Thursday, April 30, 2009

The Dark Side clouds the Sight

It is nice to know that some things really never change, and Brad DeLong still thinks I belong to an unbalanced and fringe element, even if not strictly an Economist in real terms. He himself belongs to a minority of individuals who have previously worked for Government, who still has faith in Government activity. This Recession, first of all, came about because Participants in the system lost faith in the values of economic production; i.e., they realized that the Pricing system of the economy was badly skewed with marked difference between the real value and nominal values in monetary terms. Consumers, as consequence, curtailed their purchase behavior, while attempting exit from previous contractual agreements (getting out of the terms of mortgages etc.). The Government, of which Brad is the advocate, thinks the Solution is to pump funds into the economy, which can only further widen the distance between real and nominal values in the economy, as well generate further confusion in Participants as to the reliability of Investment procedures.

The Government, and the Economists who are backing it’s policies, fail to realize that they are instituting policies already proven a failure by 1937. Government expenditures relate poorly to labor intensity, probably of lower intensity than normal Private Sector activities. Government pumping funds into the economy distort Production Costs far faster than these funds generate higher expenditure patterns (I would suggest 2.8:1 in Production Costs velocity over normal Retail Consumption). If this later data is fact, then Government supply of funds is an absolute disaster for Small Business. The Monetarists have yet to understand that any distribution of new funds must be handled so that the right hands get the Cash. Giving awards of billions of dollars to organizations worth billions of dollars actually does little, even to the degree of keeping them from Bankruptcy. Giving Aid to Small Business would not only save Thousands of businesses, but markedly raise the expenditure pattern of Small Businesses’ families, and also achieve much higher Hiring than could be realized by the amounts given to mega-corporations.

But what do I know? I am just a man trying to keep his head above Water, when the funds coming in remain the same, but Retail prices zoom into the Ozone. The real trouble is not mine, though, but the millions of people exactly like me. They need a high-paying Second or Third Job, and the time to work at another Job. They will get neither, or any help from the Government. The economy will remain in the doldrums until the Consumers get an equivalent to that additional Job, and Business getting rid of the high-paid Jobs will not assist the effort. I do not say that Times will get worse–they have bottomed fairly well at the current level; I am saying that things will not likely improve any time soon, and it will take even longer if the Monetarists do not stop injecting funds into an economy which will not grow. lgl

Wednesday, April 29, 2009

Intrusion--Always Redundent, even if Necessary

I find a little more to fear from this information from the Richmond Fed Manufacturing Index. The April swing may have been our Recovery, and if it levels out at the April level, We could find Ourselves with a steady level of manufacturing, which will not recover to pre-Recession levels. This means that the Downshift in the economy may be permanent; the economy having recovered as much ground as possible. Outcomes possible would be a permanent high Savings rate by Consumers, the lack of Imports will close World financial credit to Americans, many fewer Jobs for Americans, and inability to get Treasuries sold at Home or in the World. The robust nature of the April data is itself suspect, as everything indicates it is Business attempts to fill Orders, rather than any search for new markets.

Justin Fox comes up with a good discussion of the realm of regulation. Tried and true Warriors in the economic field are concerned by the huge variance from Expectations that the economy has taken with the Recession. Part of it lies in Accounting where under the Rules in force, a Borrower could borrow $15 Billion to spend $10 Billion ($5 Billion going to fund far-seeing leadership), Banks could issue some $20 Billion in unredeemable Paper to raise the funds, and Everyone think their Issuance should have a multipe A rating with many stars. The interesting Part of it all was that initial repayment conditions was only between the Borrower and initial Loan Officer, both of Whom expected to have other employment before the Payment Schedule came into force, and Everyone was concerned with shoving the liability off on Someone else. It was a fantastic game of ‘Musical Chairs’ with a difference; whoever wound up with the final Chair had to pay for the whole thing. Business, Bankers, Brokers, and Insurers all insisted that Consumers of the Product sold keep their seat.

Where do you set in relationship to your fellow Americans: Are you a good Consumer? Study the table, and ask yourself if you are consistent with other Americans. Felix Salmon feels that a Car and Landline are unnecessary, but he lives in an urban setting. I could live with a TV plus a DVD, without the deadly presence of Cable TV or Satellite. No one needs a Dishwasher–simply let the dishes pile up until it is time to wash Dishes; a good Rule is to keep no more flatware than it takes before the Smell takes hold. I need the Clothes Dryer, and the Internet Connection, and Doctors’ Appointments alone would insist I keep my vehicle. How I wish for Thoreau’s bravery, where I could sleep in Peace, and Horns and Whistles do not interrupt me. lgl

Tuesday, April 28, 2009

The Glories of Right and Wrong

The Glass-Steagall Act separated commercial and investment banking, the Gramm-Leach-Bliley Act removed those Restrictions. Glass-Steagall was passed in 1933, Banks were forbidden to underwrite Insurance in 1956, and Gramm-Leach-Bliley was passed in 1999. The first failure in commercial banking occurred almost immediately (may actually have started prior to passage), and the real failure to investment banking started in early 2008. Henry Kaufman claims the Fed has been captured by Libertarian principle–which I doubt, but I do most sincerely believe "the Fed played a central role in creating a financial environment defined by excessive credit growth and unrestrained profit seeking. . ." Congress did remove the Cutout mechanism to separate commercial banking and Investment, and poor credit ratings could no longer forestall the search for Profits.

The current federal plan to save at-risk Companies is to bankrupt Bondholders. We are talking about $62 trillion, and the best Government counteroffer I have seen is payment of 71% of the face value. Considering that the CDSs were only allowed since 1999, We are talking about a Interest rate around a negative 3% for the duration of these Instruments. I could suggest that the fed seek to reinstate the Glass-Steagall provisions, as the CDSs will never bring in the Cash that they had previously, and guarantees on sounder forms of Debt might need to be made, before Cash is even acquired in these safer venues. The whole argument bores me, but I keep on, as I believe that the Fed will turn this into the Second Great Depression if they do not get a grip, and start allowing Bankruptcies.

I will leave the Reader with Videos from Mish, which I myself have not reviewed; a while back, I worked on my computer, and failed to reinstate my loudspeakers. I founds Comfort in ignoring the Words of Man, and later Contentment at listening to Music. I will eventually have to reignite my loudspeakers, though I keep putting it off. The Cares of the World can be so much simpler, if one ignores the groans of the World. These Videos may be of some interest to the Reader, because they purportedly document the destruction of new houses, rather than going to the expense of maintaining them to Code. It is a fact that bare land can be resold, loans made against new Construction, and renewed mortgages issued; all possibly easier than trying to get a decayed home sold. A waste of Capital and Resource, but Depositors are being stuck with all the residual Costs. lgl

Monday, April 27, 2009

The State and Injustice

James DeLong introduces many postulates on the possible course of future development in the United States. His analysis of the American State presents a clear Picture in a concise format; now all One needs is to question if it is true. It remains highly accurate in definition, and needs only an estimation of relevance. No one can really deny the Special Interest State which he describes; yet, no one can place any exact strength level on this form of government. It bends almost flat in the wind of political adversity, and no one seems able to assert any dominance with the spread of the Root system. The Polity, on the other hand, rarely remains activated for any length of time, and the Root system spreads continually. I do believe that DeLong’s assertion that the Special Interest State is failing stands as accurate, as it’s spread has become so intrusive that enforcement of the decisions made has become functionally impossible. There is no Arbiter large and powerful enough to bring unity to the Coalition, or to establish a realistic direction to policy. There must be Creative Destruction, before any rational context can be reestablished.

I am excessively chagrined today, because of a notice I received from the State of Illinois of a Toll Violation. I will first state I have not been in the State of Illinois since somewhere around 1993. My vehicle has not been in the State of Illinois since my purchase of it in 2003. Any Toll Violation mandates my presence, which has never occurred. They had captured a Picture of said Violator Vehicle with its license plate, which while containing the license number of myself, does not carry the alphanumeric sequence of my license plate. The color of the Violator license plate are White numbers on a darker background, while my real Nebraska license plate are Blue numbers on a White background. My license Numbering also covers the whole frame of the Licence plate, while the captured lettering only occupies half the license plate. It would seem like an easy issue to resolve.

There is first the limit of Time, the Notice stating I must respond by May 11, 2009 with Payment or Hearing. The Charge is numerous Toll Violations with total of around $147, a numeral amount suggesting continuing violation of Tolls. I must obviously take my Vehicle to any Hearing, to prove my claim, something which is only a 8-hour Drive, but will interrupt my planned schedule. It is obvious derelict Capture procedures by the State of Illinois, but will obviously carry continuing financial Charges if the correct Violator is not found; a circumstance which will have been abandoned with my false identification as the Violator. I stand ready to defend my Bank account, license, Insurance premiums, and Character; but can only find a great waste of time devolving from this desecration. I will relate on this blog how this Scenario turns out. lgl

Sunday, April 26, 2009

Even Bad Poetry

I was reading this article by Robert Frank about Luck, Talent, and the relationship of These with financial reward. I would first like to say that Mr. Frank deserves much better than my treatment, as the article truly carried a Message. My Thoughts, though, turned to the blogosphere, and what position We Bloggers enjoy in the scale of things. The closest I could come to self-identification for Ourselves were the Professional Mourners at New Orleans’ funerals; they who are paid to publicly bemoan the adverse events of life. I would be the Last to reject the rewards of Blogging, if I received Any, but I wonder if We capture the Sentiment of the human Soul. We seek the spectacular rather than the significant, the shocking instead of the revealing. Have We made a business out of yellow journalism? I would almost say so, except that blogging has attained a high level of Information, skill of Writing, and maintained a good Record for Sourcing.

I would first like to say that I do not agree with James Hamilton’s Argument, though all elements of it can be justified. It all revolves around the Value that you place on Marginals. James states that several elements could have had only marginal favorable changes, and We could have avoided the Recession. These marginal changes could have been accomplished, but the Recession would have occurred anyway. I have always believed that Recessions come from an overexpansion of a human factor–excessive Greed. They come to be because too many Sectors seek to withdraw too extensive a Profit ratio from their participation. Bankers, Stockholders, Money Managers, Retail Outlet Owners, and an additional assortment of Dentists, Doctors, and Lawyers all pursue Windfall Wealth; thereby insisting on an increase in the total Recompense, actually ruining the original recompensare. It is additional injection of false Costs into the matrix which causes the Recession.

I do not have much else to say today, so I will follow with a Poem:

There once was a Girl from Groton
Who wanted to get more for her Goat’s run,
Though it was a shaggy old rack of patchy pungs.
She tried to hock it as a shiny Coat
Fit to be skinned out;
Though Everyone knew it as a marginal success
Only to be sheered.

(Moral of Story: Who still has the Goat, and still only with Pittance paid). lgl

Saturday, April 25, 2009

Money, Money, Money!!! (think of the Song)

Felix Salmon comes up with an effective Answer to the Question of the quality and effectiveness of Credit Default Swaps. It has been clearly revealed How CDSs can be misused, and it remains a little hard to explain how the Swaps have been a Help. We do know that a select group of people made an excess amount of money creating and dealing with these things. We do know a great number of people were allowed to borrow great amounts of money, while later finding it impossible to pay back the loans. We do know that CDSs made it possible for Banks to claim that the Risk taken by other Banks was a creditable Investment; an examination of which meant they were Betting on the loan policies of each other; such policies undergoing an outright degradation by bank officers in personal hopes of great Bonuses. Government tax policy sought to underwrite or subsidize Mortgage payments, and all Taxpayers desired to maximize those Payments; Credit Default Swaps ensuring that Banks could not run out of Cash, as Banks could translate Risk into Investment reserves. It all sounded Good, but was like the later Bush’s administrations–the famous Texas Blue Sky!

Try working your way through this List sometime, and then do a little Math. The interesting point I find, with no other Guide to check my evaluation, is the requested TARP funds equal about what these Banks would have claimed in Profits through the Bush years. I am not talking about the pitiful amounts received by the smaller Banks, but seems relatively true if billions are utilized to describe TARP Payouts, rather than millions. Remember that I have looked nowhere else to vindicate my suspicion, and one can easily check Public Tax records; one should be reminded that I am writing on a Saturday morning with no desire for any Research at all. Who knows, it might only equal the funds paid out to Bank officers as Bonuses during the Bush years. We do know it is the amounts the Banks are short of, and Everyone ate extremely well, before Starvation set in at the Mortgage level.

Daniel Gross would have Us believe that the economy’s success revolves around Mergers. I am not quite so sure. Mergers always consist of a constant set of Capital assets, huge Borrowing to purchase that Capital, payment to current Stockholders, and an increased Debt load on the Profits coming from that set of Capital. There is invariably a decrease in actual Research and Development after such a Merger, with a decrease in Quality Control during Production to maximize Profits in the Production operations; previously sound Production operations endure less Product reliability and increased liability. The Debt outstanding against Company operations is always too excessive for unique Profitability, and Stockholders never see any appreciation in either Dividends or Stock Pricing. It is a beautiful Way to Live! lgl

Friday, April 24, 2009

The New Mode of Operation

Eric Raunchway takes on Amity Shlaes, in a perfect representation of misrepresentation of data. I myself find ‘Make Work’ Jobs established by the Government to not be actual Jobs, but it is not so much how the Jobs originated, as it establishment of an ability to Consume among Workers which did not exist previously. I am not making any Excuse for Shlaes whose Work has some obvious malicious misrepresentation. Where I am trying to arrive at is a position in which Consensus is based upon actual accurate data and evaluation; a position hard to accomplish when debate centered around two separate set of books. The Enemy is publication to confuse and distort, One has to first accept the academic discipline, before One can do an adequate Job of presenting propaganda.

The Government itself was running a Ponzi Scheme if Andrew Cuomo can be believed. Paulson and Bernanke had Bank of America lie to Stockholders about the liabilities associated with Merrill Lynch in an manner which would deny actual Investment for a 2-3 year Period because of the additional liabilities. Stockholders were misinformed as to the Investment opportunity, which would not exists until Merrill Lynch’s liabilities were paid off. Payment of these Liabilities were to be paid by TARP, though TARP repayment was to come from Bank of America Profits; a complex Statement saying that Bank of America Stockholders were to be artificially taxed, without even informing them of the taxation. They were only told of the additional liabilities after the Deal was made, promised the TARP funds, and never informed specifically that they would have to repay the entirety of TARP liabilities for both Merrill Lynch and Bank of America. I would file Class Action suit against the Treasury and Fed, if I were a Bank of America Stockholder; claiming false and unjust taxation without representation.

I don’t know where the OneEyedMan has been, but he is truly not observant as to current American practice. All the anti-takeover measures he cites have been lobbied by the Takeover artists themselves: Golden Parachutes, Dead Man rules, Poison Pills, and staggered Boards. Executives must be paid, obvious inequity cannot be altered, Retirement settlements must be fulfilled, and excess Board members must be employed. Red Cross Executives cannot be removed, even in the face of established Fraud. Bernie Madoff will probably get his Pension Benefits, even sitting in prison. Criminals get to negotiate their redemption under Clawback rules. The Whole new Concept of Business operation came with the new set of Operators, whose operations basically only ensure their own personal Gain. lgl

Thursday, April 23, 2009

The Circus

I regret to state that my view that the Recession is going to be permanent seems to prevail in Europe. I have stated there may be no Recovery to the levels enjoyed before the financial crisis, and that We are settling into a pattern of sustained Production at the current position. The Jobs may not come back, only be replaced by new lines of development, with no one capable of superceding current Investment limitations. If my Concepts are right, then economic expansion has been maxinized, and We can only turn to preservation of natural resources. It does not mean We cannot have a robust economy, only a scaled one of set boundary. This must be coupled with the Statement that Everyone who has ever said that the economy could not do more, have been discredited by Events.

It might be the time to bring in Tim Schilling, who brought access to this article. It appears that Europe is taking the Recession much worse than here in America, though this may be because the Welfare support structure here is sounder in principle, even if less universal. There is still indication that all Government fiscal measures have failed to even dent the Recession, which can be translated into the economy operating according to structural fundamentals, which will not be swayed by Government action. I would advocate that Government officials abandon plans to stimulate, and devise long-term plans for welfare supply for a much larger segment of the population. One must do the necessary, before they can dream of the Wondrous.

Here is a perfect example of what I am trying to imply. What if initial Claims stayed consistent for even a Period as long as 4 years; this meaning there was a huge increase in temporary Spot employment, with Workers continually rejoining the Unemployed. The current Claim level is at 6.14 million–which may never decrease. What will this level do to Worker incentives? What do We do with the Employment Funds, which are rapidly running out of Cash? May We not have to separate Contribution and Benefit, so that We have a unitary Benefit with a higher, but universal tax upon all Employers–forgetting the Concept of Worker contribution? Are We reentering a Time of Bread and Circuses, so that the Polity does not revolt and riot? Times might indicate that the Masses are ready to start feeding Capitalists to the lions. lgl

Wednesday, April 22, 2009

In God We Trust--Oh, Really?

What is wrong with this information? You gather a bunch of yokels together, feed them a line where Talk inhibits true Thought, and force-feed them a set of Prices. The professional investors were not present, and probably had not been there for over a year. Most of the Amateurs do not even bring a Calculator, know nothing of the intricacies mortgage bankers utilize to set Mortgage rates, and jump because the Auctioneer tells them that a Buy is such a good failure. One of four of the Buyers will be refused a mortgage, and one of four of the mortgaged houses will probably be on the auction block again in the near future. Mortgages are still being given because of marginal solvency, but the Sales give Mortgage Banks breathing room, so that they do not have to Write Down additional Paper; the whole Process delaying the violent Storm, at the Cost only of some individual Credit ratings. Lucky bankers may even reach Retirement and Pensions, before the losses actually have to be compiled.

This article should be enjoyed, because it speaks more of Government intention, than it does of Government response to the economic troubles of our Time. It is also mostly a Joke, because it would describe accomplishments never possible with the presence of partisan politics. Such political persuasion always insists on a Quid Pro Quo approach where every Concession must be matched by a Concession from the other Side. For any budget to work under such a system, each Side must be ready to accept only One-Half of what they desire. The reality of Politics states each Side will continue to make Concessions until each receives what they want, or some political reality intervenes to forestall the Garnish program. In no case does any political element feel any loyalty to any budget element, even when they proposed the budget in the first place.

One can attempt Change when there has been marked failure, or one can accept the apologies of Those responsible. The Former places some form of Amateur in charge of major institutions; the Later assures a basic ‘Business as Usual’ as the Players made their Wealth and Position under the old system, and will return to it with any confrontation with adversity. We get inexperienced Stupidity, or expert Chicanery. It is not to say that Old Dogs cannot learn new Tricks, only that Education carries a instructional Cost, and Thieves learn How to better cover their Tracks. Either case costs Money, in addition to What was already lost. One has to ask if We can afford Students when there are trillions of Dollars on the line. Of course, one also has to ask if We can endure Thieves, when We are talking about percentages of GDP. lgl

Tuesday, April 21, 2009

Hazards of the Modern Day

I would seriously advise Readers to absorb this article carefully. Economic models, more than anything else, explain Past behavior in Markets and the Economy. Economies are never identical to previous eras, because of expansion and growth. One has to go back to the relevant Size to match likely characteristics, else there is a tremendous input of unknown variables. Modern Economic Man does not react in the same manner as their forebears, even themselves in earlier times. The major element is always the design of new methods to handle the increased volume, and the inexperience of All with the new instruments of concentration. The only rationality in the new way of doing business is to admit no one knows exactly what they are doing. These methods are similar to previous methods only in the surety that they do not encompass universal application, and will fail eventually when adversely stressed. The addition of the presence of Greed ensured that even viable systems are stressed to withdraw as many Profits as possible from an untested vehicle. One should not be surprised that economic models failed, only that they held up under pressure for as long as they did.

Paul Krugman fears that the United States might go Irish. I have always been culturally addicted to austerity in the first place, so do not feel the implicit threat which Paul fears. His confidence that the World supports our huge debt may be seriously misplaced, as even China is beginning to grumble about reasonable performance. I feel that the worst fear for Americans would be rapid abandonment by the World, both in Product and in finance. The real Solution at almost every level might be a Cut to Consumption, which is Death to Full Employment and rising Wages. What really bothers me must be the fact that We would be in much better shape today, if the last Round of Stimulus–the Bush Tax Cuts–had not been passed. There is still Time to revamp the Tax Code before We are back to an agrarian economy (no disaster greater exists than a ‘Back to the Land’ philosophy).

There is a relative persecution of Names and Labels in the World, and People cannot state their own beliefs because of fear some trigger might be touched, unleashing an automatic rant against some Label. Everyone in the academic community has noticed the growth of this effect, and do a good Job of avoiding Tripwires, but what does it say for Freedom of Expression? There was once a time when an old Anarchist like myself was applauded in elite Salons. No, We have to continuously listen to canned Reviews spouted by Any inoculated with the Venom. It is a medium of Suppression, and One which does not serve Us when serious Questions must be discussed. lgl

Monday, April 20, 2009

Feel Nothing, See Nothing, and hope you are not called upon in Class

I will begin trying to answer some commentary made over yesterday’s Post; why would Anyone be so gross as to ask me for clarification when it only confuses myself. There are Propellants to Inflation–some of which are natural, and some artificial. The natural, or real, impulse pressures towards Inflation are called Inflationary pressures, the canopy Name for such things. There is a special class of inflationary impulses, though, which consist solely of previous Inflation and expanded Money Supply–which I call Inflation Feed. There is much which can be said about Inflation Feed, but the real kernel of debate consists in exactly How Inflation Feed differs from the Compound Interest rate on Loans in operation. Inflation Feed must be a major fuel of Inflation, and I imagine it must be a primary pressure after a series of years. A most important Point in fact is the position where Inflation Feed production actually produces more Inflation than does real Inflationary pressures.

A second Inquiry asked How to address Me; something that reasonable people feel no Call to do. An esteemed Internet friend, now Deceased, persisted in calling me Ell-gee; a tag which always reminded me of algae. Family and friends have always insisted in calling me Larry, an application which calls upon a sum of my Parts rather than my own motivations; one of Us insisting on being the Superego, though We cannot figure out which one. I can be addressed as Lux, Mr. Lux, Larry, Ell-gee, algae, Light (German translation), Deluxe, or even Professor; I do not resent the later, though it limits me to a non-partisan stance. There are 8 positions to any Argument: Right, Wrong, Conceptually Right, Conceptually Wrong, Conceptually Right for the Wrong reasons, Conceptually Wrong for the Right reasons, Confusion, and Maliciously Misunderstood. Once you understand all of these positions, you know that you have been in the business too long. I finish with the understanding by All that I recognize no Name for myself, and reply to very Few. Those seeking a Response should seek Someone who would Hear and possess some empathy.

Tyler Cowen seems to be having the same type of day as myself. The implications of my behavior make me somewhat Dizzy myself. There are some People who are not afflicted by confusion, but they are a truly a rare element: I always wanted to ask a Buddhist How one can contemplate their Navel, without the assistance of a Mirror. The implications of a real life nonentity always leads to a Judgement Call which is impractical; always Subject to being reversed under all Conditions and Times until the end of Time. ‘What if’ are the Words which must be avoided, if One is to keep their own Sanity. God will forgive all Sinners except Revisionists! lgl

Sunday, April 19, 2009

Gentle Ben and I--neither of Us are very gentle!

David Altig brings a response to a Economix argument that American Consumers are purchasing in a historically odd manner. It is all very well, but it still does not answer a Question which I would like answered: Are American Consumers paying off their debt at the same rate that they are decreasing their Consumption? A positive Answer will tell Us that they are still buying a Product–their own debt. A negative Answer explains that they are trying to create an immediate Cash reserve, and therefore expect a very negative economy in the future. This is the important information, which no one seems to be attempting provision. We cannot adjust properly until and unless the American Consumers match commercial endeavor, and Government speeches and writings at all levels seems to only build Consumer fears. We honestly need a "The only thing to fear is Fear" speech from Government.

I am throughly on Paul Volcker’s side that a 2% Inflation rate is an unsound nominal Price stability. It is clear that Inflation will feed upon itself within less than a Year, and will become a dominant factor within 5 years of occurrence. Some will state that this is an unreasonable position because of the existence of inflation in the first place, but calculate Inflation without the sounding board of previous year prices since 1933. Estimate the Cost of current Goods and Services in terms of 1933 prices with relevant choice of cost Price for new Products and Service since that Period, then compare this with the Price structure of Today. I will be revealing and state that I have not done so due to implied ineptitude, but it is the only method to determine the degree of Inflation feeding on itself. One could ask what such Study can do for Anyone; I would suggest one achieve the Research before posing the Question.

Mish probably explains the Situation far better than I could, and therefore, Tyler Cowen may miss with his Post, even if he is right. Ben Bernanke may get the Nobel Prize, but still achieve it for the wrong reasons. I do know that Inflation must be considered a Wage degradation of previous Periods, with the elimination of Savings from those Periods–check the Savings rate for those Years adjusted for intervening Inflation. Mish might be Right in stating that these factors are impossible of determination, but that is not to state these factors do not have a terrible impact on current economic achievements. The Bernanke 2% Inflation rate will destroy a 10% past Savings rates incredibly much faster than an economy can withstand. lgl

Saturday, April 18, 2009

The Properties of More

I will not say that this is a good defense of Economists, as Readers will eventually realize that a defense which does not reach a conclusion is no defense. The article does not assert that Economists actually do anything other than bicker. It does say that Economists build Maps, also somewhat of a delusion, because Economists only create models and protest that the functioning economy looks like the model; mostly contested by a great share of other Economists. It reminds of Small Town politics; I remember hearing one Deputy Sheriff tell another after a Bar fight that the Fight had at least cleared the Air in local politics, though 8 out of 12 Participants went to the hospital before they went to Jail. Economists are not as violent or extreme, but honors only go to Those who are victorious in the brawls. The worst aspect of the situation comes from the real lack of intellectual study in picking the Victors; it being the Concepts of Who you Know and Where You Came From (University), calling up the forces of the Deep (Past). The trouble lay in the fact that the Past has invariably been proven Wrong!

Don’t you just hate it when Someone considered Conservative sits somewhere to the Left of yourself in the intellectual Seating arrangement. Lane Kennedy fills that Seat very well; isn’t it hell to get Old, and considered everything from Communist to Reactionary because of previous ranting, though you don’t consider yourself inconsistent at all. Lane favors a Value-Added Tax, long in vogue in Europe, which I oppose. My angst against the Valued-Added Tax generates from the Government ability to hide the true Cost of the taxation. Governments need never be honest about what they are charging by only stating a low rate, and then inflicting that low rate over and over in the Production process, eventually generating high Tax revenues without ever clearly stating how often the Product was taxed that low rate. I like Economists because they loudly debate in Public how they want to screw up the system; I dislike Tax Accountants, especially Government-employed individuals, because they never Report Results except to Those offering them employment.

Mish expresses a greater fear of the drop in Venture Capital than I do. I expect that Investors have doubt that the espoused clean technologies actually can stand alone in an economy of extremely high Winds, where Consumers have never been willing to pay more for innovation. What Venture Capitalists must learn is what their Forebears had to learn: Product does not Sell, if it does not fill a Consumer Need, whether this Need is real or artificially generated. Clean Technology Startups must ask for much more Money, and devote the excess to Advertising; yet it will still be a very slow Go in the near future, when Dirty is Cheaper. Readers here must realize I place no ideological value on this assessment; of course, Consumers place no like value on their purchases either. One does what One can, but it is hard to fight More and Cheaper. lgl

Friday, April 17, 2009

The Monster Awaits

I hesitate to bring this Post from Menzie Chinn because it is so Wonkish that Graduate Students in Economics will undoubtedly have to revert to the Books, simply to keep up with the argument. Everyone knows that I possess a God-like power to misinterpret almost anything, so I always fill in the gaps with totally irrelevant trash which befuddle even Those who wrote the Original from which I translated. Menzie Chinn’s basic thesis states that many Economists did warn of the instability of the financial sector, but were simply not Conversant with the models necessary to explain the situation (hmmm, I wonder Who he could be talking about?). I happen to agree with George Akerlof about the looting process entailed with a withdrawal of regulation. Do not worry if you do not understand such models well, it has never bothered me; actually, it has never come back to bite me in the Butt. The Point We are both trying to make is that a number of Economists expressed high worry about the functioning of the economy through the Years; it is just that no one had the Time to work through the material adequately, so We came upon the Stoplight having not fixed the brakes, or removing the slack from the Accelerator pedal.

Was Our own bubble just that, a bubble? Paul Krugman and Dean Baker think so. I do know that the levels of Productivity claimed in the good Years was mainly Bull, the levels reached was simply gained by pouring more Money into the Prices for such services. This fact is countered, though, by a very poor European Work model, with productivity flows varying widely by the Day of the Week; it reminds of the old Detroit adage of never take a new Car built on Monday or Friday. I cannot see how Europe could possibly have matched the American model, even though the later was very much hyper-inflated.

Paul Krugman here tries a little derision at Ben Bernanke’s ‘Green Shoots’. It is quantitative fact that Bernanke must see those ‘Shoots’, or be crucified! The rest of Paul’s Warning should be heeded carefully. We are at the Place where the other Shoe traditionally drops, and no defensive stability is yet solidly in place. Unemployment will consume our lives for months and months still ahead, probably only canceled with the retirement of the Baby Boomers–still really a decade off in real terms. There will be a rebuilding of the industrial sector, but one which is functionally the opposite of labor-intensive. Millions of new Jobs will be created, but millions more will be destroyed, while the really Good Jobs will be held by long-term Employees; who will not surrender their positions gracefully. The Retail sector will come back, but without the free-spending attitude of putting off repayment until One can afford it because of better Wages in the future–they will not appear. We are in for a long haul–and it is a Downsize of the economy. lgl

Thursday, April 16, 2009

Nails in the Coffin

What is wrong with this article? It is certainly not the Writing, which is quite Good. The tale of woe remains in the conceptual bribery intrinsic behind the article. Far too Many have abandoned the old ideology of supplying the best, most profitable Solution for the Consumer, replacing it with under-the-table Cash as economic incentives paid by the Government. Business personnel are the most adaptive individuals in society, quickly learning the new format, and before long, will not adopt costly initiatives if the Government will not pay for them. The only safety from this behavior lay in a uniform Tax Code without special dispensations. It is only when Voters and Politicians realize that they have created their own Downfall, that any of Us will have any release from derogatory economic effects of blocked Investment, channeled Development, and artificially-induced Consumption behavior. We need to get back Stand-Alone Profit centers, and stop fueling the avarice of a no-risk mentality which wants all losses absorbed.

Here is another Nail in our economic coffin. The days of the Tech Boom haunt Us still, when We became addicted to huge Profit gains. Ownership of a small business which made a couple million in Sales per year became boring, not worth doing, not worth financing. Everyone awaits the opportunity for the Big Killing, ignoring the fact that the huge Revenues fall to maybe as little a number of People as one Thousand per Generation. No one enters into what is a normal Income field, and even when forced, try to force excess Profits from the effort. The Whole becomes, in itself, a drain on the economic system as Everyone tries to expand too rapidly without Consumer interest–doing nothing but driving up Resource pricing. The worst aspect may lie in the discontent generated, where Millionaires are mildly ashamed to the little achievement they have made; this creating Wants which can never be satisfied.

I turn back to Daniel Gross for another Nail in the economic coffin. Giving away Money is one of the Perks of being Rich in the first place, most generally occasioned by a group of people applauding the Giver at some Press conference. Smaller donations are not even a blip on the radar screen. The real way to handle Charity Giving is to post a limit on any Tax Deduction–say as little as $1000, or as much as $10,000. This would be incentive for all Taxpayers to utilize as much of the Tax deduction as they can, and eliminate much of the Posturing currently found in such Giving. The trouble with this program is that it rationalizes the Tax Code, when Politicians gain massive support from engineering special Tax dispensations. Here is the real Killer of the economy. lgl

Wednesday, April 15, 2009

The fallacy of Economic Plans

Robert Shiller could be right, but I would not want to live in his World. His is a World where the economy must be a hand-fed child, and what must be delivered is a harsh-tasting medicine of dubious nature. I do not want to psych out my fellow man, and I don’t like ‘priming the pump’ where fellow travelers cannot see the worth of the effort. I least like the business of convincing hard businessmen that there is profitable advantage, when no one but the Espouser can see it; it all reminds of Madoff and his ilk. I do not like a economic system where only a Few can spot an advantage, and who avow that normal Danger signs should be ignored. It might just be me with it being Tax Day, but it scares me that the current Administration and Fed leadership all sound like Robert Shiller. It reminds me of the old Saw that Protection was unnecessary, as pregnancy was the unlikely Outcome. We don’t need Cheerleaders to encourage economic recovery, or a repetition of the old slogan of ‘Go, Team, Go!!’; what We need are at least some salutary benefits from expenditure of the funds, even if the economic encouragement fails.

Tyler Cowen adopts much the same position as myself, though he approaches the Problem on a different level. Massive fiscal policies remain somewhat debatable as to effect, and places a huge amount of economic assets on an Outcome which is only one of a various assortment of Outcomes. It is discouraging that We are discussing major investment where there has only been One truly significant previous use, and which success is still widely debated 70-80 years after its use. I am reminded of the Roman Empire (don’t Kids hate that I once studied the Roman Empire) which used ‘Bread and Circuses’ along with massive Construction, but the Empire slowly degraded over Time. We Talk and Spend much today, but like the aforementioned Empire, do not get all that much done. I once thought to write a Paper on how the Roman Empire was destroyed by Inflation due to the wastage of funds by the Imperium, but like most things I contemplate; came to the conclusion that no one wanted to read it anyway.

Maybe it is only because it is Tax Day, but it seems like a lot of uncertainty has entered the Blog World today. Mark Thoma even joins the ranks of Those doubting the means by which systemic risk is judged in the economy today, whether in the American economy or the World. I do not believe in regulatory action, thinking there are two types in economics; the fearful, and the hawkers of wildcat schemes. The Fearfull will always think that the scope of economic activity can be limited to success-proven venues, and the Hawkers are always looking for the Escape mechanism where they can avoid the limitations of resource and collateral. Both Types base their economic suppositions on false premises that their management will contain the economic structure. It is probably the rationale for the ‘Boom or Bust’ Cycle in the first place: artificial conversions which will never Work over the long-run. I have even depressed myself, so it is time to quit! lgl

Tuesday, April 14, 2009

Nonsense for the Socially-Inhibited

I would first like to apologize to a couple of Commentators this Morning, who I accidently deleted from my Mail Directory, without posting their subject matter. The First suggested that the higher rate of economic growth came after the growth of Big Government, making a mistake in assuming that Big Government came only after 1950. I once suggested to an academic institution that I should teach a Course on the World War economies, for which I was laughed at; something about Who wanted to listen to Me in the first place, and second, what possible audience could I possibly expect from such a Subject. I can definitely state, though, that Big Government with all the innuendo it implies, started with the 1863 Transcontinental Railroad Act and has flourished ever since. The second Commentary brought a suggestion a higher economic growth rate started after 1993 because of lowered Tax rates, something of a falsity. Tax Cutting had been going on since 1981, was relatively continuous in nature until 1997, when the Profits-Takers lobbied their way to control of Congress–better Time Frame. The imagined higher economic growth rate should also account for the losses since the S&L Bailout of the mid-1980s; financial and Security Paper failures from then to currently exceed a probable $12 Trillion which should be subtracted from any proposed great economic growth rate. Anyway, Sorry for the loss of the Comments–My Bad!

Brad DeLong gives a fine example of talking above the Understanding Level of ordinary Students with this Piece, which requires a knowledge of Characters, a knowledge of economic Concepts, and awareness of both distant and recent economic outcomes. Brad lost myself from the use of the Word ‘Agathon’, though I would roundly reject Those who mutter that I probably lost it with the use of the Word ‘Professor’. I wonder seriously about ‘value neutral economists’ as I think most of them want to get paid; definitely not a value neutral supposition. I do know that Brad sometimes makes it extremely hard to follow an argument, especially when he turns to whimsical declamation.

Study the Graphs in this Post, and ask yourself if you feel a great deal of Sorrow for the overtaxed Rich. Nothing is ever as simple in economics as it looks, especially in the arena of Taxation. The Rich, and their Advocates, always deride the nominal rates and their purported Statistics, though I often wonder How they generate these computations; nominal meaning nominal, a factor quantifying Hot Air. The Soak-the-Rich group uses real numbers and final outlays of Cash, often insisting that the Sponge has not been wrung out enough, and more pressure should be applied to the Rich. I agree with both Sides, and suggest that the Taxes should be directed towards my own Reward. The detailing factor in all cases, lie in the Protest raised by Anyone who is taxed, and the denial utilized by Anyone with potential of being taxed. Oh–I forgot–I should remind that Tax Day is coming! lgl

Monday, April 13, 2009

The Easter Bunny did it!

I have been fumbling around for something to write about this morning, and finally decided to include this Post from Mike Shedlock. I would like to position myself, and explain I disagree with Mike about the issue of Taxation, but agree wholeheartedly about the horrors of splintering the Tax base with idiot Charges. The real Cause of the extreme Spending of Government is not usurious Government unions and agencies; it is the misguided belief that One could reduce the primary source of Government Income–the famous lowering Taxes through the entire taxable base–which immediately shifted Government Thought to directional taxes which no one can afford. The average American probably saved about 6% of their total Income on lower Income taxes, and paid about 8-9% of total Income through increases in seizure taxes for Property holdings and necessary Services. Example: A $400k equipped ambulance will cost a Taxpayer about $800 to visit a household, while the huge charge will pay for only about half the Cost of the Service; even though a uniform Withdrawal of the Cost from Income Tax would only equal about $34 per Individual Taxpayer per year. The fractionalization of Taxes and Charges will always cost about 60-80% more than the original Cost due to the collection method.

Read this Thing which might help you in understanding the Mess which the Banking sector has placed Us. I will not try to explain it to the Reader, I myself being particularly dense, but will simply say Bankers (Correction: CDS writers) convinced Investors to gamble for about a 8% Profit on their money that Mortgages would not default; even though current Mortgage Writing practically guaranteed a failure rate in excess of 20%. It still might have succeeded if the CDS themselves did not forbid alteration of Mortgage terms, except with the immediate loss to the CDS Investors. This fact ensured that Investors had only about a .8/2 minus the number of years of the Mortgage of getting a total Return of their Investment with the ascribed Profit (don’t ask Me to explain that one!). The whole thing gets too complicated for me, so that is Why I never invest in anything I can’t understand.

I cannot think clearly today, as the Easter Bunny dumped too much Sugar inside my physical system (Why do Children always insist you try their Candy?). Why do I ever claim that Children ever led me down a Primrose Path? What amazed me was the relative little Cost which this Easter brought Us. Costs in the Stores seemed almost normal, and there was high availability of Product. It might take a Recession to bring honest Pricing to the Retail world. lgl

Sunday, April 12, 2009

Policeman on the Corner

Hernando de Soto may have the best Take on the financial crisis, but I have a real problem with the analysis. Check on the SEC estimates of the derivative paper v. the World. No One can count this Crap in the first place. All it takes is access to a Bank computer, and there will be members of the actual oldest profession creating false accounts, and adding a couple extra Billions of derivative Paper to the World debt. No one has done the Math on This either, and I estimate the fraud level would probably be around $250 billion in Claims, and might be as high as $4 trillion. In case you Kids do not understand, this would make Madoff and Co. seem like miscreant infants in the Criminal world. This is Why I would call for all Claimants to register their claims with some federal agency, before any Repayment can be made; making these Individuals go on Record as to what they would claim (making a prosecutorial Claim of True or False Representation). It is probably too Late to catch the real Crooks, who will likely already been paid; yet to demand Registration would allow the IRS to tax the Mess. Never forget, Kids, that where there is Money, there is Fraud.

I will present this Opinion concerning debt repudiation, though I do not believe in the Solutions format proposed. There is obvious Need for debt repudiation, as the creation of Wealth cannot be assigned Immortality, when Resource Use is very mortal indeed. The Concept of Old Wealth remains a statement of the existence of Parasitism, where if Wealth is not utilized in current Production, it is not Wealth at all. Claims made prior to the decay of Production Product cannot claim a truthful Wealth symbolism if the decay has already degraded the Product. Only with perfect Retrofitting can a 100-year old House, 50-year old Car, or 30-year old Clothes equal the price of new items; which might seem to fly in the face of wisdom. What it means is that there must be a false market generated, simply to maintain the Value; in no way can the Products be utilized for their designed capacity. This is the exact Posture exhibited by all Old Wealth unattached to current Production except through Bank manipulations, and the rationale behind debt repudiation, and the reason why such activity cannot be canceled effectively in any Period utilizing temporary use Products of Productions.

I will let Mike Shedlock bring you all of the rest of the way down from your Candy-inspired Easter Egg Hunt High. We are losing our Malls, our Construction finance, and righteous Construction materials; but We are gaining aptitude in writing off losses. Vacant Lots are becoming available for the next big surge; whenever that comes, and whatever it could be. I am glad that Santa does not have to show up for Easter, or We could all have a Problem. Oh well, enjoy the trappings of the Day; One celebrating a mythical Escape from a real Persecution of a biblical figure; hmmm, could there be a relevant relationship to current economic trends? lgl

Saturday, April 11, 2009

Slop, Slop, and more Slop

Tyler Cowen discusses the difficulty of taxing Executive Pay. He presents a relatively lucid argument on the Subject, while I will come up with a more bewildering muddle–hopefully amusing. The first element of overwhelming importance is the fact they are in direct Contact with the Individuals setting up Payscales, if they are not those Individuals themselves; they can effectively lobby for higher Pay. It is a fact that the more incompetent Executives possess an intuitive understanding they will not last long in their positions, so they would have themselves paid as much as possible, as soon as possible. The third element is the fact that Profits are reported by these Individuals, who can scalp Past, Present, and Future Profits for inclusion within their Pay range and Pay Period. The fourth element states that they can co-opt the ability of subordinates as their own, simply by limiting subordinate access to the proper Decision-Makers on Pay. It is truly my assertion that Executive Payscales rest on the level of Incompetence of these Executives, not their ability; with successful Executives insisting on slightly better Pay than the trend-setting Scalpers. They all join in unified resistence to being taxed on this Income at the same rate as ordinary Mortals.

Peter Leeson can come up with a fallacious Argument, as well as this esteemed Author. The 18th Century pirates discussed were mildly democratic within their own group, though it tended to be more Mob Rule rather than formal structure. The actual fact was that if you were not a member of the Group–you were either co-opted into the Group, kidnaped for Ransom, or killed. There were groups within the Pirates of the Time themselves, and many of the Group were killed for their Wealth by other Group members once harbor was reached. There is also a form of heresy with the Leeson argument, suggesting only two Periods developing Pirates. The sad fact remains that Pirates have continuously operated since the 18th Century, and actually since before the Time of the Roman Empire. Everyone who were confronted by Pirates at all Times, suffered from loss and destruction of Property, loss of Wealth and Life. Successful Pirates rarely survive to peacefully retire, as they became Victims of Pirates with the development of Wealth. Fear of Oneself is a poor protection for Property, understood even by the most violent Pirate.

There has to be a huge amount of hubris in this entire Subject. First, the Concept of Penalty for early repayment of owed funds makes One feel you are being taxed for being a responsible individual. Still, there is the Concept of Contracts, and a Market in everything. You put something in a Contract, and well, it doesn’t sound quite as bad! The real rub comes when Contract detail extends beyond the small individual Rubes they were intended to squeeze, and reaches Those who designed the basic Contract format in the first place; sort of like getting caught in you own bear trap. Now the Government wants to treat these major Players just like they were the little guys, and the Government has more lawyers than the Players do. Wheels within wheels, and Marks complaining about the Government using their own Scams against themselves. What is the World coming to? lgl

Friday, April 10, 2009

Why did We wind up here?

I provide this information solely to describe what Dreams are made of, much self-delusion and Attention drawn only to variables which are the most volatile. I ask myself How people can find Joy in shrinking Stockpiles, a decrease in Oil prices, and running only a $26 Billion Trade Deficit. Oil is going to go up in Price if the economy improves, shrinking Stockpiles means less Choice and Retail assistance for Consumers, and We are still selling off Our productive assets simply to get funding to Consume. Improved economic performance will only mean that the Trade Deficit will again experience rapid growth. Most Economists stipulate that you must watch Trade over at least two Quarters, while I would mention you will not see anything surprising within 8 Quarters.

You can find the Chinese pulse with Concern for Exports. The major distraction in declining Exports for China is corporate reduction of Investment. The article does not truly mention what degree this is foreign investment in the Country, but I expect it is almost wholly responsible for the decline. Opportunity for Investment is still too large in China for native Companies to be swayed by Events in the West. The Chinese Consumer still has Need for far too many things, and a high Savings Account to pay for the expenditure. China’s real problem with Trade is their dependence on Imported Oil. The current Price of Oil makes that dependence acceptable, but will present huge friction to Growth if the Oil returns to recent Pricing; especially if Exports stay low.

Paul Krugman poses a real Question today, asking if We again must force Banking and Finance to conform to regulatory rules. His basic contention remain that We must, with which I would tend to agree. A fundamental Question must be asked though, which is What is the true worth of finance? Specifically, should it receive one-third of the corporate profits of the economy, when its role is only as a facilitator of funding, not productive in any other sense? I remember the English Joke about American Servicemen: ‘They are Oversexed, Overpaid, and Over Here!’ You might have to be a WWII Historian to understand that One, but Everyone can understand the Concept of Banker Rock Star. People who only take Risks with other peoples’ money could be expressing vast hubris in the Demand for high Bonuses. They are only Individuals, Businesses, and an economic sector–and not even very often Right! Bernanke, Geithner, and Company should not think they possess a bloody pulpit, and I await their Demand for Speaking fees to appear before Congress. lgl

Thursday, April 09, 2009

What is Wrong--among other Things!

Read this article, and then ask yourselves whether Everyone is exactly that dumb, that they cannot get the gist of the Geithner Plan. No Bonuses? Well, there is a Way around that! The U.S. Treasury guarantees the assets, and the Investors must understand the system and come up with the Cash. Bank Executives understand the system, and probably have a good Credit rating with the Bank. Being associated with an Institution that has had previous experience with Credit Default Swaps of $10 billion+—well, large Investment Banks. Banks get to loan major Cash to their Executives assured of repayment by the Treasury, and their Executives make Billions off the Deal. The Banks will be polite, and only buy other Banks’ assets, so there is no hint of collusion. It is a fairly good replacement for the huge Bonus system so badly criticized. Check the requirements for qualification for the Treasury guarantee. And People say that Bankers are not Game Players!

Does One create technical Tests, or does One try to test overall performance? The Answer is that One does both, but in the manner that Education has always used; basing the majority of Questions on general skills, but with periodic interjection of detailed Questions which should be able to be answered by a properly-trained individual. Examiners then compare the success of the two series of Questions, asking themselves if the Tested can quickly absorb the information necessary to perform the Job in Question. Examiners who cannot perform this relatively simple Task may have been poorly chosen for their own positions, and an Employer might consider future Hiring (Translation: find Someone who can do the Job in the Positions required). I once suggested that a Employer fire himself, and hire a good Personnel Director; some people take things so personally!

One might ask what is the Content behind this article. It is an obvious failure to understand Fed worries that their Stimulus packages were going to destabilize the U.S. Dollar, and they wanted a rapid means to insert Cash flow into foreign markets. Fast advances in Dollar prices for American Products would leave foreign markets short for American purchases in Dollars. This is a quick way for the Fed to buy foreign Currency to splash Dollars across foreign markets; foreign buyers would not have to sell in American markets to raise Dollar Cash. I find it disheartening that the Fed would show this indication that it expects the Dollar to rapidly inflate. I will inform Gentle Ben that I find his Keynesian policies less acceptable all the Time. lgl

Wednesday, April 08, 2009

The Economic Solution

Tim Harford comments on the variable impact of any economic slump. He could possibly do better by relating Consumption experience to loose Disposable Income. The real significant difference between Boom and Bust rests upon what People do with sudden windfalls of extra Cash. They first must have those windfalls of Cash, whether they take the form of Pay Raises, Bonuses for Good Work, Inheritance, enhanced Property Sales, or surprise Gains in the Stock Market or other facilities. The important thing is they have concentrated Cash outside of their natural Expenditure pattern, and are making the Choice of How to dispose of it. They tend to expand their Savings and Investment with the extra funds if they are worried about the future, and tend to spend heavily if they imagine they have achieved a higher pattern of Income. Fear or Faith in the future remains the governing factor in these decisions to Spend, and it does not help when Economist, Business, and Politician talk Gloom and Doom. The Reader should realize how Personal and Individual such decisions are, and recognize it is the Herd direction from this specific Group which determines Boom or Bust.

Roger Farmer and I have reached the relatively same Estimation about the future for the economy. What I would point out is the interaction of the Revisionists and the Keynesians. The worst possible fuel for Inflation with combination Retardant of the economy is low Taxes combined with low Interest rates. Low Taxes generate undue excessive Profits for Business ventures, while low Interest rates incite Business into more less-taxed Business ventures. One would nominally states this was good for Employment, except for the highly transitionary aspect of the Employment, which combines with low Wages, Underemployment, and Interim Jobs Costs all sharply reducing actual Take-Home Pay. On the other hand, there is excessive Capital expenditure on Equipment, low Unit Return on Production with such Equipment, and excessive buildup of Debt on that Equipment. The telling Point, here, is that Capital becomes highly overvalued under such circumstances, and cannot fulfil normal Productive Profitability. Here is your traditional Stagflation, though most Economists would disagree with this formulation.

The Economy is going through the traditional rudderless phase which marks the transition from Boom to Bust, which Sometimes avoids Bust, but also Sometimes avoids true Boom. It means that Everyone is insecure, and None know exactly what to do. No one has Confidence, and every day assures them that their misreadings of the economy were very real, as some added element shows stress. People turn to trusted Commentators, yet these Individuals cite a variety of formulas, with little common themes. We all await that common theme behind which We can advance, yet there is still little strength in any economic proposal. When in Doubt: have another Drink, and wait for Tomorrow. lgl

Tuesday, April 07, 2009

The Great Black Hole

Readers should study this article to grasp How bad economic ideas get embedded into the economy. Keynesian Thought is widely decried, but actively used by Government; the basic reason being that it allows Politicians to garner political support by widespread Spending. A prime Example of this reaction were the Bush Tax Cuts, which did more to distort Market Pricing than it did to prime any economic Pump. The elimination of the Government surplus, which had been disclaimed as a Drag on economic performance, had disappeared naturally before a single Taxpayer had filed a Tax Return. The View that the economic Downturn of the Time was circumvented by the Tax Cuts proved fallacious, as economic performance did not immediately increase, while the flow of Cash centered on Resource Prices, which did soar. The End-Result accumulated that Consumer Prices went up while Wages stagnated, leading both Government and Consumer into vastly increased Debt levels simply to maintain their previous lifestyle. Economists would disagree with me, but I would suggest that the Bush Tax Cuts were directly responsible for the financial crisis We now face, forcing the banking community into unsafe Banking practices simply to provide the increased Sums necessary under the maximized Debt load.

Keynes originally wrote that Government Deficit Spending was a special Case, only used when there was a definitive failure to clear the Markets because of lack of Demand. It was never intended to be a continuous fuel to the Economy, allocated to ensure a unrealistic Production schedule higher than the Markets could ever clear; a position which quickly appeared without preamble, assuming that higher Employment was assured with every deficit measure of Spending. It became apparent that Wage levels governed the level of Employment, with Wage levels as the great limit of Employment; they had to be held down, or no stimulus was provided from the deficit spending at all. Stimulus, though, created both higher Resource prices and charges to the Consumer. An overall Study of the Stimulus programs since Keynes’ 1936 Work–basically a justification of the Roosevelt New Deal program–shows that Stimulus is a guarantee of a statistically solid rate of Inflation, more than it is any propellent of economic performance.

Roger Garrison does not enter into a discussion of the chronic insufficiency of aggregate Demand, suggesting it is the natural state of any economy. Not a Word is expressed to attribute the actual role of this insufficiency, which to actively adjust distorted Production schedules, so that excess Production is not made; necessitating some form of Product elimination. Early Stimulus advocates realized that you could not simply give the Surplus away, though many Poor could utilize it, because it would destroy the Market pricing structure. They quickly came to realize that Government Spending could be the fulcrum to create artificial Demand; building Four-Lane Highways where a Goat path would do, and building $10 Trillion of Weaponry never used for anything. It was the perfect solution, but it had its hazards; it channeled Investment into economic areas where little political support was achieved, and created machinery where Children could easily burn their fingers. The Upshot of it All stands We not only have an Oversupply of Basic Consumption Goods under such a Stimulus format, but We possess an economic Production Schedule oriented to a wrong set of Production assumptions. lgl

Monday, April 06, 2009

The Great Escape

I have always taken the position that Estate Taxes should be high in rate, as the spoiled little brats didn’t deserve to spend the money in the first place. Others do not agree with me, especially if they love the little hellions. I expect this Conflict of Interest may always exist, as Everyone awaits the Time where kissing the old man’s butt will actually pay off. I have escaped most of the hassle by leaving neither Wealth or Kids behind. The one Issue in the debate which is not mentioned rests upon the Opportunity Cost of elimination of the Estate taxation. It makes it increasingly hard for people of wealth to spend their money on anything but Health Care and the Kids. Earners have to bear the full Cost of Taxation, while Heirs get a freebie Pass on spending a lot of Cash. The Saving ratio can be ignored by the Heirs as their Progenitors had already achieved this function. The Heirs get the Money without Skill or Risk, and waste it to their Heart’s delight. The Set-up is acceptable to the Originators of the Wealth basically only because they are too old and tired to expend any energy on Spending what they have earned. We are used to getting by on nothing!

How did We get to the current economic incoherence? Dani Rodrik may have an idea about How We got here, of course, there also exists an alternative View. Special Interests provide all the political funding, and the reason they spend is to counter social views which they find obnoxious. One can never determine what will prevail in advance, but the greed of Politicians is a powerful Incentive. I have never accepted the thesis that Politicians turned down increase of their campaign funds based upon ideological rationale, thinking that only political fear of public reaction spurred any rejection; I have not heard one Politician so far, who has proposed returning any Bernie Madoff or AIG contributions to their political nest. Still, I could be Wrong, and We have a truly dedicated group in D.C.

I find more Economists who find the current economic lead-in and events prior to the Great Depression possess a disturbing similarity. The only difference in truth comes in the degree of magnitude; if We had the rate of Unemployment as was present in the 1930s, We would still employ many more than they did in the 1920s. This could mean a much higher level of Stabilization than in the Great Depression, or it could mean only a magnification of the levels of Starvation. Just hope that We do not acquire the same level of agricultural decline as endured in the 1930s; a series of events which would put the ‘starve’ in the context. We have at least avoided Stock Traders jumping out of windows at the Stock Exchange; you can’t get good Help these Days. One does not know what the future will bring, but you can be sure that the criminal elements are searching hard for their next Cash Cow. lgl

Sunday, April 05, 2009

I am tired of People telling me what is Good for me--at a substantial Hourly fee

I have been reading on the Internet today, and it may simply be that it is April and I am snowed in, but there has been a serious deterioration of Expectations since the G20 conference. Joe Stiglitz seems to imply We cannot restart the economy without pouring in more Money than We have already lost. Paul Krugman suggests that the economy is not as bad as the Great Depression–maybe! Arnold Kling makes the Point that We are creating a worse financial system than the One which cost Us so much Money. Tyler Cowen states that it is the Creditors who should take the Hit, though actually they have already been hit, and want the Government to repay them their Money; a desire I can understand without that much sympathy. Read all the Links on Tyler’s Post, and decide for yourself whether you can squeeze out a Tear.

James Kwak extends the message somewhere that Rick Waggoner at GM was only a Scapegoat to hide the lack of reaction to the Wall Street Bankers’ malfeasance; though Rick with $23 million upon leaving had some consolation. Remember that Stiglitz stipulated that simply replacing the bad Juice in the economy might not restart the economy; I wonder How it could cost more than originally to get back to a position where We could lose a lot of Money again. You can tell that I am getting damned Sick of writing about the financial crisis, especially as Everyone claims Innocense, but insistent on huge Cash awards simply to maintain their Innocense. I agree with the Sentiment that the whole bunch should be forced into the bankruptcy system. The whole thing reminds Me of a Love Affair gone bad! Maybe there should be a Divorce Court for Corporate Executives waiting to get the Axe.

The fate of the simple Employee has faced financial ruin, as explained by this Fed Letter (pdf). Manual Labor have staved off Starvation as is normal since 1980, though equally as usual, just barely. The Super Brains learned How to scam the Wage system, and Skilled Labor was replaced by technology. The Letter does stipulate that Those who wish to find Employment in the future will have to engage in Manual Labor, or engage one of the monopolistic occupations–i.e., professional services. We are entering that period of Time where it is more important to convince Others that you should be paid large amounts of Money, whether you actually produce any significant degree of efficiency or not. I really believe it is the Blizzard in April; I am rather irritated! lgl

Saturday, April 04, 2009

Double Jepordy

I agree with Ed Glaeser’s article but not philosophy, as I feel he puts too much faith in the value of Free Trade. There is no fiscal restraint in Washington, and which has not been present for a long time–probably the 1930s. The rule of law is somewhat ridiculous; I possessing little belief in intensive regulation–of course, this is really not rule of law, but legislative expression of sentiment. Privatization is a beautiful term, which means little in a Capitalist society oppressed with regulatory restraints; there is no Capitalism where Government tells you how you must operate. Free Trade holds relatively little value to Anyone, if it does not increase actual real domestic production. The real judge of Free Trade is whether it allows the domestic Citizenry to attain a higher Standard of Living; fewer Jobs for less Pay does not seem like a valid Benefit. I do know that Government is spending too much as percentage of the GDP, while Taxes are at a foolish Low. I will re-raise the Posit that higher Marginal Tax rates actually incite business managerial assets to work harder to maintain their previous Income. One might seriously adopt the position that Recovery could be best obtained without any Recovery efforts by the Government institutions, where Risks are known, and the bottom-feeders could operate in Peace.

The previous Sentiment is sharply opposed by the Fed Chairman–Ben Bernanke, who feels that the Expenditure of Billions (Trillions) of Dollars to aid a wounded animal protects Someone. What is known is that the Companies in Question will be on the Endangered Species list for a lengthy Period, and will probably be permanently crippled. I listened with obvious disgust to Newscasters go on ad infinitum about changing the Names of these Companies, all to avoid the onus these Names have acquired; no one who has to deal with these entities will have the slightest doubt of who they are, or the difficulty that derives with dealing with them. A superficial re-Naming of the business will achieve absolutely Nothing. The hypocrisy of modern society is starting to cripple Society and Economy in itself, causing Everyone to waste Time in Translation.

I find fault here with the obvious assumption that the banks cannot shrink without the shrinking of the economy. Not only do I believe that forced expansion or maintenance of the banking structure will lead to Inflation, but it is my belief that the banking structure cannot acquire real equity as long as Government Cash floods the system. There is no setting of Price as long as the Government pump continues to flow. Profits are marginalized when they are sunk into a continuous fund filled by alternate source. No one knows when to Start, when to Hold, and when to Withdraw. Extension of Loans become automatic, with no evaluation of the Risk or validity of recovery stipulated. The whole Process becomes a Game Show, where an ‘Off the Cuff’ Answer wins the entire Pot. We do not need added Insecurity in the banking system. lgl

Friday, April 03, 2009

The Trust in the Social Security Trust Fund

Who has ever been to Disney World? One needs a sort of acclimation when entering the District of Columbia these Days, and the facility in Florida works as well as anywhere; Everyone screams and shouts, laughter fills the Air at the stupid Concepts and Sights, and no one ever sees any Cash–it all goes on Daddy’s Credit Cards. It is a wonderful fairytale land where Anything is possible, but nothing is paid for. The most beautiful aspect of it all is the fact that no one has to take anything seriously, until after your get Home, and Daddy realizes he has gotten a Pink Slip. I would talk about the similarity of locale specifically to develop a focus for this link from Mike Shedlock.

Study of the Social Security Fund makes One quickly wish for the good old days of exorbitant Mortgages and bad Credit Default Swaps. You have to first realize that there is no actual Trust Fund, and never has been One; it is like a Hall of Mirrors at a Carnival, where no matter how skinny you may be, you will look like an obese personage. This is the exact Mirror traditionally set up in Washington, where Everyone looks to take reassurance that Reality cannot seep in. The trouble is that the Mirror is old and worn, and everything else keeps bumping into it. Can Anyone take a glimpse of Reality?

The wealthiest, largest economy on Earth has not been Paying for their own Government, their foreign Trading partners, and their own people what they were owed for decades. They have been doing this with the greatest Accounting scheme ever designed, which would make Ponzi and Madoff red with embarrassment at the minuscule Take obtained. The federal government has claimed since 1935 that they have been Investing in a Fund to protect the Retirees and Disabled of society, while in fact, they have simply been paying for their own Expenses with the large Tax collected. It is approaching the Time when Exposure will express the total lack of Value within the Social Security Fund. I would personally give Bernie Madoff a Pass, and hang the United States Congress–maybe add a few ex-Presidents as well. What I do know is that Retirees will be back to a 1935 economy somewhere in the next decade. It is sad Commentary that it is the hard-Working people, who had spent decades building the success of this economy, who will be left twisting in the Wind, with Rope around their necks! lgl

Thursday, April 02, 2009

Recovery from Debt

One can become defeated once you start to read about Ten-Year Federal Budget Estimates. The Lying by Denial Estimate (CBO) comes up with $10 trillion in more debt in a decade. Obama Supporters say that he will cut $900 million from the Total, though Everyone knows that no one will see it in Ten years. All Estimates assume no Katrina-style events, effective limitations on medical expenses, an end to military adventures, and all federal bureaucracies operating within their budget guidelines. Everyone also whistles and look the other way, every time that one may mention the inflationary growth of Price amongst Government Suppliers; I have not researched the Subject, but would blindly estimate increases in Price higher than the ordinary Inflation rate. I could even get a Wild Hair you know where, and personally estimate that the Ten year deficit will be closer to $20 trillion rather than $10 trillion. People don’t ask me, and that might be Proper, but I would suggest that the Budget Deficit is a worse Crisis than any other economic crisis seen so far–even the Great Depression.

David Altig has quite a Story, and one can almost think it is reasonable, though I tend to agree with Jim Hamilton more than David. It reminds me of the Story about the man who slept with your baby sister, but maintains that marriage is such a major step! Government Activists at the Fed think they can micro-manage throughout, without having to keep their skirts out of the dirt. They sound like some Corporate Executives I have known, who relate that it was not their Money in the first place, and they will have another Job in 5 years. Does it not have the Feel that the Activists get the thrill of spending billions of dollars, without getting the Credit Card Bill at the end of the month? I have a real fault with allowing such Temporary Help spend such vast sums in an untested economic program, when there is already such evidence of failure.

I will finish by advising you read this Narrative, a real compilation of links. Economists have been throwing out Plans, and variations from each one of them, all calling for more modifications in what are relatively poor themes. Nationalization need not be ‘whole Hog’, simply pass a law allowing the Fed to Accounting Review all Banking institution–including Investment Banks; ridding Ourselves of the organic fallacy of Trade Secrets which really are not Secret, and establishing personal responsibility for all Actions taken by Bank officers. The law should further establish that the Fed possess the capacity to Fire any Bank officer under Conditions of any Bank loss, with Right of Recovery of any fraudulent Wages or Bonuses paid for such activity. Notice, under this law, there is no Need to establish Criminal Guilt, only that losses occurred because of management decision. Too much had been paid for much too little in the first place, and Banks should not be considered Cash Cows to be plundered for the benefit of fast Operators. The remaining Bank officers would come to understand We ask for nothing but good, solid, financial performance–from which they will be well-paid. lgl

Wednesday, April 01, 2009

The Case for Bankruptcy

I promised Someone somewhere in the Ozone that I would explain the advantages of Bankruptcy, a discussion which ruins good felony law (like the poor violated Virgin who is told he was married), and brings fear to the Eye of All but the genuinely Deceitful (Barney Madoff). Bankruptcy basically nullifies all prior commitments made by an individual or Business, substituting a designed repayment system of the Court, almost always much less than promised though almost invariable much more than the Applicant would desire. There is always an inherent evasion of responsibility, using the ‘Big Brother’ attitude of the Court to tell One’s Creditors that you are not going to keep your Word. The only truly innovative element in Bankruptcy lay in the destruction of Business as Usual.

Bankruptcy, though, has some interesting economic aspects. It removes Economic Participants from their previous positions, leaving them at best the Walking Wounded; able to again start borrowing from Anyone willing to risk extension of Credit. This lack of a viable Credit rating generally reduces the Bankrupt from their previous role in the economy. This is the real element which is interesting to the Economist. High Flyers who had previously soared must take flight at lower altitude, leaving Space for other Participants to take the lead in the industry. This Shakeup brings new ideas and business formats to the fore.

This is where the Geithner Plan, and all other such Plans, cause such destruction. Such efforts forestall the basic destructiveness of Bankruptcy, allowing prior failed leadership to continue in their leadership roles with their failed business formats, false projections, and unadjusted Production schedules. Their business policies have already proved deficient, yet they are allowed to maintain their positions; even after extreme losses have already been entailed. Consistency will entice them to reintroduce old failed procedures into any new business format, else this leadership be accused of lack of reliability. The old Problem which destroyed Communism will again raise its head, which was basing Investment schedules on Producers’ desires rather on the interest and Needs of the Consumers. Hyped Advertising takes the place of real Need, and Consumers waste their Resources on insufficient Product which does not fulfil their basic household Needs; disturbing the viability of the households involved. The Economy as a whole finds itself crippled, in supporting business institutions which have outrun their utility to the detriment of Everyone. lgl