capacity of Profit; the limitation of the Profit ordered by the build-up of Cash.
It is obvious that economies stall because of the failure of technological evolution. Busts occur when previous Production practice has been fully-funded, and new technological opportunities for Investment fail to appear is sufficient quantity to provide the actual Stimulus for Production. Government can attempt infrastructure construction, but there is a primary limitation here; infrastructure sufficient to present Travel opportunity and Business Product movement has no Time-component Restraint, and will not attain the Speed necessary to accomplish the Stimulus required. Welfare Transfers only maintain previous Production schedules; they do not expand them. Business expansion depends on factors hard to duplicate by Government, and attempts to do so can make Business conditions more difficult for both Consumer and Business. It is where We are today! lgl
Monday, February 16, 2009
Banking as We know it
The sheep are all bleating, and the herd runs in a common direction, what could go wrong? The Corporations are braying, "No Profits’, while the old ewe banks blare, "Liquidity, Liquidity," while their udders bulge with Cash. Everyone has their Hand out, and the Herd blats, "Stimulus, Stimulus,’ in a sonorous roll of Sound through the entire trotting mass. Problem: Investment Bank after Investment Bank, Car company after Car company, Business after Business all roar, "Taxpayers must give Us Cash, or We will have to start massive Layoffs," but the herd is already ‘Skin and Bones’ when it comes to Employment; where they would functionally have to shut off Production under more Job Cuts. What is wrong with this Picture? Businesses want a replacement for the Consumer, Congresses and Parliaments satisfy every slush-fund lobbyist’s dream, and central banks ensure that all Taxpayers and Consumers face sufficient Currency devaluation to wipe out their efforts to Save for the future. Is it that Business leadership insists that Consumers cannot do anything except Consume, without the permission of themselves?
Here is a summation of Consumer Debt in the UK (note that it is a dated Post); a pattern description of the American Consumer would say the identical same! What is the exact result of Everyone borrowing at the same moment? It becomes a Currency issue, does it not? It is a functional replacement for actually printing Currency, especially easy when the majority of Cash is held as a series of ‘Opened or Closed’ on a machine. Suddenly, no one has to listen to the clatter of the Printing Presses, and billions and trillions can be created simply by hitting a Computer ‘Enter’ key. I may have missed something here, but aren’t markets supposed to determine the value of Products? Are markets and central bank in a War with each other? Someone is trying to deny Reality here, and I would rely on the stability of markets rather than the political whim of central bankers.
I have defied John Hampton’s desires by only scanning his entire Post, but what can Anyone do else under a Time constraint? I recommend the Post to the Reader because of its grasp of the essence of Banking. Solvency is in the Eye of the Beholder, and Bankers work hard to ensure only they see. The Reader should understand that what is discussed all falls between the amounts actually extended by Banks, and the expectation of total value under prompt and total repayment with the Interest generated. The Reader should know that Banks expect a large Return for any extension of Cash, and utilize market-to-market transactions to gain additional Cash to loan, at Profit to themselves. Legislators tend to become incensed about Bankers paying themselves huge bonuses for selling this debt, acting like the return of such bonuses would increase the solvency of the loan structure. It is not true, and legislators are simply mad that Bankers make more money than themselves; on the other hand, the presence of the bonus system increases the pressures to get value from market-to-market transactions. I can’t wait until Someone decides to invent a residual liability for the Debt used in market-to-market transactions. lgl
Here is a summation of Consumer Debt in the UK (note that it is a dated Post); a pattern description of the American Consumer would say the identical same! What is the exact result of Everyone borrowing at the same moment? It becomes a Currency issue, does it not? It is a functional replacement for actually printing Currency, especially easy when the majority of Cash is held as a series of ‘Opened or Closed’ on a machine. Suddenly, no one has to listen to the clatter of the Printing Presses, and billions and trillions can be created simply by hitting a Computer ‘Enter’ key. I may have missed something here, but aren’t markets supposed to determine the value of Products? Are markets and central bank in a War with each other? Someone is trying to deny Reality here, and I would rely on the stability of markets rather than the political whim of central bankers.
I have defied John Hampton’s desires by only scanning his entire Post, but what can Anyone do else under a Time constraint? I recommend the Post to the Reader because of its grasp of the essence of Banking. Solvency is in the Eye of the Beholder, and Bankers work hard to ensure only they see. The Reader should understand that what is discussed all falls between the amounts actually extended by Banks, and the expectation of total value under prompt and total repayment with the Interest generated. The Reader should know that Banks expect a large Return for any extension of Cash, and utilize market-to-market transactions to gain additional Cash to loan, at Profit to themselves. Legislators tend to become incensed about Bankers paying themselves huge bonuses for selling this debt, acting like the return of such bonuses would increase the solvency of the loan structure. It is not true, and legislators are simply mad that Bankers make more money than themselves; on the other hand, the presence of the bonus system increases the pressures to get value from market-to-market transactions. I can’t wait until Someone decides to invent a residual liability for the Debt used in market-to-market transactions. lgl
Sunday, February 15, 2009
The failures of Trade
Here is a Post which extends some reality. Some people imagine that the globalization of Old can continue, but Mish provides a lot of viewpoints which carry adverse Signs. Production Costs have increased, Transportation Costs have increased, Everyone owes money to People and Organizations they have functionally never heard of, and Consumer Demand is in decline in almost all of the developed world. Ports are clogged, infrastructures are suffering constant wear, Replacement Costs for that infrastructure is rising out of the Cost realm of most focal points of Trade, and human populations simply inhibiting the flow of Goods. The good old days of borrowing billions to spend billions with high Profits at each end may be coming to an End, what with the major Banks unable even to clearly estimate their Risk. The most frightening aspect the insensitivity of both Consumer and specialized Labor to respond to the old Incentives to maintain the system.
Everyone should read this Post from Greg Mankiw. I must admit that I have some minor, or more serious, reservations about 2,3,4,6,8,9, and 12. The practice of Tariffs and Quotas have not been shown to actually constrict economic performance; location advantage of Production has basically never been proven outside base materials and metallurgy. There is more discontinuity in flexible and floating exchange rates–especially in recessionary periods. American farm subsidies forestall the complete conquest of Agriculture by the Corporate world, and their elimination would not actively alter the Exports or Import fractions currently endured; such elimination, though, would raise Food Costs by an estimated 25%. Social Security will become unsustainable only if a lengthy deflationary period persists over years, otherwise; actual payment for the system remains relatively unchanged–if no further services are granted. The Minimum Wage debate is where Greg might be completely wrong, as the data expresses a contrary condition. So much for the absolute Consensus between economic factions.
Even the old Revolutionaries were confused–Past and Present. The search for causation is always self-oriented, and researched only for personal defense, as this Post will outline. The Taiping Rebellion was driven by a religious fanaticism, tactically commandeered by Western soldiers of fortune utilizing modern weaponry for the Times, and directed against the propertied classes which were the Target of Mao’s Revolution much later. The Western military leadership was responsible for the success of the Taiping Rebellion, which later failed under native leadership. Western intervention was the factor for Taiping success, and so must be accounted for the huge human death toll; they supplying the means of destruction and the success for the Movement to spread. The later success of Mao came from the inability of their opposition to effectively fight, rather than the religious or political superiority of Mao’s message. The causation of both Rebellions rested on the level of Corruption expressed by Chinese leadership, and little else. lgl
Everyone should read this Post from Greg Mankiw. I must admit that I have some minor, or more serious, reservations about 2,3,4,6,8,9, and 12. The practice of Tariffs and Quotas have not been shown to actually constrict economic performance; location advantage of Production has basically never been proven outside base materials and metallurgy. There is more discontinuity in flexible and floating exchange rates–especially in recessionary periods. American farm subsidies forestall the complete conquest of Agriculture by the Corporate world, and their elimination would not actively alter the Exports or Import fractions currently endured; such elimination, though, would raise Food Costs by an estimated 25%. Social Security will become unsustainable only if a lengthy deflationary period persists over years, otherwise; actual payment for the system remains relatively unchanged–if no further services are granted. The Minimum Wage debate is where Greg might be completely wrong, as the data expresses a contrary condition. So much for the absolute Consensus between economic factions.
Even the old Revolutionaries were confused–Past and Present. The search for causation is always self-oriented, and researched only for personal defense, as this Post will outline. The Taiping Rebellion was driven by a religious fanaticism, tactically commandeered by Western soldiers of fortune utilizing modern weaponry for the Times, and directed against the propertied classes which were the Target of Mao’s Revolution much later. The Western military leadership was responsible for the success of the Taiping Rebellion, which later failed under native leadership. Western intervention was the factor for Taiping success, and so must be accounted for the huge human death toll; they supplying the means of destruction and the success for the Movement to spread. The later success of Mao came from the inability of their opposition to effectively fight, rather than the religious or political superiority of Mao’s message. The causation of both Rebellions rested on the level of Corruption expressed by Chinese leadership, and little else. lgl
Saturday, February 14, 2009
Old Man River--Just keeps rolling along
I have long tried to put a Pricetag on St. Valentine’s Day, though the women get somewhat dangerous when you mention the Expense. You cannot put a price on Love, not if you want to continue. Here has got to be the most expensive Valentine Present ever conceived; I think it was fob for the men, so they would think they could afford a special Christmas for women alone. Anyway, if they maintain the rate of expenditure capsuled within 18 months; it will be the greatest Inflationary pressure ever designed–like they could not limit themselves to spending say $10 billion/month to replace a financially dry financial sector. A lot of Economists–even some very good ones–approve of this splash award, though I wonder at the efficacy of bidding up a limited supply of Product in a rapid market move; remember, I listened yesterday to one Cable News outlet discussing $300/barrel Oil again, though they discussed this in a far off Period–like the proposed completion of the Stimulus.
Consumer confidence seems to have hit a new low, as indicated by the University of Michigan index. The Federal Reserve came out with a forecast survey expecting a 5.2% decline in the first Quarter. I, on the other hand, do not feel threatened by anything but the Stimulus bill. Consumers are paying off a major portion of their Consumer Credit while Most continue to retain their Employment. The Housing sector has tanked, and will get worse; it, though, is predictable with Contractors already adjusted for the expected decline. Retailers can expect a flat year even with the Stimulus, but nothing seems to indicate that anything will get much worse. I might be the Pied Piper, but maybe the economy will blow up a nice melody if the Stimulus does not balloon Wholesale prices.
I would advise my Readers to glance at this article, though I do not want to present much insight as to my Thoughts. I did enjoy the commentary that individual choices are often imperfect; a reflection that individual choices brought Us the Stock and Real Estate investment witnessed in the last few years. Some 70% of individuals adopt an optimistic attitude based upon the fact that the alternatives are unpalatable. The rest are ‘Gloom and Doom’ creatures such as myself, who are surprised that only about 40% of their dire predictions prove true! In no case does Anyone scope their Retirement funding around the concept of making a 4% annual Return on their Retirement Accounts. Maybe We do need a professional Keeper. lgl
Consumer confidence seems to have hit a new low, as indicated by the University of Michigan index. The Federal Reserve came out with a forecast survey expecting a 5.2% decline in the first Quarter. I, on the other hand, do not feel threatened by anything but the Stimulus bill. Consumers are paying off a major portion of their Consumer Credit while Most continue to retain their Employment. The Housing sector has tanked, and will get worse; it, though, is predictable with Contractors already adjusted for the expected decline. Retailers can expect a flat year even with the Stimulus, but nothing seems to indicate that anything will get much worse. I might be the Pied Piper, but maybe the economy will blow up a nice melody if the Stimulus does not balloon Wholesale prices.
I would advise my Readers to glance at this article, though I do not want to present much insight as to my Thoughts. I did enjoy the commentary that individual choices are often imperfect; a reflection that individual choices brought Us the Stock and Real Estate investment witnessed in the last few years. Some 70% of individuals adopt an optimistic attitude based upon the fact that the alternatives are unpalatable. The rest are ‘Gloom and Doom’ creatures such as myself, who are surprised that only about 40% of their dire predictions prove true! In no case does Anyone scope their Retirement funding around the concept of making a 4% annual Return on their Retirement Accounts. Maybe We do need a professional Keeper. lgl
Friday, February 13, 2009
Where's the Beef (Stimulus?)
I suffered some degree of entrapment by this Paper(pdf) by Irving Fisher, brought to Us by a Tim Schilling’ Post. Fisher wrote during the aftermath of the Great Depression, being a contemporary of Keynes. There is relatively greater clarity in Fisher’s writings than ever was found in Keynes, and Fisher may be as correct today as he was then, though the terms may confuse. I have always personally felt that lengthening periods of expansion, in themselves, led to economic decisions which were over-optimistic; Participants becoming entrapped in their own Expectations, without recognition that the Profit ratios in such magnification would reduce, because of higher Resource pricing, higher Transit Costs, and a higher degree of Competition. Factors take hold which were previously inexperienced and unexpected, all of which generated higher Costs combined with higher-priced Sales Costs. Ordinary Debt service becomes harder and harder, until a position of internal insolvency evolves. Interest payments become impossible thereafter.
This article is relatively consistent with the above commentary, and mentions the truth that Stimulus will not work as long as Banks are deleveraging. They are in this process because of the added Costs of Debt service outlined above. Banks are unwilling to adopt debt extension which has already proven a failure, and all circumstances indicate the Production matrix will not alter for the applicant loans. Attempts to provision Stimulus will be almost entirely inflationary; a simple addition to the increased Production Costs of the competing businesses. The Inflation will add a greater difficulty to the problem, where Government aggregation Costs will increase as the assumed Debt grows.
Arnold Kling suffers greatly from being taken out of Context and misquoted. I possess some Salvation from being less-Read, thereby relatively immune from online slander. I join with him, though, in greatly doubting the efficacy of any Stimulus plan. We are rapidly increasing the Costs of Stimulus (as it is all debt generated), without any effective measure of its value. No one has forwarded any analysis of the Price pressures applied to Resources by this Expenditure, when this Spending must be in direct competition with already struggling business formats. How many additional Businesses will be forced into bankruptcy with Employment lost, solely because the Stimulus package has made their Operating Costs too expensive under the limited number of their Sales? lgl
This article is relatively consistent with the above commentary, and mentions the truth that Stimulus will not work as long as Banks are deleveraging. They are in this process because of the added Costs of Debt service outlined above. Banks are unwilling to adopt debt extension which has already proven a failure, and all circumstances indicate the Production matrix will not alter for the applicant loans. Attempts to provision Stimulus will be almost entirely inflationary; a simple addition to the increased Production Costs of the competing businesses. The Inflation will add a greater difficulty to the problem, where Government aggregation Costs will increase as the assumed Debt grows.
Arnold Kling suffers greatly from being taken out of Context and misquoted. I possess some Salvation from being less-Read, thereby relatively immune from online slander. I join with him, though, in greatly doubting the efficacy of any Stimulus plan. We are rapidly increasing the Costs of Stimulus (as it is all debt generated), without any effective measure of its value. No one has forwarded any analysis of the Price pressures applied to Resources by this Expenditure, when this Spending must be in direct competition with already struggling business formats. How many additional Businesses will be forced into bankruptcy with Employment lost, solely because the Stimulus package has made their Operating Costs too expensive under the limited number of their Sales? lgl
Thursday, February 12, 2009
What are We doing here?
William J. Polley sometimes makes me think I have written his stuff, though I definitely have not, especially this comment. I really worry that the Stimulus Package will actually crush the Recovery, by distorting basic Materials pricing. One must remember that Retail prices and the Retail Demand Curve have already stabilized under Recession conditions, and the Stimulus will raise those Retail prices; they could not do otherwise. Consumers, though, have stable Incomes which will not increase drastically until Businesses start to show good Profits. I do not see anything which would create the necessary Consumer Demand for the Stimulus to succeed.
The second element I find disturbing is centering the Stimulus around Banking, most importantly, the major conglomerate Banking corporations. You can give all the Money you want to Banks, and get Businesses to even draft large amounts of Cash from those Banks which they will spend. The trouble lays in the fact that the last thing any will spend it on is Wages, the immediate source of loss of control of the Cash. Business wants retention of that control to derive Profits from it; they will never get Profits from that Cash until it gets into the hands of the Consumer. Business management cannot seem to understand this; maybe I should make the Declaration that all funds in the Stimulus should be paid to Bank and Business only if they have given all Employees a 4% increase in Pay.
I have probably lost even Paul Krugman and Brad DeLong with that Call for a Worker Pay Raise. It does not matter, but it is intrinsic fact there will be a retreat down the Demand Curve in response to any Retail Price hikes; that retreat will equal about 4% by my estimate, with Household expenditures already absorbing over 90% of Income in Maintenance Costs. One does not feed a horse, by forcing the grain up the wrong end. I don’t know how this will turn out, but I am pulling on my nose already. lgl
The second element I find disturbing is centering the Stimulus around Banking, most importantly, the major conglomerate Banking corporations. You can give all the Money you want to Banks, and get Businesses to even draft large amounts of Cash from those Banks which they will spend. The trouble lays in the fact that the last thing any will spend it on is Wages, the immediate source of loss of control of the Cash. Business wants retention of that control to derive Profits from it; they will never get Profits from that Cash until it gets into the hands of the Consumer. Business management cannot seem to understand this; maybe I should make the Declaration that all funds in the Stimulus should be paid to Bank and Business only if they have given all Employees a 4% increase in Pay.
I have probably lost even Paul Krugman and Brad DeLong with that Call for a Worker Pay Raise. It does not matter, but it is intrinsic fact there will be a retreat down the Demand Curve in response to any Retail Price hikes; that retreat will equal about 4% by my estimate, with Household expenditures already absorbing over 90% of Income in Maintenance Costs. One does not feed a horse, by forcing the grain up the wrong end. I don’t know how this will turn out, but I am pulling on my nose already. lgl
Wednesday, February 11, 2009
Exile these People from New York and D.C.
There is a term I wanted to use for Mr. Geithner’s Plan, though I know I cannot use the one which keeps coming to mind; Cursing foresworn on the basis of Good Conduct. The quoted $2.5 trillion potential Cost is not Stimulus, but a ‘Buy-out’ Bid. The Recipients are offering to sell a used Ford, while Geithner wants to offer the Price of a new Ferrari. Geithner may not know this, but the toxic assets were not worth that amount when they were first issued in a wildcat Boom. Banks are not lending because they are waiting for the federal Government’s free Cash; some 77% of their total assets would have to a total loss, a sum which must put the Banks leadership in the docket with Bernie Madoff for a traceable Ponzie scheme. Does no one understand such a level of asset disappearance is an indictable offense?
I didn’t even mention the ‘Crowding-Out’ effect of trying to attempt to draw that much Cash from an over-stressed economy in the previous paragraph. The amounts discussed are equal to more than a Year’s tax revenues for the federal government, and never could be repaid at all, even if We did not have another Recession over the next twenty years. Understand this is a huge amount for a very temporary Fix; and is effectively equivalent to tripling the total federal payroll for a series of years; with no one showing up for Work. There is no way such funds could possibly be withdrawn from the economy to pay a very specialized financial sector; it will cripple the overall economy just in the funding aspect. It also does not look forward, simply consisting of promising Banks that the federal government will repay them for losses already incurred.
My eyes begin to glaze, and my Mind delves into pathological Thoughts, as I listen to members of Congress complain only of a lack of detail. I truly would enjoy ramming that detail up their rears with a Jackhammer. The Geithner Plan makes as much sense as my own fairy tale Stimulus plan: give Everyone a Tax Holiday for two years, then impose a tax rate of 70% without any deductions at all. Both Plans give much, promise nothing, and will mean nothing at the end of two years. My worst fear is that when firewood becomes scare, and people will start debasing Currency in their attempts to keep warm. lgl
I didn’t even mention the ‘Crowding-Out’ effect of trying to attempt to draw that much Cash from an over-stressed economy in the previous paragraph. The amounts discussed are equal to more than a Year’s tax revenues for the federal government, and never could be repaid at all, even if We did not have another Recession over the next twenty years. Understand this is a huge amount for a very temporary Fix; and is effectively equivalent to tripling the total federal payroll for a series of years; with no one showing up for Work. There is no way such funds could possibly be withdrawn from the economy to pay a very specialized financial sector; it will cripple the overall economy just in the funding aspect. It also does not look forward, simply consisting of promising Banks that the federal government will repay them for losses already incurred.
My eyes begin to glaze, and my Mind delves into pathological Thoughts, as I listen to members of Congress complain only of a lack of detail. I truly would enjoy ramming that detail up their rears with a Jackhammer. The Geithner Plan makes as much sense as my own fairy tale Stimulus plan: give Everyone a Tax Holiday for two years, then impose a tax rate of 70% without any deductions at all. Both Plans give much, promise nothing, and will mean nothing at the end of two years. My worst fear is that when firewood becomes scare, and people will start debasing Currency in their attempts to keep warm. lgl
Tuesday, February 10, 2009
The Line Wolf Speaks
Recessions would be a Great Depression, except for down-to-earth economists like Jeff Cornwall. He again brings the evidence that Recessions basically mean that the Economy is looking for a different Business format and direction. Notice that none of the listed Start-Ups received any Stimulus aid from the Government, and managed to acquire the Capital anyway. The real point here states that Private Sector Capital had lost faith in the currently traditional businesses of the Time, and went looking for a viable alternative. Government propping up Business enterprise has historically worked very poorly, and that support tended to become permanent until the business was basically abandoned. The shortage is not in funds, but in business talent; I would be ashamed to admit that I had a billion dollars of assets, and couldn’t make a Profit.
I have known of Senator Ben Nelson since I was Ezra Klein’s age, and know some individuals who have served with him on Corporate boards or State Democratic committees. He tries to talk to me once in a great while, and I protest I never heard of him and am extremely busy. He actually does not totally represent Our fair State; most notably, having difficulty in paying Property taxes (what does that remind of?). Ben and Warren Buffet may be brilliant in their own way, but I feel gratitude that Our paths so rarely cross. I obviously malign Ben as badly as does the Eastern liberal establishment, but at least it is not as bad as some pithy commentary heard right here in the State of Nebraska.
Now a rapid turn to the current theory of the moment–the need for Stimulus. Economists studied the Great Depression, and decided that the mechanization of the FDR administrations were utterly necessary for the Recovery following it. Still, there is little actual evidence that the measures actually helped all that much; though one must remembers that many measures actually established a stable business format, from which a viable economy could be built upon. I won’t go into that aspect much, except to say the Robber Baron Period at least came to an end, and Americans had safe avenues of investment and Saving. The trouble came in the trade of Economics, which developed a huge compulsion to be Activist; i.e., stating that Government policy and Stimulus could be a help, when it could quite easily be a retardant to economic recovery–especially in intensive obstructionist regulation. I am in favor of no Stimulus at the present time, but it does not even sell in Nebraska–let alone D.C. lgl
I have known of Senator Ben Nelson since I was Ezra Klein’s age, and know some individuals who have served with him on Corporate boards or State Democratic committees. He tries to talk to me once in a great while, and I protest I never heard of him and am extremely busy. He actually does not totally represent Our fair State; most notably, having difficulty in paying Property taxes (what does that remind of?). Ben and Warren Buffet may be brilliant in their own way, but I feel gratitude that Our paths so rarely cross. I obviously malign Ben as badly as does the Eastern liberal establishment, but at least it is not as bad as some pithy commentary heard right here in the State of Nebraska.
Now a rapid turn to the current theory of the moment–the need for Stimulus. Economists studied the Great Depression, and decided that the mechanization of the FDR administrations were utterly necessary for the Recovery following it. Still, there is little actual evidence that the measures actually helped all that much; though one must remembers that many measures actually established a stable business format, from which a viable economy could be built upon. I won’t go into that aspect much, except to say the Robber Baron Period at least came to an end, and Americans had safe avenues of investment and Saving. The trouble came in the trade of Economics, which developed a huge compulsion to be Activist; i.e., stating that Government policy and Stimulus could be a help, when it could quite easily be a retardant to economic recovery–especially in intensive obstructionist regulation. I am in favor of no Stimulus at the present time, but it does not even sell in Nebraska–let alone D.C. lgl
Monday, February 09, 2009
Walk like an Egyptian
One of the great elements of Economics which few of Us discuss consists of the Concept that Economists want the Reader to think as the Author thinks. Economists, probably more greatly than any other Authors, want allegiance to their own Thought patterns. Economists are forever defining themselves to themselves and Readers as Keynesian, Ricardian, Hayekian, or devotee of von Mises. I could name a dozen other Authors and methods of Thought, but probably gave the major Thought pools. It is this sectarian segmentation, and the battle deriving from it, which provides any color to the Dismal Science. It is why I find this Post by Tyler Cowen so entertaining. Keynes really based most of his theses on assumptions rigorously discussed, but somewhat unproven. He never precisely defined why consumption fell off with a rise in Income, never explaining that the consumption fall-off was a necessary condition for the rise in Income in the first place; and that Expenditure pattern reduction was and is solely a continuation of individual policy of asset aggregation, and no break with previous pattern. It is a simple Statement that reorientation away from Consumption precedes the rise of Income.
It surprises me that Tyler’s blog partner, Alex Tabarrok, immediately precedes Tyler’s Post with an excellent example of Thought-Speak from Jim Hamilton; it not being important in this instance that he is quite correct in his assumptions. Hamilton could not agree that ‘ wage or price rigidities’ were responsible for the current Crisis; it instead had to be ‘technological frictions’. I must repeat that I wholeheartedly agree with Hamilton’s assessment, but it is even more an expression of the Economic ideation I am discussing. The Reader is well warned that deviation from the exact terminology will get One outlawed from the herd in Economics, no matter how minute the herd.
I immediately drop down the list of Posts which I read, and find this. Failure always brings the fragmentation of Thought, the raucous bleat of new proposed dogma, and innocence truly lost in the swell of personal self-interest. Readers should understand that the true Faith will be reinstated, with only minor change in the verbal bible, and all it will take is a functioning economy once more. Economic belief only takes a marginal increase in economic success, whether the rationales have relationship to the success, or not. Such is the state of the Economic profession. lgl
It surprises me that Tyler’s blog partner, Alex Tabarrok, immediately precedes Tyler’s Post with an excellent example of Thought-Speak from Jim Hamilton; it not being important in this instance that he is quite correct in his assumptions. Hamilton could not agree that ‘ wage or price rigidities’ were responsible for the current Crisis; it instead had to be ‘technological frictions’. I must repeat that I wholeheartedly agree with Hamilton’s assessment, but it is even more an expression of the Economic ideation I am discussing. The Reader is well warned that deviation from the exact terminology will get One outlawed from the herd in Economics, no matter how minute the herd.
I immediately drop down the list of Posts which I read, and find this. Failure always brings the fragmentation of Thought, the raucous bleat of new proposed dogma, and innocence truly lost in the swell of personal self-interest. Readers should understand that the true Faith will be reinstated, with only minor change in the verbal bible, and all it will take is a functioning economy once more. Economic belief only takes a marginal increase in economic success, whether the rationales have relationship to the success, or not. Such is the state of the Economic profession. lgl
Sunday, February 08, 2009
Understanding the Crisis
Gavin Kennedy is an excellent author , and I would have my Readers contemplate this article. He discusses the ‘Risk-aversion’ of Banks for lending, especially to other banks. I am going to let the Reader study him, and go into a discussion of economic development. Original economic speculation through the Great Depression of the 1930s had determined an ‘Either-Or’ economy where Capital and Materials had either to be spent on Consumption, or on Investment; due to the limitation of Resources and the limited degree of Profitability of previous economic expansion. Economic Thought alters under the impact of Keynes and Keynesians to a position where Consumption should be maximized, and Investment should be accomplished by debt assumption; never stated, the Resources are considered inexhaustible (what discussion is made, talks of magnitudes where Resources are far in excess of limited amount of usage). Economic expansion, under this set of Expectations, seems unlimited and self-sustaining, as long as there is a flow of Cash to make repayments of the debts assumed. The trouble comes when Reality reasserts that there is indeed a shortage of Resources, the prices of those Resources rise in response, and the Profitability of previous successful enterprise is lost; the Profits necessary to repay the assumed debt gone into the expenditure Land, Labor, and Maintenance. Here, the House of Cards made of whatever is the Currency of the Moment collapses.
The sense of the above Argument answers the Question of Why, under Boom conditions, there is such pressure to expand to new Markets; reducing the repayment Costs in real terms by more Product sold in fresh Consumption areas. The Problem starts when the Debt is also spread to new markets to establish Distribution markets and obtain Resources; check of Product sales leads immediately to great fear of further debt aggregation, when no new markets can be explored and with heavy debt in all markets. Banks, the repositories of debt obligations, are the first to be shaken; realizing the huge draft of Profits which had to drawn to pay for the huge debt, when Product sales was indeed highly limited per market sector. Here is the real source of the Risk-aversion.
There is no sense in provision of more Cash to Banks, without actually buying the toxic debt. Banks realize that Business will never repay that toxic structure, based upon the limited Product marketing capability. Banks are even more averse to extending like debt instruments to Businesses which they know market structure will never support on current debt obligations, let alone drafting higher repayment Costs. Bankers are the first to recognize a economic Downturn, as they witness balance sheets unable to balance. lgl
The sense of the above Argument answers the Question of Why, under Boom conditions, there is such pressure to expand to new Markets; reducing the repayment Costs in real terms by more Product sold in fresh Consumption areas. The Problem starts when the Debt is also spread to new markets to establish Distribution markets and obtain Resources; check of Product sales leads immediately to great fear of further debt aggregation, when no new markets can be explored and with heavy debt in all markets. Banks, the repositories of debt obligations, are the first to be shaken; realizing the huge draft of Profits which had to drawn to pay for the huge debt, when Product sales was indeed highly limited per market sector. Here is the real source of the Risk-aversion.
There is no sense in provision of more Cash to Banks, without actually buying the toxic debt. Banks realize that Business will never repay that toxic structure, based upon the limited Product marketing capability. Banks are even more averse to extending like debt instruments to Businesses which they know market structure will never support on current debt obligations, let alone drafting higher repayment Costs. Bankers are the first to recognize a economic Downturn, as they witness balance sheets unable to balance. lgl
Saturday, February 07, 2009
The Masses
Where are you on the ‘Doom and Gloom’ scale? Slate magazine has this article citing the decline of economic defeatism. I am not worried about the robust strength of the American economy, but knowledge of the history of the Roman Republic restrains my enthusiasm. The similarity of the ‘Bread and Circuses’ amazes me, while the Wars at the boundaries of civilization absorb the attention of responsible leadership. The Masses become acclimated to a ‘Tempests in a Teapot’, wishing the roar of words, rather than the labor of decent policy. We may have become ruined by mass interest in the functioning of our Government and foreign policy; the masses always clamoring for the current craze. Economists would claim that the economy is little affected by the roar of the crowds, yet a good 60% of our Government expenditure annually should not have been spent. We search for a balance, but one cannot be found where everything is based upon Goals, rather than Needs.
One can find an excellent examples of dedication to Goals rather than Needs. I break down the elements of this article to explain my reasoning:
1) Corporations are the most able to afford taxation, as taxation affects only their expansion and not their maintenance;
2) Sin taxes with tax-revenue neutrality ignorant of essential need;
3) Reduce Entitlements, but raise the age of eligibility rather than a more sensible Means testing;
4) Cut inefficient Spending–allow higher Food prices and traffic congestion, forbid recovery of valuable Real Estate, cease subsidization of effective mass systems to throw the high Costs back onto the Private sector–increasing Private Sector price increases and Business loss, and stop development of areas which cannot afford the initial Cost of development.
5) Abandon areas of the World which organize to destroy Us, and break the power of Organized Labor so Subsistence wages can be re-introduced;
6) make the total commitment to Free Trade, though other nations discriminate against Us–notice the lack of commitment to restricting this discrimination against Us;
7) stop bailing out Businesses, but blame prior Government action for the cause of the losses–never mentioning the deliberate violation of acceptable Business operation which was the real cause of the losses.
I would rather a program of Needs be adopted. Congress would pass an acceptable minima and maxima of Taxation. I would suggest a half-trillion of taxes from the Corporate World, a quarter-trillion of taxes from the small Businesses, and three-quarters of a trillion from Personal Income. I would favor a Constitutional amendment stating that Congressional Spending could not exceed Tax revenues without the active support (Vote) of 30% of American Taxpayers (who have paid Taxes 3 out of the last 5 years); the Vote taken by registered Social Security numbers, and the Expenditure directed towards approved purpose. Let more knowledgeable actually set the tax rates, while Congressional Committee of Three (Two Representatives and a Senator who are precluded from ruling on Tax rates within their own districts) are directed to hold constant Hearings to respond to claims of discrimination of Tax assignment by Tax Assessors. The End-Result may be more mass confusion, but I tried! lgl
One can find an excellent examples of dedication to Goals rather than Needs. I break down the elements of this article to explain my reasoning:
1) Corporations are the most able to afford taxation, as taxation affects only their expansion and not their maintenance;
2) Sin taxes with tax-revenue neutrality ignorant of essential need;
3) Reduce Entitlements, but raise the age of eligibility rather than a more sensible Means testing;
4) Cut inefficient Spending–allow higher Food prices and traffic congestion, forbid recovery of valuable Real Estate, cease subsidization of effective mass systems to throw the high Costs back onto the Private sector–increasing Private Sector price increases and Business loss, and stop development of areas which cannot afford the initial Cost of development.
5) Abandon areas of the World which organize to destroy Us, and break the power of Organized Labor so Subsistence wages can be re-introduced;
6) make the total commitment to Free Trade, though other nations discriminate against Us–notice the lack of commitment to restricting this discrimination against Us;
7) stop bailing out Businesses, but blame prior Government action for the cause of the losses–never mentioning the deliberate violation of acceptable Business operation which was the real cause of the losses.
I would rather a program of Needs be adopted. Congress would pass an acceptable minima and maxima of Taxation. I would suggest a half-trillion of taxes from the Corporate World, a quarter-trillion of taxes from the small Businesses, and three-quarters of a trillion from Personal Income. I would favor a Constitutional amendment stating that Congressional Spending could not exceed Tax revenues without the active support (Vote) of 30% of American Taxpayers (who have paid Taxes 3 out of the last 5 years); the Vote taken by registered Social Security numbers, and the Expenditure directed towards approved purpose. Let more knowledgeable actually set the tax rates, while Congressional Committee of Three (Two Representatives and a Senator who are precluded from ruling on Tax rates within their own districts) are directed to hold constant Hearings to respond to claims of discrimination of Tax assignment by Tax Assessors. The End-Result may be more mass confusion, but I tried! lgl
Friday, February 06, 2009
Options going forward
I applaud Greg Mankiw for giving a clear statement of his preference for his type of stimulus package. My trouble with it comes in his dedication to tax revenue-neutrality. I see no real grounds for a reduction in payroll taxes, but I personally wish a Gasoline tax substitute for a Consumption-Demand Price increase. Any matriculated diversion of Taxes to the States based upon methodology will never be rescinded, and States will never cure their own fiscal woes by proper Tax allocation. My position holds that Taxes are not onerous, Government spending is excessive, and Taxpayers need no higher revenues simply to feed Business desires for higher Pricing. I am definitely in the minority when I advocate no Stimulus package, believing that Congress and President should work on containing the ballooning Deficit.
One has to ask what is the current Crisis? Unemployment stands only marginally higher than what is traditional in most Capitalist economies dependent on Private sector creation of Jobs. Some claim that Unemployment continues to accelerate, and Retail Sales suffer because of it. One would find it hard to find Job eliminations rising faster than the Glory Days of the two recent Booms; the real loss coming in the slowing of re-Hires for new projects. Nothing that the Government can do will multiply the numbers of these project Orders; Government Spending only affecting limited sectors of the economy at too great an Expense, while project Orders are dependent upon the expenditure patterns of Consumers; who are little altered by the greater Demand of a marginally-raised Government employment. Consumer Demand stimulus will not occur by Government infrastructure programs at the rate necessary to replace the lost project Orders.
The real support for the Stimulus comes from business leadership, whose sole goal consists of the replacement of losses stemming from their poor management in the previous Boom. Most Sectors have steady and consistent Orders for approximately 80% of their Production. They really want the American Taxpayers to fund the repayment of their overcapitalization during the Boom period; said overcapitalization caused by justifying Tax deductions, neither the capitalization or the Tax Cut formulation valid under the Boom conditions. The real need is for business to write down their losses, and go on. It is a simple case of over-extension by a business leadership whose management should have been replaced far earlier. What I have written is not popular, but regrettably too true! lgl
One has to ask what is the current Crisis? Unemployment stands only marginally higher than what is traditional in most Capitalist economies dependent on Private sector creation of Jobs. Some claim that Unemployment continues to accelerate, and Retail Sales suffer because of it. One would find it hard to find Job eliminations rising faster than the Glory Days of the two recent Booms; the real loss coming in the slowing of re-Hires for new projects. Nothing that the Government can do will multiply the numbers of these project Orders; Government Spending only affecting limited sectors of the economy at too great an Expense, while project Orders are dependent upon the expenditure patterns of Consumers; who are little altered by the greater Demand of a marginally-raised Government employment. Consumer Demand stimulus will not occur by Government infrastructure programs at the rate necessary to replace the lost project Orders.
The real support for the Stimulus comes from business leadership, whose sole goal consists of the replacement of losses stemming from their poor management in the previous Boom. Most Sectors have steady and consistent Orders for approximately 80% of their Production. They really want the American Taxpayers to fund the repayment of their overcapitalization during the Boom period; said overcapitalization caused by justifying Tax deductions, neither the capitalization or the Tax Cut formulation valid under the Boom conditions. The real need is for business to write down their losses, and go on. It is a simple case of over-extension by a business leadership whose management should have been replaced far earlier. What I have written is not popular, but regrettably too true! lgl
Thursday, February 05, 2009
The New Mix
I have always adored Menzie Chinn’s authorship because it invariably drifts into the unintelligible for all but the Specialist. It is always a beautiful example of macroeconomic modeling, where the Dots connect only with a few hours of study. Mark Thoma
tries to translate Menzie Chinn’s estimates, and explain them. The Result is very good, though it made him suffer from Communication problems as well. Mark failed to clarify that the older models to which Menzie Chinn refers, are based on an undersized economy in comparison to the current economy, requiring a new system of weights due to the alterations in Production practice, and does not reflect that actual utilization of fiscal policy has shown a failure to attain the expressed goals while generating Side-Effects which tend to warp the Production structure. By the time that the new models are adjusted, the Recession will hopefully be over! Robert at Angry Bear thinks to outline where Menzie Chinn’s modelism is wrong, but loops back into the confusion.
I will try to translate my own version, and undoubtedly begin to sound a little weird. The old economic models never worked, at least not until they were severely tweaked by historical review of the facts; these are the famously designed ‘filters’ mentioned occasionally among economic peers of the realm. The economy has since grown, expanded in new directions, and the modus of operation has altered; all insisting as Mark points out, that new models need to be constructed, though new ‘filters’ can be designed for the Short-Run. There is the additional problem that monetary policy has fallen far short of expectations, generating a multiplex of outcomes depending on circumstances. I am not saying that Economists are as confused as the Federal Reserve was in the 1930s, but it may appear close.
The Period of Time since 1996 until the Present could itself be considered the anomaly, where artificial inputs of technology and funding produced an Employment and Production level not before seen, basically through the expansion of Risk -spread and utilizing uneven economic development to reorder Production methods. The final result has been the education of undeveloped labor forces in production technologies unsuitable for their domestic environment, and educating developed labor elements in coordination of diverse production dispersion; labor which will disappear with the development of economic development suited for domestic consumption. We are currently entering a Period of great Creative Destruction, as economies realize they don’t have to spend such vast Labor Costs on the jobs which were the highlighted Golden Child of the previous Period. Wall Street and financial sectors are simply finding no one wants to support them in the style to which they have become accustomed; the Rest of the economy and labor force uncomfortable but not suffering. lgl
tries to translate Menzie Chinn’s estimates, and explain them. The Result is very good, though it made him suffer from Communication problems as well. Mark failed to clarify that the older models to which Menzie Chinn refers, are based on an undersized economy in comparison to the current economy, requiring a new system of weights due to the alterations in Production practice, and does not reflect that actual utilization of fiscal policy has shown a failure to attain the expressed goals while generating Side-Effects which tend to warp the Production structure. By the time that the new models are adjusted, the Recession will hopefully be over! Robert at Angry Bear thinks to outline where Menzie Chinn’s modelism is wrong, but loops back into the confusion.
I will try to translate my own version, and undoubtedly begin to sound a little weird. The old economic models never worked, at least not until they were severely tweaked by historical review of the facts; these are the famously designed ‘filters’ mentioned occasionally among economic peers of the realm. The economy has since grown, expanded in new directions, and the modus of operation has altered; all insisting as Mark points out, that new models need to be constructed, though new ‘filters’ can be designed for the Short-Run. There is the additional problem that monetary policy has fallen far short of expectations, generating a multiplex of outcomes depending on circumstances. I am not saying that Economists are as confused as the Federal Reserve was in the 1930s, but it may appear close.
The Period of Time since 1996 until the Present could itself be considered the anomaly, where artificial inputs of technology and funding produced an Employment and Production level not before seen, basically through the expansion of Risk -spread and utilizing uneven economic development to reorder Production methods. The final result has been the education of undeveloped labor forces in production technologies unsuitable for their domestic environment, and educating developed labor elements in coordination of diverse production dispersion; labor which will disappear with the development of economic development suited for domestic consumption. We are currently entering a Period of great Creative Destruction, as economies realize they don’t have to spend such vast Labor Costs on the jobs which were the highlighted Golden Child of the previous Period. Wall Street and financial sectors are simply finding no one wants to support them in the style to which they have become accustomed; the Rest of the economy and labor force uncomfortable but not suffering. lgl
Wednesday, February 04, 2009
Reality as Some See it
Arnold Kling has his own reasons for opposition to the Stimulus package. I am against it for the sincere belief that has as a goal the repayment of middle and upper management for the losses taken in the financial crisis. The socialism existent in the bill is present in the desired repayment of Risk-taker losses. This abandonment of Labor to endure the full blast of losses from Risk-taking remains exactly what will defeat any stimulus in the bill. Business opportunities are graded not on market performance, but a Concept of being too big to fail. Management can adopt any practice or policy based upon the fact that Government will cover if things go wrong; if you don’t believe what I say, I will sell you some of the Credit Swaps which the Fed is trying to get rid.
Sammy at Angry Bear has a cognizant account of why such Stimulus will not actually be stimulating. Right now, a great group of investors Worldwide find a lack of investment potential, and continue to subscribe US Treasuries. This condition will not sustain itself, if the stimulus actually works. No Study I have yet found has considered the operational loss of Profits from a realistic GDP outcome, for every One Percent increase in Interest cost for Treasuries. I will not even describe the pathetic model I constructed, but a 3% gain in Treasuries’ annual cost will easily defeat any Stimulus expectations. We may selling Ourselves to the Devil for iron pyrite.
(I will also explain my resistence to provision of any model because of a real doubt that any viable construct can be made).
Tariffs were not the cause of the Great Depression, so says Stephanie Flanders. I agree, as do an amazing lot of other economists. This is not my argument, though, and I take the converse in the current situation: that the fear of Protectionism may destroy the ability to stimulate in any meaningful method. We are captured by a vast intermix of economic treaty agreements which tie the hands of all policymakers. We need to expand domestic production, but cannot set limits or taxes upon foreign Goods. There is already great argument stating that stimulus funds should flow to the cheapest Competitor, who is universally the lowest-Wage Competitor; the Stimulus flows quickly overseas without amplitude controls. Economists must concentrate solely on domestic missions in stimulus planning, and hope most of the funds do not flow to foreign suppliers. Abrogation of current economic treaties and associations would generate probably be three times the stimulus as any package Congress could devise, and raise American living Costs less that the current assumption of vast debt. We may be looking at this Problem in the wrong way. lgl
Sammy at Angry Bear has a cognizant account of why such Stimulus will not actually be stimulating. Right now, a great group of investors Worldwide find a lack of investment potential, and continue to subscribe US Treasuries. This condition will not sustain itself, if the stimulus actually works. No Study I have yet found has considered the operational loss of Profits from a realistic GDP outcome, for every One Percent increase in Interest cost for Treasuries. I will not even describe the pathetic model I constructed, but a 3% gain in Treasuries’ annual cost will easily defeat any Stimulus expectations. We may selling Ourselves to the Devil for iron pyrite.
(I will also explain my resistence to provision of any model because of a real doubt that any viable construct can be made).
Tariffs were not the cause of the Great Depression, so says Stephanie Flanders. I agree, as do an amazing lot of other economists. This is not my argument, though, and I take the converse in the current situation: that the fear of Protectionism may destroy the ability to stimulate in any meaningful method. We are captured by a vast intermix of economic treaty agreements which tie the hands of all policymakers. We need to expand domestic production, but cannot set limits or taxes upon foreign Goods. There is already great argument stating that stimulus funds should flow to the cheapest Competitor, who is universally the lowest-Wage Competitor; the Stimulus flows quickly overseas without amplitude controls. Economists must concentrate solely on domestic missions in stimulus planning, and hope most of the funds do not flow to foreign suppliers. Abrogation of current economic treaties and associations would generate probably be three times the stimulus as any package Congress could devise, and raise American living Costs less that the current assumption of vast debt. We may be looking at this Problem in the wrong way. lgl
Tuesday, February 03, 2009
Clarification on Stimulus
An Individual who is fairly equal to the task of defining good copy told me that yesterday’s Post on Stimulus was credible effort even for a Politician, and I could attempt to clarify myself. I found this statement to be rather embarrassing, so I will provide further information.
The theory to a Stimulus package is to provide a ‘Kick-start’ to the economy in a sense, where the funds spent would serve to generate further Private Sector Spending. Most evidence on Stimulus suggests that Stimulus must be granted successively to be effective in doing this, otherwise; the Private Sector will treat the Stimulus as a rapid Order, leave their staff and allocations unaltered, and simply process the Order as quickly as possible. Delays are accepted by management as normal production working order. Successive Stimulus will generate the impulse to gear up production, though the size of the Stimulus must be reduced in unit size; here presenting much less of a ‘Kick-start’ effect. In either case, the impact of the Stimulus on the economy reduces from the desired Target.
It does not help that the amount of Government Spending alters the impact of any Stimulus package. Government absorption of total GDP lessens the impact of Stimulus, because Government assumes the mantle of Consumer, rather than a strictly Opportunity Buyer who will insist on immediate satisfaction. The Concept which is lost by the Government is the potential to withdraw funding when faced with delays of provision. There is also the serial effect losing special status in the Order rank, where Private Sector management decides to meet all Orders as they come in, without special effort to increase production. It means that the ‘Kick-start’ effects of Stimulus is lost as Government becomes a more dependent Customer for the Private Sector, needing fulfillment of established Orders as well as new overlarge Orders.
My advice is to ignore a Stimulus package entirely. It will seem hard to Americans, but the Private Sector should be left to itself to reorder their management style. The last decade has promoted a management policy which distorted the segmentation of Production Costs, bringing far too much Profit to Management and Stockholders, while starving the normal Production Costs through low Pay or transference of production Overseas. It disrupted the funds distribution schedule of the American economy, which must be straightened; something Government can only interfere with in Protectionist manner for Management and Stockholder. lgl
The theory to a Stimulus package is to provide a ‘Kick-start’ to the economy in a sense, where the funds spent would serve to generate further Private Sector Spending. Most evidence on Stimulus suggests that Stimulus must be granted successively to be effective in doing this, otherwise; the Private Sector will treat the Stimulus as a rapid Order, leave their staff and allocations unaltered, and simply process the Order as quickly as possible. Delays are accepted by management as normal production working order. Successive Stimulus will generate the impulse to gear up production, though the size of the Stimulus must be reduced in unit size; here presenting much less of a ‘Kick-start’ effect. In either case, the impact of the Stimulus on the economy reduces from the desired Target.
It does not help that the amount of Government Spending alters the impact of any Stimulus package. Government absorption of total GDP lessens the impact of Stimulus, because Government assumes the mantle of Consumer, rather than a strictly Opportunity Buyer who will insist on immediate satisfaction. The Concept which is lost by the Government is the potential to withdraw funding when faced with delays of provision. There is also the serial effect losing special status in the Order rank, where Private Sector management decides to meet all Orders as they come in, without special effort to increase production. It means that the ‘Kick-start’ effects of Stimulus is lost as Government becomes a more dependent Customer for the Private Sector, needing fulfillment of established Orders as well as new overlarge Orders.
My advice is to ignore a Stimulus package entirely. It will seem hard to Americans, but the Private Sector should be left to itself to reorder their management style. The last decade has promoted a management policy which distorted the segmentation of Production Costs, bringing far too much Profit to Management and Stockholders, while starving the normal Production Costs through low Pay or transference of production Overseas. It disrupted the funds distribution schedule of the American economy, which must be straightened; something Government can only interfere with in Protectionist manner for Management and Stockholder. lgl
Monday, February 02, 2009
Economics of Government Spending
Hard Times in the United States can be terrible, Everyone having seen the restored film libraries of the 1930s (go to the History Channel and await if not). China is a far different matter. I believe 1952 was the last year in which over a million Chinese starved to death. Hard Times, though, is still a organically different structure in China. China does not possess the resources to provide the Social Welfare of the West, though they have finally forced reallocation to eliminate most actual Starvation (here again a misnomer: all except for the military, police, and leadership suffer from dietary deficiency). Social unrest is common even in the best of times, and China often has to fill its detention camps in Hard Times simply to squash active rebellion. I would like some knowledge of the populations of these Camps, as this can be an economic bellwether of the economic clime of China.
Here is a normal reaction of a Free Trader, but the genus is a little dubious. Restriction of federal stimulus spending to American Products is a minute element of the current context of the stimulus packaging. The Products matrix will probably be only about 17% of the Stimulus bill, though it will generate a probable 28% of the Business Products. Restriction of purchase to American producers may increase the Cost of the Products to maybe 3-6%, but could increase Investment capitalization to the industries involved by as much as 70%. It seems I would rather have that growth generated in American plant, which it might increase American competitiveness by 30%.
Tyler Cowen brings a good discussion of Keynesian effect to the discussion. I know only that long-run economic performance determines the capital investment made into the sectors, and that investment schedules are particularly immune to Keynesian spending past the immediate period of that expenditure. The market corrects for impression mistakes in rapid order, and it is likely that Keynesian spending should be compressed to have any effect. I believe the problem with Keynesian spending is that it insists on continuous provision of funds to maintain a constant performance; this means the Government must keep spending at the same levels to hold the same degree of increase which was derived. It is acceptable if resultant recovery replaces the stimulus provision, but do not expect an overall increase in production without a constant flow of cash. lgl
Here is a normal reaction of a Free Trader, but the genus is a little dubious. Restriction of federal stimulus spending to American Products is a minute element of the current context of the stimulus packaging. The Products matrix will probably be only about 17% of the Stimulus bill, though it will generate a probable 28% of the Business Products. Restriction of purchase to American producers may increase the Cost of the Products to maybe 3-6%, but could increase Investment capitalization to the industries involved by as much as 70%. It seems I would rather have that growth generated in American plant, which it might increase American competitiveness by 30%.
Tyler Cowen brings a good discussion of Keynesian effect to the discussion. I know only that long-run economic performance determines the capital investment made into the sectors, and that investment schedules are particularly immune to Keynesian spending past the immediate period of that expenditure. The market corrects for impression mistakes in rapid order, and it is likely that Keynesian spending should be compressed to have any effect. I believe the problem with Keynesian spending is that it insists on continuous provision of funds to maintain a constant performance; this means the Government must keep spending at the same levels to hold the same degree of increase which was derived. It is acceptable if resultant recovery replaces the stimulus provision, but do not expect an overall increase in production without a constant flow of cash. lgl
Sunday, February 01, 2009
What to do next if failure looms?
I have been chewing on these Thoughts for some time, and came to the belief that I should discuss it with my fellow man. Stimulus is not likely to work with the American economy, there having been too great a use of the pump handle in the Past. An overwhelming element of the Recession states that Labor Costs were too high, as were Business Profits which used those expenditures to set their incredibly high Profit ratios. I can realistically assume that about 8% of Labor through the later Three years of the last Boom served no relevant production role, while some 11% of the advanced Labor units were overpriced. Now, one of the goals to a surviving Administration must be full employment, there cannot be any doubt about this Statement. The Question becomes how to accomplish full employment, and the Stimulus package stinks; too much money paid to the losers who cost Us the last Boom. An alternate Option should be advanced, just in case the Stimulus package fails of desired performance.
My alternative stands as a simple one: make Labor Costs a paying proposition for Business, but One where precision Business operation must be utilized to implement the profitability. I suggest a Tax deduction of 110% for all Labor Costs incurred on American soil for that Labor drawing less than $125,000 per year. Business operations must be efficiently run, and Profits would have to be generated to take advantage of the Tax deduction. A constraint upon usurious Labor charges is implicit, Lay-offs and Downsizing becomes expensive to management, and an additional Profit sector injected into the matrix. Business has a more developed range of viability, if actual Profits can be realized.
The first Question for debate asks if the additional 10% reservoir of potential Profits to alter the business format viability. It should be thought of as a high-paying Certificate of Deposit from a financial institution; if the amount of funds are attained, it has a rewarding rate of Return. A higher deduction level would make malfeasance sustainable with little added incentive. The law is simple in construct, even simpler in operation with only basic Accounting procedures required for either Business or Tax Agent–materials already in-place. Now comes the idea of effect: simple models scratched out by myself say an estimated 1.3 million additional Jobs within 18 months, with a potential 5 million Jobs within 5 years. An estimated 300,000 less Businesses are likely to fail with the added source of revenue. It sustains Employment under decreasing Sales for an additional 11 Weeks. (Realize that these are my Estimates, and quite capable of major error!) It is worth a Try, especially if the Stimulus fails of performance. lgl
My alternative stands as a simple one: make Labor Costs a paying proposition for Business, but One where precision Business operation must be utilized to implement the profitability. I suggest a Tax deduction of 110% for all Labor Costs incurred on American soil for that Labor drawing less than $125,000 per year. Business operations must be efficiently run, and Profits would have to be generated to take advantage of the Tax deduction. A constraint upon usurious Labor charges is implicit, Lay-offs and Downsizing becomes expensive to management, and an additional Profit sector injected into the matrix. Business has a more developed range of viability, if actual Profits can be realized.
The first Question for debate asks if the additional 10% reservoir of potential Profits to alter the business format viability. It should be thought of as a high-paying Certificate of Deposit from a financial institution; if the amount of funds are attained, it has a rewarding rate of Return. A higher deduction level would make malfeasance sustainable with little added incentive. The law is simple in construct, even simpler in operation with only basic Accounting procedures required for either Business or Tax Agent–materials already in-place. Now comes the idea of effect: simple models scratched out by myself say an estimated 1.3 million additional Jobs within 18 months, with a potential 5 million Jobs within 5 years. An estimated 300,000 less Businesses are likely to fail with the added source of revenue. It sustains Employment under decreasing Sales for an additional 11 Weeks. (Realize that these are my Estimates, and quite capable of major error!) It is worth a Try, especially if the Stimulus fails of performance. lgl
Subscribe to:
Posts (Atom)