The Sucker Bet

Is any Institution going to be a Salvation, or are We simply destined to further confuse an unreadable Situation? I will back Dani Rodrik over Simon Johnson that much, even though I think I am the only Traditionalist left. I have always believed that Bankruptcy was the best Instrument to adjudge the success of industry, and that Products should be slaughtered in the market. The whole Concept of ‘Too Big to Fail’ practically makes me vomit. The loss of Dollars and Livelihood is the only real Surety that Business is engaged in the wrong business. Regulation works for keeping Dog poop off the Sidewalk; no one sure of where else it achieved any goal. Neither Government or Society should be in the Protection business, and never should either deign to be a Banker; an aspect which degrades All, including the Banker. I once heard that Bankruptcy was the Risk one had to accept to learn Success–I still kind of believe that!

I am getting real tired of discussing the great Crisis, which never seems to go away; don’t you hate the paid focus of major News outlets, that will not let the Story go away. The Truth is that We are already through the Problem, else We have made a real mistake about how to handle it. I would tend to a belief in the Later, but no one will be interested in the draconian Solution of letting the Bomb explode, then cleaning up after the Explosion. The absence of Such will clear nothing, and a repetition of the Crisis will appear shortly, because no business practice will have altered. We have become like the ancient Romans, who insisted on their Circuses and Bread. We will Party as they did, until the Barbarians invade instead of accepting increasingly worthless payment to fight the odd Creatures of the Night. You have to be a Student of the fall of great Civilizations in order to understand my Words.

This Post only awakens my dread of the coming Days. No one really advocates balancing the Budget, but We talk ad infinitum about Cutting Taxes and Curtailing Spending. By the way, you cannot Tax too much and Spend too much at the same time; Taxes being insufficient to Spend at all, if deficit spending is the only Means. One Side would like to totally blame Government, the other Side would blame the lack of Tax revenues. I would blame two Groups of people, who both insist on going their own way, without any Concession made to the other position. Know your Enemy, and find your Friend! lgl

What?--I am jumpy?

I possess a tendency to disagree with Paul Krugman about most things, as he has a tendency to be a little too liberal about most things, but in this Post he is most generally Right. American Economics have suffered a loss of Prestige because of the financial crisis. He thinks it is because of the ideological differences among American Economists, along with their intransigence; even as I have to point out the huge losses the rest of the World had to suffer because of the fraudulent aspects of the Credit Default Swaps. There is a terrible adherence to that old Saw of "Fool Me Once." I believe intrinsically in Simon Johnson’s blame of the financiers for their greed, and their refusal to adapt at cost to themselves. Paul’s love of the Swedish model, alternately, does leave me a little Cold in the long-run, as I believe that the Government’s involvement in the economy was as responsible for the financial crisis, as were those hated Capitalists. I have long hoped to prove that Government policy was as injurious as unbridled greed, based as it is on unbridled megalomania. No one has yet come up with the Posit that the current economic downturn is quite normal economic cycle, except for major players getting caught with their hands in the Till.

I has real trouble with the thesis that the Government can pump up the economy with Cash, in liquid forms or Project employment, so as to cancel the impetus of a downturn. I long for the old-time business model where business firms were supposed to go ‘Out of Business’ if they failed to maintain their own markets. Now, Government is supposed to create markets which do not exist; railed against upon their failure. Why is it that Economists blame the Government for poor Business performance? Why does Government blame the Private Sector for lack of Capital outside their own business format? I would ask Someone to explain these Issues to myself, who blames Journalists for turning normal crises into the worst debacle in the entire history of the human race. I know not what I say, as I belong to the same crowd of sorts (blackened Pots and all that); yet, We are turning a normal discourse into a potential Libel suit.

I enjoy this Post from Felix Salmon. One of CDS traders is trying to turn out a Preferred Credit Default Swap, with Coupons and everything. I have some doubts that such a system would work, when the Credit viability of the resting company is not tested in the conversion process, but what do I know? There might be a lot of lit lamps placed under the designed Curtain, producing a lot of heat; might not the entire structure be aflame under segment overheating? Do not worry, Children, Investors will immediately notice the failure, and shut off any liquid fuel going to the lamps. I combine the later Post with the Above simply to express the neurotic Conceptualism being brought to the economic discussion of the Crisis. lgl

What to Dream about, when all your dreams are Nightmares

Why do I dislike this Post, when I estimate it is mostly True? I know from observance from the Sidelines that Paulson and Bernanke threw out a $700 billion number for TARP without any real evaluation of the size which would be needed. Congress heard the Number proposed, and immediately thought they could sell a lot of Snake Oil with that much money. They passed the Package with no Scaling, imaging their Supporters would be pleased with the increase in the amount of play money generated. Both the Bush and Obama administrations were surprised by the bulk of the TARP, and showed they had little experience at being actual Bagmen. The Bush administration tossed out a couple big jolts of Cash, then started throwing small amounts of Cash like a Pitcher in the 16th Inning. The Obama administration came in, spotted no major Players to aim loose Cash at, and began pitching like they were still in the bullpen. The Reality was that the TARP was too large and excessive, and they have called the Little League in to play Catch.

It becomes worse in that the major Players want to return the Cash, as Congress keeps assigning restrictive Rules to it, and it has become a Game having little to do with the actual economy and performance. The economy keeps sliding, but much more slowly, though not because of any Government Spending; simply because We have bottomed out, and will equally likely rise not because of the TARP spending. Washington is a strange place, and will not accept the lack of Need for the funds; believing they must be spent to justify their previous jitters. The Republicans on the Hill followed the Bush administration lead, and left the financial Albatross; the first time in history that Republicans wanted the Democrats to take the leadership in spending Taxpayer monies. The Democrats came in with the idea of funding washed up ideas scrapped in previous decades, then finding there was really no one to give the money; most organizations funded as fully as they could accept. No one on Capital Hill has the fortitude to simply put the Cash back in the Treasury, so they will spend the money on known inflationary aspects which will distort the Cost schedules of current Production operations.

It is another terrible Sunday for me, God and I don’t seem to be good for each other, aka the Cheap Detective. Being a Devil’s Advocate thereby does not appear to be that bad this morning. I will propose therefore that the best Government incentive at the current moment consists of a semi-draconian cutback of Government spending, with delays in the expenditure of funds across the board; inducing a deflationary increase in Profits in an economy which will not shrink much further. Bad for the Stock Market, bad for Banks, and bad for Government empire building, but generating higher Profits through lower Production Costs. How do you enthuse a Politician about spending less? We could try an old-fashioned Firing Squad, but the American Public would never Sign Off on it. Anything less would be an obvious failure. lgl

The Start of Something Bad

Reading James Hamilton can sometimes be as mystifying as studying the Fed itself. It has something to do with the nature of the of the discussion; describing a federal bureaucracy being akin to outlining an alien life form. The Fed originally started out holding short-term Treasuries, releasing excess funds in the economy; they holding two Properties of short duration, and lack of horizontal integration with Private holdings. The Fed began an integration with Private holdings beginning in September of 2007 by a Shift to a policy affective influence through manipulation purchase of desired Investment, which could not find sustainable subscription elsewhere at a desired Interest rate. The Fed became a Hedge Fund in itself with an agenda; one which attempted to create artificial value–like unto a high quality Junk bond issuance. Here is where the trouble may have started.

It was at that Point where the Fed stopped being a Regulator, and became a Participant in the economy. The ramifications of this action may not be seen until disaster hits, which is often the Case in economic events. The reality is that the Bank Reserves demanded by the Fed no longer consisted of actual Reserves, but had altered to mortgage collateral which itself was subject to the hazards of over-extension of viable Value. The End-Result was and will be that the Fed loses its authority, and serves as no repository of Value when subordinate institutions fail. Further action has cut the wings of the FDIC, so that the entire Reserve System has been uncovered by the previous Insurance against Risk.

The above discussion is hotly contested by Some, who cannot perceive any change in lifestyle until many years of living within a new house. They do not grasp that the Fed lowered itself to the same level as its subordinates by the surrender of the Concept of Reserves in reality, rather than the actual only nominal designation. The Fed places itself under the same pressures as the rest of the Banking system, with no avenue to a superior fund under crisis. The current Raiding of the FDIC for funding which neither Congress and Treasury desires to underwrite, completes the destitution of the Insurance program initiated by the federal government after the last Depression to forestall Banking system collapse under adverse conditions. Treasury and Federal Reserve actions has brought Us back to systemic Risk from which only real Reserves are an actual salvation. lgl

Need for Intelligent Bureaucracy

Tricky Finance has been with Us for a long time. It is really hard to put a Start to it, as it probably ranges some distance before the creation of US Steel and the financing of the Union Pacific. The point I would begin is somewhere in the 1970s, when it became financial fashion to raid Pension Funds for Cash; look where they are today. Milken taught Us that Junk actually means Junk. Credit Default Swaps learned the Banks how to borrow against ‘Blue Sky’; long a tradition down in Texas. Geithner now wants Us to buy into Raiding the FDIC. We lost the Pension Funds at great Cost to the American Taxpayer, We lost out in the S&L Bailout, lost our investment potential with Milken, it has cost Us a viable Banking system, and now Geithner wants destruction of the protective power of the FDIC, by giving away their Reserves. Modern financial practice has a great Track Record.

Mike Shedlock alleges that Wage Deflation has set in, which is absolutely the worst way to handle a Downturn. Recovery is only stalled with massive Job losses, and crippled by Wage Cuts. There are better ways to handle loss of Sales, though they are far more risky than Wage Cuts, which cut Marketing and Sales personnel as well as Productive capacity; all this coming in the face of a more disinterested Consumer. Most Companies will cite inability to acquire loan funding in the current Period, but real fact may highlight a Corporate unwillingness to risk any personal loss; letting both Employee and Consumer suffer as a consequence. It is exactly this ‘Me First’ attitude which turns Downturn into Recession, Recession into Depression. Why do the rugged Individualist Risk-Takers always disappear with the first hint of clouds in the Sky, leaving Us all to weather the Storm?

I will not say that I agree with John Hempton, or will I say that he is far off the Mark in his assessment. Americans lack the inherent corruption in the English tradition, which has always found it convenient to license the ability to steal. The Mortgage Tax Credits advanced by Congress and Presidents did lead Households to overcapitalize their Housing; it leading them to buy what they could afford in maximum monthly payments simply to gain as much value from the Tax credits as possible. The shadow Banking system–We are talking about the CDS system here–is obviously at fault; why don’t Bankers have the same protection as do Doctors against unqualified practice? I do know that there is far more ‘Slash and Burn’ in Banking, than there is ‘Surgery and Cauterization’ in Medicine. lgl

Words v. Action

Can We afford the Stimulus in the first place? Menzie Chinn makes a number of important observations in his Post. One should keep certain real facts in mind when considering the information. The first rise of Debt/GDP occurred in WWII, when there were Price controls, artificial limitations on Civilian Products production, high Taxes to suppress Inflation, and a huge Increase in the Export Market because of the destruction of foreign economies. Now, We have no Price controls, unlimited access to Civilian Products due to elimination of Tariffs, extremely low Taxes because of previous Stimulus attempts, and a shrinking Export market as the rest of the World conserves on its financial reserves. Menzie Chinn truthfully asserts that the differences are partly offset by the Debt/GDP rising in other Countries, so that the value of the U.S. Dollar maintains some Constancy in relationship to other Currencies. This offset, though, must be seen as limited, as foreign Debt is of lower magnitude, and attempting much less Stimulus effort. Menzie Chinn only marginally refers to the relative ineffectual activity of previous Stimulus, which incited the increase in Debt/GDP without significant increases in Production above the normal predictable levels of a economic Boom; there being still significant debate on whether there was any real impact on Productive performance–the idea being that the increases in GDP would have occurred anyway without the Housing Crisis.

The DOL reports that Unemployment Claims rose to a Record 5.56 million active Claims. The first thing which must be said is that this is one hell of a large unemployed force, as it can be proven actual Unemployment may be 3 Times as large due to the strained Rules of the DOL on discouraged Workers. The second thing which must be stated is that percentage-wise, it is not that high an Unemployment rate; We have a huge Labor force seeking Employment, and One in which it is hard to find profitable employment for them. The Unemployment must be considered Natural under the Recessionary conditions, and any Stimulus to increase Employment must be seen as Stress on an economy seeking to reform for Boom conditions. This is a basic Statement that adverse Conditions must sometimes be accepted for eventual overall performance; I know how that Statement makes me Popular; it is still a fact.

I tend to agree with Tyler Cowen, who is still awaiting the truly bad News. It is like the economic argument which goes "If all the marginal factors remain Constant. . ." We live in a real World where marginal factors float on an Ocean of Current, and Static would destroy the entire model. The economy will not improve without real favorable conditions coming to the fore, which We have yet to see. The Statement that ‘Things have not gotten Worse’ is only the Statement that ‘We are degrading at a vastly decreased rate’. We need more of an impetus to gain Us a glowing economy once again. lgl

What is Wrong with Government Thinking

I enjoy the way Economists attempt to utilize set formulas to argue away a Problem; here is a prime example. I tend to agree with Paul Krugman, considering this a highly-leveraged wrap of bad Paper. The Hedge Fund managers designated as Project Managers will get 17% of the Profits if the Toxic Assets finally pay out, and get back their $30 billion if the Paper goes predictably bad. It has several things wrong with it: the Assets in question have been reviewed by Banks through several months of struggle, and their Chance of failure is not the adorned percentage so commonly used, but Banks have already determined which are the Good and the Toxic, separating the Good into their own portfolios; the Toxic Assets have a real Risk of failure of around 80%. The Good Assets, by the way, have a probable 80%+ Chance of completion as stipulated by the loan contracts. The Toxic Assets could be better described as rotting Corpses. American Taxpayers are being asked to buy a Product which has lost its Nutrient, and at a highly-expensive leveraged Price, which can only become higher with Age.

Mark Thoma provides Insight into the Thinking behind the Government policy. It has an intrinsic Short-Coming. It is the Government allegation that one cannot determine the level of Toxicity of the assets in question. The Banks have already done so, else they would not be up for Sale; the Banks keeping the Assets which will realistically pay according to terms. They know the exact debtors, and their ability to pay, which policy-makers do not. The Banks also know their own level of Risk, and the level of Risk for their preferred Clients and Stockholders; their Intent is solely in elimination of that Risk, not in providing liquidity to the economy. The Banks are also playing the Government, denying certain types of loans not because of lack of Cash, but as pressure on the Government to take over the Risk of the very toxic assets. Bankers adopted a loan policy of extreme Risk to benefit themselves; now, they want the American Taxpayers to absorb the losses of the failed policy.

There is the Argument of asymmetrical Income, where the loans are basically sound, but loan Terms will need to be altered for a Profit to be made. This would be a sensible argument, except for the magnitude of the loans; a number of Government and Private Economists and Officials mention that Mortgage payments should not exceed 30% of yearly Income. The Thinking goes that 30% of Income goes for Taxes, and 30% should go for Mortgage payments, with People somehow living on the 40% that is left for all other Expenses. The trouble arose because Banks were extending Mortgages whose payments exceeded 50% of Income, even when the Individuals were paying 30% of their Income in Taxes, and 30% of their Income in Consumer Debt payments; can Anyone see some tragedy here? This Crisis appeared simply because of Bank abandonment of sound Banking principles in search of quick Profits, and Banks should be held responsible for the disaster. It wounds me deeply that so few Banking officials have been fired. lgl

The New Confusion

I have been reading Commentary on the new Geithner Plan, otherwise possibly called the Legacy Loans program; there may be some debate over this, as no one really knows what to call it exactly. One can also try ‘The Public Private Partnership Investment Program’, though the supposed Public does intend only extension of Taxpayer funds (still Private) without Risk of personal or Public Spending budgets. This Comment sent to the FDIC tends to believe it is the Government itself who is to act as the Shill in the rigged game, with Taxpayers to pay the Bill. I have always been somewhat confused by what they call Banking practice, believing that more common Criminals provide more Insight in their identification process. I am still assured that ordinary Depositors in these Banks are being defrauded by artificially low Interest rates suppressed by Fed action, which will be a permanent loss; while the Banks are to be repaid everything based on a nominal loan extension of funds never existent except in the Bank’s imagination–certification that the Private Sector Money-Printing presses of yesteryear will be backed by a Fed guarantee of Inflation. It tends to brighten the first Day of the Apocalypse.

Read this article to achieve the understanding that this Recession is more the brain child of the Special Interest Power Brokers as much as anything, who do not seem to enjoy the principles of Creative Destruction. They wish the maintenance of the Cash Cows which have enriched their lives in previous years, even though the nature of Cash Cows exhibit that they are extremely transitional, lasting only until the sham of their profitability is exposed. This might confuse the Reader, yet I talk about Credit Default Swaps, which have joined the Ranks of Junk Bonds, Ponzi Schemes, etc. There is much talk about Banks, and how they are too big to fail. One has to ask why they are so big, and the Answer is that they were built upon the sham of CDSs where Private creation of false money was considered kosher. Now even the Fed, Treasury, and Congress are trying to grant credence to the falsely printed currency, but will fail because it does not even smell like Dollar Bills.

We will have to move forward, but will never be able to carry the baggage of the Past, and the loans made from loan acquisition as Reserve will have to fade into the Sunset. I never believed in either of the Bush Tax Cuts, one of the reasons being the excess flow of Cash which would raise Investment decisions to the level of glory-hunting. Who wants to be a Millionaire? The humor of it all consists that the financial Crisis will cost far more than the old Tax rates could ever have inflicted; all within a framework where Inflation and State and Local taxation eat any Gains made from Tax Savings. Life was simpler and Take-Home Pay was greater Tax rates were set quite high! lgl

True Confession (like the Magazine)

I often do not agree with Paul Krugman, which is not to say that he is wrong about much of anything; it is all a question of the direction of policy. It is especially true about this One. I was worried about Geithner from the time he was nominated to head Treasury. One does not elect one of the leaders of the outlaw hideout to clean up the place! Every proposed Solution under such a Plan comes after the complete approval of all the constituent gangs at the Hideout. It is the same here, where all the Constituents are a part of the coalition which gives Geithner the power to maintain his position. It is not an Accident that Geithner’s Plans sound like a rehash of the Paulson Plans, as they originate from the same source with the same constituent support. This gets support in Washington, because Congress receives the same support under Obama, as they did under Bush. One does not ask the same people for a new Plan, when the old Plans maximized the Profits of those people in the first place.

Krugman still proposes that the Situation calls for a flow of massive Cash into the economy, this Cash will be left in the hands of the same old Crew to distribute, even though they are still the Crew which brought the Crisis in the first place. I would propose that We have stumbled along in Crisis for about a year now, with the Write-Downs ground through the system, and We could continue as is without much trouble. Krugman deplores the loss of Jobs, and the loss of Income for Homeowners. The first assessment must be that those Jobs cannot be saved anyway, and there is no guarantee any new Jobs will be generated by any massive inflow of Cash; the greatest indication being that all funds will be diverted to refilling the Coffers of Those who caused the initial Crisis in the first place. Homeowners are going to face a loss of the worth of their Homes anyway, and they should not have their Homes set up as a Credit-raising vehicle. We are within a Downturn, and that Downturn comes from a real Need to excise Credit over-extension from the system, a factor which will not be helped by an inflationary infusion of Cash into the economy.

President Obama has already squandered his credibility, basically due his attempt to connect promise of change with the same old Plans of Congress and Wall Street; it deriving from his intellectual grasp coming only from one source; the political fund-raising from Special Interests while in the Senate. These are not the intellectual resources necessary to get a well-rounded grounding in the economic issues at stake. A Two-Year old vehicle with 200,000 miles on it is as difficult to Sell, no matter what Advertising campaign is used; People recognize that the Vehicle will do nothing for themselves, when they need something which will get them down the Road. The Best Plan may very well be to Do Absolutely Nothing; letting the Banks stumble along until they have Written Down all the bad debt. lgl

The Road to Success

I have always had a great doubt about Barro’s Ricardian Equivalence theorem, basically because of my belief that economic effects have a half-life of 36 months duration; no one will adjust their economic behavior for a longer Time-frame, even though Many try to infer much longer durative effects to the economic decision-making process. I do know assuredly that economic participants seek both Tax Cuts and Government Spending, though the types of such may change by Character and Conviction; I also know that All attempt to forestall higher Taxes within their own Tax payment Time-frame. It all means that unless there is Insistence on a balanced budget, then every Government will Spend until it fails of Credit.

You can follow the previous argument, then read through this argument; a wondrous exploration of Why no one pays any attention to the growth of Debt in the first place. It is not to say that the arguments are not important, especially if you attempt to get through an econ Graduate School. The argument makes a great deal of Taxes being a function of Income, but there is some degree of expectation on my part that the change in Tax revenues flatten to Zero past a certain Income level; this likely because People achieve the Income to influence the Politicians who set the rates. Fear of loss of Income from Tax assessments therefore is relatively low on the Incentive list for Savings or loss of such. The universality of Opposition to Taxation among all Income classes tends to nullify any dependence on Tax adversity in the Decision-Making process.

There is economic argument which has a tremendous amount of relevancy, and much which has considerable less sway. It is important not to confuse the Two, and to apply the appropriate weight to each argument, else one gets swamped by minutia. Always Read with the proximity of consideration to the total impact of forces (Listen to that: I should sell the BS by the lb.), meaning always consider the large and/or small of what you read; considering how much is at Risk by the assessment. Pick not only your own battles, but also your own Wars; wasting your energies only on what will make a difference. Success insists that your efforts are concentrated where they will best apply and alter. lgl

Saturday Morning Depression

It is a particularly bad Saturday morning for myself, with little Interest in practically anything. There is this commentary on the Credit Unions, important but not riveting any great amount of attention; notice these federal actions are always started at the end of a Week, so most fervor will fade in the activity of the Weekend. The ordinary Rules operating for Credit Unions must be someday altered to conform to normal Banking operations, but until they are altered, one will find that regulatory financial response seems stilted, and over-reactionary over Time.

One can read this Missive from Mark Thoma, if One can peer through the mists of the Day, though I have always been an advocate of throwing Everything into Receivership. I have a terrible angst against the Concept of being too big to fail, knowing that all human institutions will fail eventually; stating otherwise simply generates Stupidity. Mark Perry does a good portrayal of the decline of American Driving, a place where Americans earned a $16 billion reduction in fuel Costs year-over-year, figured at $3/gallon. It is interesting that the twelve-month moving average is below that of March 2004, though I find it very hard to get enthusiastic about the data, awaiting the potential changes coming with the current Driving season. I would try in some way to associate the decreased Driving with the older age of Baby Boomers, if I wanted to make this Post interesting; I would need, though, a defined estimate of the Driving decrease of that Generation, and nobody here is up for an in-depth research of such rarified datum (Graduate Students could think of a Doctorate Study of the economic impact of Baby Boomer decline in Driving levels). The major mission of any Study would be the alteration of GDP based upon the advancing Age of Baby Boomers.

Paul Krugman provides a good comparison between the Great Depression and the current Recession, but methinks that he is being somewhat disingenuous, thorough his failure to provide other Recession Curves to give some comparative analysis. I would state there is a similarity of Curve structure throughout all economic recessions during the first year, differing basically only in the slope of decline; this slope I have found to be determined by the Warehouse Stockpile levels at the considered Point of Entrance to the Recession. Almost anything can be found in formulation based upon graphical data, so the Reader should understand many Sins can be hidden in the design of Curves. lgl

Do I like Anyone or Anything anymore?

People, i.e. Bankers, can be so full of it as to be remarkable. This article chose to sketch out How bankers may not be as important as they proclaim. Here are some of the actions I find both humorous and disturbing: Bankers protest they are necessary to carry on and complete current operations–those operations are operating at a loss, and should be discontinued; only Bank leadership can understand the intricate bank operations, but State and Federal auditors come in and insist no one even touch a computer key or shred a single piece of paper, so a complete audit can be made without deception within hours; Bankers claim they cannot be replaced as their operations will not be understood by Others, yet often join in a chorus in favor of bringing in some Salvation figure to head the Bank, who often have little or no banking experience–while, in practically the same Sentence–maintaining their absolute essentiality. I often thought I would like to run a Fed Reserve Bank, imagining I might be as qualified as other Candidates; but if qualifications are even considered, I would probably be given a Country Post Office to operate, so I have never contemplated federal Civil Service.

Gary Becker and Kevin Murphy dislike the ‘Cure’ to the global recession which is being proclaimed by Governments all over the World. They fear what the resultant Regulation and Protectionism will bring, outlining How government action could ‘kill the goose that laid the golden eggs’. I do not much fear Regulation, due to the ineptitude of Government auditors, and even favor some Protectionist measures which actually facilitate Trade Profits. I know that Business leadership will always design methods to fill their own Pockets, though the Pockets of Investors may not be equally rewarded; this meaning that there will be Recovery, though it might take a while to confuse Investors with money as to the largesse of business opportunity. Read these people for the worth of their ideas, but remember with charity their preconceived attitudes on the Subject.

I went looking for something to close Today’s Post, and found little I would use, so I decided to write my own; a probable calamity as proposed by Some. The FDIC lost an estimated $10 billion on IndyMac Federal, and FDIC has publicly asked for greater funding because of estimated future Costs of protecting Depositors; like these individuals are not also Taxpayers. The Proponents of Regulation like to condemn huge Corporate bonuses, as I do, but think nothing about assigning themselves Pay Packages equivalent to the Corporate sector; reminding of that dude (forgot the Name) who awarded himself $140 million for running the SEC for a few months. Everyone has their Hand in the Till, and it is probably essential, yet Taxpayers are tired of having their Money spent by the Greedy. Congress should be required to admit to the degree and number of Pay Raises they have rewarded themselves over the years, with a graph comparing this Curve to growth of GDP. I must admit myself to a desire to be a Pain in the Rear. lgl

TARP v. CDS

I have been somewhat Quiet about the TARP, unlike some well-known Personages. The entire package of Stimulus currently under operation was designed by Financials for Financials, and supported by Financials. There is very little Transparency within the program, as it is being administered by Financials., who are hiding the mistakes made by Financials. The Bonus program which Financials do not want disturbed, or described, is heavily supported by Financials; who are truly disturbed about any Publication of their personal Reward systems. They tend to deny Access to Information even for Congress, so there will be no Public information of what individual Financial Accounts lost How much Money, when they lost such Money, or how much Reward those responsible for these Accounts are getting today. Methinks We need a Daniel Ellsberg or Harry S. Truman in the Senate to gain any Insight into the Drain system which is Costing the American Taxpayer so much Money!.

It would not be so bad, except the idea of flooding the internal markets with Cash, the current Treasury and Fed plan, is lunacy. It is imagined that dumping huge funds on the American economy will bring the additional 8% increase in GDP desired by officialdomb (real emphasis should be placed on the last Word in this Sentence). On a Bettors’ Spread, the chances of bringing the rise in GDP is 19-2 Against, while the chance of bringing loss to the entirety of the economy is 12-14 For. Leadership needs a crash course in the consequences of meddling in what they do not know about–I would put them at the center Control Room of a nuclear power plant, and tell them they had the Controls; if it does not teach them to leave well enough alone, then We are all Doomed anyway!

It is really disappointing in that the economy is in Recovery already, while the Fed’s action of releasing a Trillion in Cash may destabilize current economic trends; again throwing the established Pricing system to the Winds. I seriously fear that current Balance Sheets will be further disrupted by this Input of Cash, leading to second generation of instability within the lending institutions. Economists know that We have spent 40 years refuting the basic Keynesian ideology, describing How such Spending worked only under very striated circumstances, none of which are really present today. Unemployment is not unreasonably high–I was going to Check on that, but I am lazy–but I think current Unemployment levels reached this level about 20 times during the last Century. The drop in GDP is not even that unusual, with such a Drop being matched at least 4 times since WWI. What is different is the financial risk which Financials endure today, all the fault of Credit Default Swaps; things which should have been defined as Ponzi schemes when first proposed. They have cost Us as an economy, just like Milken’s Junk Bonds. When are We going to give up the idea that We can design new methods of making Money, in an economy where We are already funded in the traditional manner? lgl

How does your Light shine in the halls. . .?

John Quiggin takes on Peter Boettke with this Post, which academically critiques this article by Peter. The authors involved in the discussion should be read for the Insight they offer to the Reader, but individual choice should be used to accept your position. Each think that fundamental concepts can be derived about Herd behavior in economics, which may be a fallacy in itself. All human reactions in the economic setting enjoy a commonality in that all share the same fears and other emotions. The interaction of economic participants highlight those fears, and also many unvocalized expectations. One cannot start out denying the power of the Collective, which has extensive means to ensure compliance which extends far beyond monetary loss. This Collective pressure is exerted through the Markets, which is a transmitter of information as well as Money and Product.

The human sciences is only the study of how Participants develop the matrix of their beliefs, and therefore, how the stampeding observed in Markets occur as normal course. The entire system of Preference should be underscored with the behavioral demand of all Participants to do business, as some form of economic activity is mandated in order to make a living. This entails an immediate decision (under pressure to get something done), which must respond to the collective response of others at any given moment. Preference only enters the equation only after the effects of scarcity and Utility Costs have already impinged the Market, under the pressure of making some decision for continued access to the Market.

Prices are the final arbiter of the economic decisions taken, not the purveyor of information to the Participant. Prices tell one how the Collective receives the actions of any particular Participant at any given moment, a necessary information, but extremely short of detail; it does not approve of internal developmental decisions, or marketing efforts. The non-neutrality of Money is argued by practically Everyone, yet the statistical pattern is neutral; this means as soon as the Inflation level in integral to the decision-making process, it loses its power to affect the economic performance. This means that Inflation relies upon Uncertainty for power, though it is a form of Theft of the Wealth derived from previous economic performance. Human institutions develop on an ad-hoc basis, the institutions themselves failing (like the current Banking system) when intrinsic distortions rob them of an effective role in the Market. The common component in all such development is an adaptability to current Pricing; lose it, and you will be the victim of creative destruction. lgl

Carping--A form of Fishing

We can thank Republicans and conservative Economists for the outcome of this analysis. The federal government fairly dropped the Concept of a Budget Surplus with the Wilson administration and WWI (We hear a thundering ‘Wilson was a Democrat!’). This is (was) quite true, but Republicans and conservative Economists came up with the Concept of reducing Taxation to where it cannot pay for Expenditures in Bad Times, and only marginally scrape by in Boom season. This does not let Democrats off, as they join with Republicans in an insistence that government spending must increase at all levels; though there may be a lot of Lip Service Speeches proclaiming support for reduced Spending–simply damned few Votes. The real lure to Tax-cutting is touting salvation for family households, while in fact, the major Tax-saving always is achieved by the Corporation and Business; while households get at best a evaporating marginal Tax reduction easily absorbed by higher Prices charged by businesses. This leadership by the Business Class may well destroy Us, if Wealth becomes too concentrated.

The Question which should be answered, but is not, consists of How Much does any marginal tax reduction affects the average business performance. A tentative Outline by myself would suggest that marginal tax reduction effect has only a significance of 0.07 or 7% of the saved taxes being spent within the business format. The overwhelming majority of the funds saved (tentative 80%) go to maintaining the Living Standards of the business leadership, while the majority of the rest of the total goes to Debt repayment. The Reader should remember that Numbers and I have a relationship akin to Divorce Court, when contemplating my success with Modeling economic events. It is still probable to be a fair reality of the impact of marginal tax reductions, with Statement that the relationship between marginal tax reductions and Hiring is also similar to Divorce Court; Everyone is quick to claim Sensitivity, yet no one is quick to express any sentiment showing it. I even drew up a significance for suppression of Price Hikes in Product sold, finding little evidence, and assigned a 0.03 or 3% reading to this aspect; the whole schedule assigning a real value to the nominal total Size of the actual realizable saved Taxation (Business lilely to get about 14% more than Government estimates).

I might have lost my Readership with my eloquent authorship, so I will state that a business must save approximately $100,000 in Taxes from a marginal tax reduction to generate a new Hire; requiring, with the Unit sizes of marginal reduction, a business making about $2.7 million pe year. Businessmen will continue to set their Prices for Product based upon what the Market will bear in excess of Costs, and are more likely to cut Production schedules before Profit margins, especially if Sales drop less than 20%. Business leadership does enjoy the support of marginal tax reductions in maintenance of their own household Costs, and will Hire if there is Need. This leaves no actual Stimulus, but with Good Feeling among business leaders. It still does not solve the basic problem of the buildup of Public Debt, all because Business does not want to pay Taxes, and Politicians like to Spend in order to garner Votes. lgl

Paul Krugman v. Me (???)

There are two basic Views on the role of Government and the economy. One Group states that Government should be the leader of the economy, funding the development of economic components requiring huge Research Costs, presenting Stimulus to expand the economy, generate Inflation at controlled rates, and provide Welfare subsidies. The alternate View is that the economy should be a self-regulating mechanism operated under free market conditions, with Government intervention only where there is no other alternative. Paul Krugman holds the former belief, I hold the latter View. The first direction assumes greater Care for the Participants through Government operations, the later policy assumes that Government will crush the natural curative of a free market system. In truth, probably both belief systems operate poorly if ideation brings a stiffness to economic policy.

Paul Krugman believes that Government should flow in whenever there is any assumed failure in the economy, setting a Standard of performance. He would guarantee that a perceived economic benefit is never lost, assuming that intelligent human expression can define economic benefit, even though humanity has great difficulty in prediction. His proscription will always withdraw Investment Capital from the economy, whether it is achieved by Taxation or Borrowing with Intent to never repay; it being fashionable to assume economic growth must be accompanied with growth of Debt. Supporters of this View assert that economic Participants must have some Protection from natural operative behavior of free market systems, and there is superficial assertion of Benefit for the Poor. The greatest danger with this View may be the advocated expansion of Government intervention, which has no history of any decline after economic recovery.

The contradictory View held by myself believes that the Government robs the economy of vital Investment opportunities through Resource overuse, builds a economic drain through the creation of an Interest draft upon a huge capital Debt, inflates the economic influence of economic sectors and assignments, and shows no real betterment of the economic positions of the Poor; because of the natural inflation in those Services which are Government-funded. I am not an advocate of a Return to the Robber Baron Era before the Progressive Movement–the greatest Contrast to current Socialism–but Government intervention should be adopted carefully and solely for defined purpose; with no attempt to directly intervene in economic performance. The only Safety I can find is that the economy is a huge animal, whose Instincts are far beyond the capacity of mere Mortals to corral, and possessed with an innate sense of survival which humanity cannot curtail. lgl

Approaching the Study of Economics

Back in the 1980s (shades of ‘Back in the USSR), I joined the chorus who proclaimed that a centrally-planned economy could not adequately define the Investment needs of a modern economy. It seems according to William Buiter, now it expands to a like position establishes in a market expression economy. Buiter comes at the Problem with the intent of financial stability, though, while it should be viewed as pursuit of correct directional production in the economy. The value of Money itself remains set by the degree and amount of total funds invested in properly directed production. He should recognize that there is a supreme Auctioneer at the end of the linear frame, but the Auctioneer is himself a changeling of extreme chamaeleon exhibition; developed and formed by the motion of the production cycle itself. No economic model works, or will ever work, except a backseat driving view of past economic performance. An economist can tell you what has happened as a specialist historian, but cannot define a future hidden under the fog of competing Uncertainties.

Greg Mankiw gives a relatively similar finding to Buiter, though in explanatory framework serving to explain cogently; Obama is going to spend a deficit in excess of 3% of GDP, so he can spend approximately 27% and 24% of yearly GDP to entice an unrealistic Unemployment rate; one unable to generate even under favorable conditions–which are not Now. Obama may fail to understand he cannot devote any more funding to Environmental industry development, without simply fueling Inflation in these industries; they not being ready for the major Production stage, with Some (Me) doubting they will ever be ready–or necessary! It would advise Readers to read yesterday’s Post by myself, and for Obama to devise a Plan to Pay unemployed Workers to attend Training classes in Skills acknowledged as necessary in the future with predicted Increase. The entire trouble as Greg points out is Stimulus does not stop once started, and Debt continues to mount rather than being repaid.

Try this Post from Daniel Little, where focus is placed upon understanding society. One of the books I found most enlightening is a novel called ‘The Walking Drum" by Louis L’Amour–a favorite Author for light Entertainment. I once made a schematic (like all such things–nothing but speculation) that about 8,000 Ocean-going ships traveled about 1200 Sea miles per year in the year 1000. Trade Caravans traveled an approximate 300 miles in Europe and 1200 miles in Asia and the Mideast in the same Period of Time, and about 7-10% of their impact was in sheer expansion of knowledge and transfer of Books. An estimated One Percent of the total Population of the World was in relatively constant travel in Trading or Military columns at the Period involved, and led to a spread of Knowledge of some 11 Years to become known throughout the World including China and India. I made another estimate of the Time Period in which such Knowledge was assimilated into common practice, and find it took about a Century; compared to about 8 years Today. The Reader should always try to integrate macro facts into economic study, even though it may be as inaccurate as my own meanderings. lgl

Changes on the Wind

I am sure that Greg Mankiw regrets his impulse to challenge Paul Krugman in the Betting Pallor. Greg really does not want to focus a large sum of his own wealth on an indeterminate issue which will always be contested. Economic models say exactly what the Authors want them to say within an estimated range of 8% of variance, a Condition non-conducive to settling Bets. Tyler Cowen’s doubt of the efficacy of a declaration of investments and assets resounds through the economic community, especially as Economists could be compared against the success of other Investors, and thereby change the matrix in which Investment is made. I actually doubt that Few vary from Tyler’s conservative investment program, as Economists do not make their Income from Margin Calls.

Some people think We are in the Best of Times, some the Worst of Times. Something can be said for either View. The trouble is that Main Street tends to ignore all distinctions, especially with the advent of modern Consumer Credit. It is becoming almost unfashionable to discuss the difference between real Wealth, and over-ample use of Credit Cards; indicative of increasing Life by Credit. Business borrowing increased by about as much as Consumers cut their Credit expenditure in the last Quarter. This means that Business is still tied to a format of convincing Consumers to overextend, a down the road hazard. It also suggests that expansion in the American economy may be limited, as the American Consumers average Income is limited.

The real trouble today comes in how to return Productivity to its previous levels. One, though, first has to ask if it makes sense to return Productivity to levels which consume excess amounts of Resources, all based upon Credit-finance–both in Production and Consumption. A downside production schedule will led to more Unemployment, but Baby-Boomer retirements will make a vast difference in 5 years. It might be best to establish effective Training and Education programs to reach high efficiency in production methods before that later time. A massive push to rev up the current economy will bring major Resource disruptions and Inflation, when lack of trained labor will bring on eventual natural decrease–the entire Turnaround functionally occurring within a decade. Neither Obama or Wall Street seem to recognize the speed in which the American Way of Life will alter, simply because of shortage of labor expertise. lgl

What comes After?

President Obama recently stated that it was a good thing for Americans to start Saving more, but it created a short-term problem of a decrease of Consumption. Borrowing by households dropped by 2%, which cannot be seen by myself as a precipitate drop. What I find as a over-extension is a 37% increase in federal spending at an annual rate. This basically represents a replacement of Consumer Spending with federal spending; a situation which when evaluated equates with a position where the American and World economy cannot accept any level of American Savings. Rich and less Rich Investor lost an approximate One-Third of their net Wealth simply because Americans adopted a prudent Consumption profile. What is wrong with this Scenario?

Lending to business was up 1.7% during the same Period as the 2% drop in Borrowing by households. What can one make of this information? My Take is that current Business operation in this Country is inefficient, and when American households dropped into a more efficient pattern, American business had to find alternative financing to make up for the Shortfall. A Case could be made for too great of a relationship with Government, where American business has adopted all the pitfalls of political operations; something which Conservatives may pick up in time. The current Concern among all aspects of Economic theory and Government is the drop in Employment. The real Problem may well be within the poor business format framework.

Read this Information from Steve Randy Waldman. Investors want long-term investments of low risk, while households want short-term currency supplies which carry a high degree of risk due to their decentralization and indeterminate means of repayment. Banks commonly act as intermediaries who translate the short-term risks in long-term securities; something they can only do with an inherent misrepresentation of the safety of the instruments. They do this through two avenues: shorting long-term Investors of a genuine Return of a magnitude which does honestly provide a Profit for that investment (the basic real ideation for a maintained low Inflation rate), and through the periodic convention of Booms and Busts, dumping risky investment in foreclosure in the later. The FDIC has cut into the equation for the American economy, and Government Spending has replaced the deterioration of sharp Busts. This has only increased the need for Government Spending, and due to the nature of the equation; will destabilize the nature of Government eventually, basically by making it itself insolvent. The disgust with proper taxation only quickens the directional movement towards Collapse. lgl

The most vital Economic Need--Consistency!

I should discuss the Class Warfare issue connected with this article, but almost All understand the stupidity of the allegation when referring to Taxation; charging one group of People fractionally more than another group has nothing to do with Class, only a denial of Greed. The article does a service by defining the exact arena in contest. There actually should not be a AMT, so there would be no need for a Fix. The Mortgage Deduction should have a nominal maximum which could be fixed yearly to the content of Congress, rather than an automatic Tax deduction which favors the Rich. John Berry states that Tax rates are not as powerful as oft proclaimed; I would say that Tax rates may be counter-cyclical in nature, and present a retardant to economic growth when too low (mis-priced Resource Costs, and over-inflated Capital assets portfolios). Nothing is quite as effective in Tax policy as is elimination of Tax remissions of any type which are not universal. The final effective thing to be said consists of the fact that which was not caused by Tax policy, i.e. the Recession, will find little correction from Tax policy.

I wonder why Menzie Chinn feels that such an obvious element has to be outlined, though he does not mention the discrimination against foreign products existent in the Chinese economy–the greatest being extreme Price (World prices for foreign Goods, with a separate internal Pricing for domestic production). The one thing which should be recognized is that while China will do as it can to increase its own Exports, it will maintain an active opposition to Imports. There will not be any attempt to equalize with World prices, and American Exporters face the same resistence in China as has been traditional. This tendency, Worldwide under recessionary pressures, will assure that Trade will not regain its losses early or easily.

Today We are being ruled by the Mind Set of Congress, as Obama is too inexperienced to be anything other than a Mouthpiece for the Senate and Congress. I said that, which is to say that George Will did not, though I agree with his assessment throughout. It is the actual Rule of outdated economic theories proven ineffective by prior performance, and the established positions of legislators previously affected by the corruption of Special Interests. It is the primary reason We are back to old formulas proven incapable before, and why We can never seem to move forward. We do not need further Government Spending, but serious Tax revision; starting with elimination of the vast loopholes within the system. I would suggest Congress best would serve if they could manage to balance the Budget. Still, I have always been the odd man out! lgl

The whine of the floor

Arnold Kling brings another discussion to the table, this time on Probability. My take on Probability would state that Economists are almost always Frequentists. There is a Subjectionist belief system underlying their ideation; example, few economists even consider the hazards of Stimulus on economic performance, simply because the excess Cash makes the necessary Profit ratios indeterminate. Everyone suddenly does not know What to Buy, When to Buy, or How to Buy; and even less know how to Price their own Product. How much does Uncertainty govern Product Pricing, and what degree of Uncertainty pressures Inflation? These are all Questions which should be answered by economic policy, and is so rarely even asked; all based by assumptions which are left permanently undefined precisely.

Here is a beaut of an article on Quants (don’t you just love the way Traders give out Names?). It seems like mystic science, but it is only calculations about the mathematical concepts of Range and Run, though We are talking about minute percentage changes in the Slope of a yield curve. It is reminiscent of the systems to Win at the Blackjack tables in Vegas. You can Win if you can remember all the variable combinations, and complete the math computations within the Time Limit defined by the Market. I don’t know if I would appreciate that much Math in a common Trading Day–does Anyone want to solve 40 Word Problems per Hour every Workday? Quants tends to make a pile quickly, then move on to a less-stressful occupation.

This is a perfect example of the Subjective bias of the markets, which only reflects the bias of the economy as a Whole. The market ran wild over a Statement by the CEO of Citigroup stating they made Money in January and February. People make much of the massive rise in the price of the Citigroup stock, no mentioning how much loss had been endured over the last year–a truly Subjective example where the Statement simply assured Traders and Stockholders that the value of the current Stock might be worth the current Stock price. No one can rationally assume that Citigroup stock will be worth $40 per share anytime soon; still, it led to a expansive mode, and a heavy degree of celebration in the currently gloomy environment of the Trading floor. lgl

The Drop from the Cliff--and on Rocks

(I did something this morning which makes me sad, in rejecting a Commentary which was interesting simply because it was way too long--something like 8 paragraphs. Commentators should limit their commentary to three short paragraph length maximums.)

It is hard to tear the results from this Post, but doing so lets Us identify Criminal Intent if true. The Investment Banks recognizes the worthlessness of AIG underwriting, but hid the information from the Public in order to continue writing and selling their CDOs. The Investment Banks sold these CDOs, knowing that fund recovery was becoming more unlikely with high counter-party risk. They continued to sell these CDOs, even when recovery ratios approached zero. They did so to attain the personal gain coming from the sale of these instruments–deliberate fraud. Court-sponsored recovery of fraudulent funds should be ordered, but these Bankers are still in control of Treasury, Fed, and Congress. It is about time for the American Taxpayers to start getting Mad.

Do you think This will happen? Special Interests have always known that splintering the decision-making process was the best method to attain passage of their own desired program. Consensus has always been their enemy, and playing on the members of Congress to incite their turf defense, was the best avenue to achieve their unholy aims. Activists must learn to compete with the Big Boys in the established Committees, not follow whimsical follies of creating a new power inside Congress itself; something which threatens the power base of the current Congressional leadership. It is dirty in the Trenches, but One learns How, or fails to survive as the heavy artillery kicks in.

What is wrong about the Investment Banks funding the Treasury Debt expansion? The Investment Banks are not lending the Money received from the Treasury, except to the Treasury at a small, but no risk, rate. Two factors will occur when Times get better; 1) the Treasury will find a shortage of Lenders to sell their Treasuries, and, 2) the inflow of funds will be massive and Inflationary. We may find shortly that the Fed and Treasury found the worst policy possible to adopt, that of underwriting the Investment Banks when they should have been busted out. Let me be the first to proclaim that the current mistakes are worse than ever accomplished by Fed and Treasury in the Great Depression; then, they at least maintained the solvency of the federal government. lgl

Where do We go wrong?

You can easily find examples of criticism of the new Obama administration. The worst of the situation is the fact that everything Krauthammer wrote holds a particular Truth. The Banking plan is straight out of the New Deal, the Stimulus is straight out of the 1960s Johnson campaign of ‘War on Poverty’, and Health Care equal to Hillary Clinton circa 1994. Banking will never be restored as long as the Criminals are allowed to stay in power there. Twenty years of failure should have taught that eliminating Poverty is impossible without changing the Value systems of the Poor in the first place. Extending further Health Care coverage will only bring Us closer to the abyss; a basic position where the only source for funding the National Debt is rapid Inflation. I think the American people should not be complacent about awaiting Insolvency.

One could call this the Recession which destroyed the Pension Plans. Read this article, and wonder where you put your investments of the last three decades. I once proclaimed back in about 1983, before Some of you were born, that unless Pension plans were fully-funded, then they would become functionally worthless. Business promptly drafted funds from these Plans to use as leverage. We have arrived where We are Today, and Baby Boomers wonder what all of their hard work had been for, and how did the Crooks get to spend their Retirement funds before their own Retirement. It is especially hard because We all know that Courts, packed by Conservatives, will never define this activity as fraudulent; therefore, We will never even enjoy the entertainment of seeing these Individuals sent off to Prison.

I will finish today by declaring the Reader should opine this article. I will state categorically that Government will always become unsound, if its Spending exceeds 15% of GDP. Public Goods should be sharply defined, as in this manner the huge disparity in Cost between Public and Private Goods can easily be perceived. Government is not the method which is conducive to economic stimulus; it is actually a sharp economic retardant. The way We approach a Problem often defines the potential range of Solutions We can adopt. A Short Hand would say to always let Special Interests decide Solutions, but make them Accountable by financial failure and/or imprisonment; or, as alternative, eradicate Special Interest from the decision-making process. The worst approach to the Problem is to let Special Interests set Public policy. lgl

One should not stare at the future, lest One see the Past

The Washington Post via Greg Mankiw has the sentiments of several Commentators on the proposed Obama Tax increases. Jim Kramer expresses the personal desires of the Country with his Post, but is shackled to the old Keynesian concepts of pouring Money at any problem. Greg Mankiw, himself, still clings to the concepts of Marginal taxation, thinking percentage changes in minute change elements truly affect anything; he does give an accurate description of past and current tax rates. Robert Reischauer probably gives the best assessment, though the piece by Laura Tyson is good; though it contains some loose economic logic. The whole exercise indicates that Obama has did little to alter the general attitudes to Government and Taxes, and Community Spirit exists only in un-channeled venues no one has bothered to exploit.

I know that Everyone wants me to make a similar Commentary, so they can equally avoid any support of my final assessment. The economic retardant aspects of the Tax increases must be considered minuscule, basically because in the last 40 years, the Tax rates had been higher for 30 years than the proposed program. During the periods of higher Taxation, there occurred much of the high increases in economic activity which is so praised. One cannot be more precise about the Statement made, unless One wants to define the difference between real and nominal taxation, the tax assessment made, the tax avoidance utilized, and the real taxes eventually paid. It is sufficient to state that the George W. Bush administrations brought new forms of tax avoidance, of which the Tax Cuts were only a part, and this new tax avoidance was the basic structure in which the financial crisis was born. Housing became the preferred Savings and Investment vehicle, because Mortgages were given tax preference. Investment Banking became the major structure, because Regulators were told to ignore Accounting procedures concerning these institutions; Accounting principles established over a half-century of curtailing problems before they could magnify. The resulting collapse could have easily been foretold.

The prospects for the future are not as rosy as I would like, as I suggest We have reached the apogee of World economic productivity. The decline will come through a number of Demand and Supply Shocks, much like the current fiscal crisis. A great number of factors enter into this calculation, which range from increases in Resource pricing, to retirement of the Baby Boomers. The rest of the World will insist on maintaining the gains made in the recent Past, while Americans will not fail to drag their heels at any loss of Standard of Living. Most of the common Consumer Demands will be met, though at a reduced speed and higher Price. Business Profits may be the heaviest victim in the Scenario, where Prices will be reduced to capture a faltering Consumer Demand afflicted by chronic Household Income disturbance. It is beginning to sound like the Writings of John in the Bible, and it is too early for a Drink. I will simply finish with a Statement that total World GDP will likely decrease by 10% through the next decade. lgl

The World of Words

One needs a diatribe occasionally, lest one gets complacent in their attitude; in economics, this means getting shelved into a School of Thought. This Post takes on ‘vulgar Keynesianism’. Robert Higgs questions the value of Keynesian Thought, which depends upon particularly artificial aggregate values and definitions. Higgs favors von Mises and Hayek, as I do; I simply disdain Those who propound the ideas of these men–an observable use of a Cleaver instead of a sharpened Carving knife. Keynesians, on the other hand, utilize an artificial aggregation, ignoring both Time Sensitivity and Speculate reactions. Mal-investment is sort of like having Chicken for Evening meal, after having butchered a Hog that afternoon (there are always certain Parts of every animal which must be eaten ‘Fresh’ to maximize genuine Taste). Von Mises and Hayek fail in that they ignore their own set of variables (Money velocity constraints, the need for expansion of funds under these constraints, and the huge Cost of Information gathering at the decentralized market level–a bell-shaped Curve where as Many are going to lose as Gain without actual increase of economic performance). I will not even enter into criticism of Monetarists beyond saying they are the Number One cause of Inflation. Read, Study, and reach your own Conclusions, though I sometimes believe that Economics has not advanced in real terms since Adam Smith.

Steve Horwitz is an alright guy, though his criticism of Brad Delong may be a bit much. Brad endures an excessive amount of Commentary on his blog, and he obviously has to truncate these Comments simply to express his own Opinion–it is his blog you know. I post almost all my Commentary–except for the blatant Advertising–simply because my Readership does not bother to blog; they either have never heard of me, or enjoy my style of life. Brad suffers from the unbearable pressures of being an eminent Economist of a prestigious school, and battles the Time constraints which afflict Us all. I think it may be a bit much to declare Brad academically dishonest.

I listened to Dr. Stiglitz on CNBC the other day, and now find him in print (seriously, The Guatemala Times?–Mark Thoma has to get out more!). Joe says that the Stimulus Package is not big enough, and One-Third of it goes to Tax Cuts. I think this is an egregious Statement even for a Keynesian. Debt Repayment can only be made with the current Plan with the utilization of high Inflation, and expansion of the Stimulus could place real pressure on the Dollar. We need a simplified Plan, which translates into real Work projects; not inane Proposals which will only save the Dollar investments of a very limited percentage of Americans. Should WE drive 300 million Americans to the Poorhouse, simply to save 30 million Americans about half of their net Wealth? I don’t think so, but I lack the Voice to shout Others down. lgl

Solutions as a Null Set

The Reader would be well-advised to study this article by Amartya Sen. He tries to place a traditional posture on Capitalism, and explain why and how it is operating today, which Many consider to be sub-par performance. My own thesis has always been that Capitalism breaks down under the pressures of limited resources alongside of too many Practitioners of Capitalism. The creation of Capitalist enterprise insists upon the extraction of Normal Profits from the operational activity. The crisis comes when the growth rate of Normal Profits exceeds the rate of economic factor expansion. Higher Profits must be drained from a limited viability of Production, inciting the creation of ‘Middlemen’ with their own insistence of Profit receipts. There has been much Work done on Creative Destruction, too little labor has been devoted to the ‘stickiness’ of Creative Destruction where Businesses refuses to close down. This insistence on Profitability eventually destroys the viability of the entire economy, where Profits Demand ruins all Profitability through the huge increase in economic factor Cost in the Production cycle. Read the article, and make your own speculation.

Here is a Post which wonders whether a Stimulus package can be temporary, and if it is not, there is the implication that the Stimulus may be a total waste of excess government spending. I basically agree with that assessment, knowing that Politicians hate to reduce their own expenditure patterns, especially when there is Vote-getting potential in that expenditure. Government Spending never disappears, as such funding becomes a new, special Slush Fund. Reaganomics may win the Popularity contest, but Keynesianism wins the Operational Budget. New Spending should be considered the Enemy of the People, because of the simple fact it will one day be traditional Spending.

Mike Shedlock has his own Take upon the entire concept of quantitative easing, the proper term for creating a Inflation system to counteract deflationary pressures in an economy. The trouble with quantitative easing stands on the fact that the funds are always transferred to the elements least in need of funding, as they have the least exposure to the deflationary pressures. Banks get the Cash, instead of Mortgage-holders; Businesses get funding to make up for lost Profits from reduced Production, rather than laid-off Labor. Mish might take it too far with his Fiscal Insanity Virus; it might only be a Fiscal Imbecile bacteria. What do you do when you cannot believe in Capitalism or Socialism, Reaganomics or Keynesianism, George W. Bush or Obama? I would like to buy Adam Smith a mug of Mead, and We might make it back there one of these days! lgl

Barely making the Grade

One can look at this table, and convince oneself that the economic scene is not too bad, except many Customers have yet to make the adjustment in Retail, still worried about style and appearance. It does not help, though, that the first place to conserve is Dining and big-Ticket items which have been already curtailed for a while. Michael Mandel would suggest that productivity growth was functionally illusionary over the last decade. I would basically agree there was minimal growth anywhere but Immigration and untaxed Business Profits. Oh, I forgot the foreign debt We were able to arrange, which may be more difficult in the future. The real Saving Grace of the last decade may be the fact that Labor Incomes did not rise significantly, and therefore, cannot drop too drastically; remember, the real losses recorded comes in the Profits recorded and the excess Retail outlets constructed from untaxed Profits to maintain that non-tax continuance.

Calculated Risk tries to give Us some idea of how bad the economy actually is, with an Intro remembrance by me that all this stuff be very much affected by a decline in GDP; all that glitters is mostly a Movie Set glamor. The last graph may be the most important, its decline alongside a dropping GDP suggests that the Unemployment picture may not improve readily, no matter what hype and funds are put into the Obama Recovery Plan. I was thinking to discuss the Chinese Stimulus Plan today, but decided I knew to little about it, though I like Jeff Macky ask Why there is a need for Stimulus in an economy purportedly growing at 7%. I have the suspicion that the future will destroy the power of both Tax Cut economic growth and Keynesian partnership of Government with Business. We may just need for economies to react normally, without any Stimulus at all!

I found something for the hopelessly Wonkish by Menzie Chinn. Univariate v. bivariate arguments will always surrender in the final analysis to Unknowns (specifically what is the impact of Demand Shocks, whether they are causal or respondent). I would like to believe in Brad DeLong’s assessment that sharper increases in unemployment presage more rapid GDP growth, but will state that without a decrease in relative Pricing with that increase, GDP will trend to previous levels. I know that constant trend rates in GDP depend far more on Inflationary pressures, than on a real-life growth in real product. Stripping out the Inflation from the matrix, it is only a statement that Business firms assure themselves of a Profit margin if at all possible. It is a mess, and I have been artificially Intellectual sufficiently for today! lgl

Does this make Sense?

Greg Mankiw makes very telling Points in this Post, especially about the growth of GDP and the provision of the graph. Greg shows an unholy, and unnecessary, desire to get some of the proceeds from Paul’s Nobel prize. I do know that my own Estimates establish that GDP will decrease about 5% under 2008 levels by 2015, simply due to the retirement of the Baby Boomers and lack of replacement labor. I also estimate that Labor will again absorb the percentage of Income lost to Business Profits since 1998. The presence of the graph somewhat amuses me, for it is the one relationship which will lose relevance in the coming years–Business enterprise will be established with advanced higher productivity per labor hour, or GDP will drop even further than I expect. Paul has commanding presence among economic authors, but I think he is beating a dead horse.

This criticism of Paul Krugman may hold more importance, but I think not. Everyone knows that Congress is going to splash Money all over the economy, and most of it is going to be worthless for any purpose other than Inflation. There is not even much dissension among the Parties about the magnitude of the Splash, simply who should be awarded with the Shower of Cash. Democrats say give it to the Poor, but actually means fund the Government agencies to expand and build empires–with little Trickling Down to the Poor. Republicans talk about starting new industry, though what they really mean is cut Taxes to make up for the lost Profits earned by Business–so that Business personnel can maintain the style of life associated with themselves during the Boom years. Nothing proposed actually heralds a viable increase in Productivity, or creation of an successive Boom in the future.

Read this article, and then estimate the likelihood of a Depression. I have often wondered about the possibility of a Depression, with an enhanced, decentralized education of Business personnel. It is my contention that the correct small Business format will be quickly worked out at the Retail level, maintaining a base level of Production capacity so that long-term suppression of the economy is unlikely to occur; this is not to say there cannot be long-term degradations of economic performance with potential abandonment of entire Sector service areas. I wish Some of our esteemed Economists would attempt to run some models based upon sheer capitalist formula, where recessionary pressures might be best dealt with a ‘Hands-Off’ approach in both monetary and fiscal policy. I think that the Numbers have been lying to Us for years, by Our mis-intentioned belief that We can do better at manipulating the Numbers, than can the Economy itself. lgl

The Whoopee in the Shebang

How Many think that Chris Dillow and Roland Benabou are Right? I do, and even have some reasoning to back that assessment. It is the old 2 to the number of Corporate Executives as Power, making about 18 Corporate decisions a day (if Corporate management expresses the normal Hiring practices and exhibited experience in normal expressed range–else the Power is much lower in Number). How many days must pass before the Dice rolls wrong? One has to remember Professional does not mean always Right! Error decisions are predictable, it is the durative length of Time between Error decisions which is unknown–2 or a Dozen decisions can be wrong in a Row; that cluster of wrong decisions can even be assigned Odds–everything is possible. Remember that Business is not infallible, and even is definably fallible!

Alex Tabarrok has finally given a good economic argument to explain the Stimulus concept to beginning Students. The only trouble I would perceive in the analysis consists of the fact that fiscal policy planners have long understood the argument, but do not understand the forces behind the argument. The V factor in the equation is totally determined by the Market, and expansion of M or V by fiscal policy will itself cause a loss of velocity from the Market, as Bank re-associate to accommodate the expansion of M, or the development of Debt. Fiscal policy must develop actual Production capacity for it to exceed mere Expenditure (what they build must further economic expansion, not simply look Pretty or consist of Subsistence payments). The argot of Economists fails to inform that in a competitive Market system, marginal purchases always presents a rise in Resource pricing; something Good in a Production decline, something Bad in a degenerative Labor decline with sustainable Production schedules.

The Congressional Budget Office and Greg Mankiw (do check out page 12 of the Report) suggest that there will initially be an increase of 1.2–3.3 million Jobs through the end of 2010, but with a slight decline thereafter. I have far more faith in Crowding Out effects than either of these two sources, especially with the crisis of finance at the State level. Production for Basic Needs can be maintained, even with another 10 million reduction of Jobs. Most of the Stimulus efforts apply to replacement of current State efforts, though those efforts are much less capitalized. I do not believe there will be massive Job multiplication from the Stimulus package until late 2010 in the first place, and then the increase of Jobs would be at most around 200,000, and immediately reduced upon final payment of federal aid. Smart Economists will probably state that I am wrong in this, but I have been through a couple of these things, and nothing ever worked according to projected Scale. lgl

Where We Go, when We don't Go

I don’t think I linked this Post when I first read it; but if I did, it should be read once more. I would enter into a serious discussion of Multiplier effects under the impact of Goal fulfillment if I were a true Working Economist. No one tells the Student that there is a Bell Curve residue to the Multiples observed, dependent upon the level of employment of the Resource involved. This means you have different Outcomes when you have 130 Million employed v. 100 Million employed in this relative Case. Stimulus must be sufficiently large for the Multiplier to show effect in relation to the total involved, but also loses Effect when relative full employment is reached in terms of profitable Production (think that the Multiplier must operate an Environment of $100/barrel Oil with an Overuse of Roads and Harbors).

Jeff Cornwall always presents good material for small business personnel. Readers who are thinking of small business Start-Up should seriously study his blog, especially this particular Post. Most Start-Up personnel do not grasp the depth of their immersion in a community business framework, when they first conceive of starting a business. The fifth link Jeff provides may be the most important of all, though One will doubt this Statement at first. One has to understand How other small businesses are operating, in order to go with the flow, and stay current with awareness of the demands which will be placed upon your endeavor. You have to know what you are looking for, before you can find it.

I have often thought about the exact nature of cognitive association. This compilation by Greg Sabin makes me ask why he would chose such a disassociative grouping, other than to develop some Trivia questions. We have Death for business failure, Barter, then pure Beer; followed by Colbert, leveraged finance, failed Trading Companies, hyperinflation (by the way, the Confederacy did not suffer from a technical hyperinflation), a lack of Bibles, and a Real Estate Bust in Japan. There is a lack of consistency in Time reference, lack of application of economic principles, and a message well-hidden from the directionally logical. One can hope for better in his next effort! lgl

Sunny Sunday

I read this article by Jay Mathews, and ask How can the American system of Education be failing to provide properly-trained labor for the modern economy. You read about the huge efforts put out by poor elements of India and China simply to ensure that their children receive an effective education, and wonder why American parents do not even bother to insist their children do their Homework. Is there a basic defeatism in American society which insists that America must fail? Most would insist these efforts are only geared to lower educational levels, but Why can’t American students compete effectively with their peers from foreign Universities? It seems to revolve around poor Study habits originating in primary school. There may well be a Need for a strong Discipline in primary education classes; I know that I had a group of Roman Catholic Nuns who were quite insistent in my younger years–no Comments on the poor quality of my performance. Could We need to go back to previous practice to reach a more successful End?

Publication of this link may get me a Cold Shoulder in Omaha, but Warren has never personally made me any spending money. A Berkshire price of $78,600 per share leads me to suspect there has not been a major loss of confidence in the Company. I have tried to read Warren’s annual letter four times, but just seem unable to get my mind around the Words. This could be a basic lack of Interest, or the poor Study habits developed over a lifetime in American society as commented upon Above. I personally judge it as simply Warren’s lack of desire for me reading his correspondence–One has to be a Nebraska Resident to understand that; Walt Behlen no longer being around to ask!

I once lived only 70 miles from this Place, and also lived 4 miles from a Border Crossing where Mexican Police Officers has fled for protection from raging Gang members. I have often crossed into both Cities, and understand the fears of Mexican citizens; some older ones recount the violence of the Civil War years and state it is just as bad. Mexico has always had an extensive history of Banditry, and it has spilled over into the United States before. I once knew a Mexican-American who once watched Pancho Villa raid Columbus, N.M. in 1915; who commented Conditions are near identical–where honest Citizens are not allowed Arms, so Bandits feel safe to raid and terrorize. This Period of Terror will pass, but not before a high Death toll is exacted. lgl