Sunday, May 31, 2009

The difficulty of Economic Interpretation

I read this thing, which by the way is very well-written, and I am reminded about the hubris surrounding the debate to financially fuel Us out of the Recession. We are putting all Our eggs in one Basket, and pronouncing that because it worked before, that it will work again. It would be believable except that the argument that it worked before can be contested in many ways, and circumstances in the current Recession and the Boom preceding it vary markedly from the previous eras. The Unemployment rate was lower in the previous Two Booms than was evident ever before, though the Social Welfare Costs had never been higher. Total Employment was immense in real terms, but Wage erosion has become a major defect in the last two decades; though Many may find it undetectable, due to its working by elimination of Incentive Pay and Productivity Raises being limited to only program design personnel. Lifestyle quality has gone up dramatically since 1980, but only through the creation of a huge Consumption Credit Debt, which insists on Boom conditions in order to be repaid; this Consumer Credit vying with the federal debt as a major threat to the economy. It all means that the economy has been expressing a hyperactivity through the last two Booms, and the Recessions only reflects the exhaustion incited by the intensity of the productivity; a performance which cannot be financed except through Debt aggregation, later impossible to repay without the intensity of economic activity.

The major point I am trying to make consists of the fact that We are creating a Productivity model based upon what may be unviable debt; One which may not be able to function without repayment of that debt, and One where such debt cannot be repaid without accumulation of more debt. I am very insecure with this assessment, as debt increase may be a component of technological advance; this meaning that it becomes a discussion of the aggregate levels of debt which is allowable without economic detrition. Economics is all about balance, and it is often a Judgement Call as to the stress which can be imposed in that balance. lgl

Saturday, May 30, 2009

The Sea Change Necessary

I found this excellent Post through a link with Greg Mankiw. I do not know that I agree with all of Keith Hennessey’s motivations, though I truly applaud him for possessing the most consistently rational Thought on the Carbon issue. China, India, and Indonesia will not respond to any form of pressure on Carbon mounted by the EU and US, basically because Population pressures would preclude effective Carbon limits in those nations. South America and Africa could not overcome cultural preferences and lack of education in their usage of Carbon products. Only the MidEast and Brazil possess the natural capacities to maintain a tight Carbon schedule through alternate Energy sourcing, and this includes both the US and EU. No nation will likely be capable of Carbon suppression in the face of increasing native Population, with even American and European development of Housing and Plant obviating any potential Gains from Carbon reduction in both the Short and Intermediate Terms. There can be no relative advantage to Carbon reductions which do not actually present Profit to Business, and such technology as exists is being adopted without Carbon taxation of any type; the modern Business profile being highly conscious of social response to deviant practice.

I have utilized a Volcanos scale before in my Writings on the Greenhouse Issue. Any Volcano can generate more Ash and Greenhouse gas than any decade of Carbon suppression can forestall. Physicists have been slow in evaluating either the Heat parameters of Volcanos or Population centers in understandable terms–like BTUs. Comparisons can be drawn between them would be drawn if this was accomplished; my Thought being that a Population center of around 8 million Souls possesses the same Heat emission over Time, the difference being that Volcanos are periodic and Population centers are constant Emitters. The real Problem states that We have created too many Volcanos equivalent on the Earth. Carbon suppression will reduce this Heat generation in only minor ways, understanding the normal human endeavor for a comfortable life.

The Answer We produce can never depend on Carbon suppression. A tight Carbon suppression program, as envisioned by some fanatics, might fancifully reduce the total Heat generation by an idealized 8-9%, with easy failure to reduce either Heat or Carbon upon breakdown or mismanagement of the systems–a probability exceeding 40%, with the Ageing of the technological systems. What We need is to attack the Problem frontally, with a program to reduce the Heat generated by human occupation of this world. I do not know How this can be done, nor does the Scientific community; but it is Time that We should start finding out. I would call for an immediate Conference on Radiant Heat, with the deliberate intent of determining the magnitude of the emitted Heat from identified sources, and methods to reduce this emission. Secondly, there should be Research funds available for the creation of Heat absorption units that translate the captured Heat into viable Energy sourcing. It might sound like a ‘Crackpot’ idea, but so do most of the Carbon suppression programs. lgl

Friday, May 29, 2009

The 2010 Economic Model

One can wonder about Geithner’s trip to Beijing, especially as almost nothing has really been fixed at Home. The Monetary policy behind the TARP and Fed action has produced little response from the economy, forestalled little Unemployment, and actually kept no business from Bankruptcy in real terms; Government buying Stakes in the companies has meaning only in denial that Bankruptcy has occurred. What was seen as a mark of success for businesses is Now perceived by the Business world and Investors as a hollowness in business structure; a necessary Government intercession outlining crippled performance. It is no wonder Corporations want out from Under the supervision of Washington Politicians and Bureaucrats. It becomes even more embarrassing as the world witnessed the understood ineptitude of the federal government. Geithner’s trip to China can only be a Sign of weakness, as Tim attempts to make sure that the Chinese Government does nothing to repudiate Administration policy, under Conditions where the Administration needs China to buy another $100 bn of US Treasuries this year.

Mish points to material that proves the financial world is adopting loan policy to do relatively the same as was planned before the TARP, which was supposed to entice Bankers to quickly write the mortgage alterations necessary. The TARP, though, only repaid financial institutions for past losses which they so righteously deserved; at no time was there existent upon their part any desire to extend or modify the mortgage program, Bankers in fear of maintaining the viability of mortgages still solvent. It is revealing that the only real accomplishment of the TARP became defeat of all Benefit Clawback provisions against the financial structure itself. Debtors, Investors, and Stockholders all came out with huge losses or loss of Credit; but the management of these financial institutions avoided eating a bullet. They are back in business again, not even wanting TARP money again, because the federal funds brought a new line of Suckers, and stupid Politicians would try to limit their performance payments to themselves.

I sometimes worry about Paul Krugman, asking myself if he simply ignores unpleasant things. He knows the great difference between the American model of Today, and the Japanese model of the 1990s; the Japanese were selling insufficient technology into an expanding World economy. The current American model is trying to sell State of the Art technology into a shrinking World economy; one where there is a multitude of technological Products which will do the Job at much lower Cost and Capitalization. Paul thinks We can ride upon our reputation in a World bereft of loose Capital to spend on fancies; the Market to sell used American cars Overseas is quickly being replaced with sales of used American Tech which will do the Jobs desired. I still utilize Windows XP, and feel no great need to upgrade anytime soon. I do believe that Paul Krugman needs to upgrade his economic models soon. lgl

Thursday, May 28, 2009

Shallow False Readings

Alan Blinder goes on record as stating that corporate compensation should be limited to discouragement of excessive risk-taking, as recorded by Mark Thoma. What Mark, Alan, and most Others fail to draw attention remains the fact that Executives allow little Risk to penetrate on their positional employment, and that they are always risking other peoples’ money. I would favor a Junior Partner compensation schedule, where Executives are paid only a small minimal base pay, and the rest of their compensation comes from a reverse Mortgage system where they are paid monthly out of the Profits from the programs of which they were an initiative or supervisory force–of only Thirty years duration, and missed month payments are waved Goodbye from the Stands as they permanently leave the Game. It is a cruel World indeed, and Executives may join the rest of Us in search for a safer environment.

I will let the Readers examine this Post, and ask themselves at which point did the author go wrong. Recaltiant debt consists of such debt which can be justified or paid–think of the current crisis in California. The debt itself becomes an industry, and like any money-making venture, attempts to maximize its Return. Funding is dependent upon subscription of the debt, said subscription bound to lessen upon available Investment elsewhere of greater safe Return. The Interest rate will increase faster than the Inflation rate, else there will be loss of subscription. The Government cannot permanently limit the Interest rate, or risk loss of subscription, a process which devolves into the Government printing their own money simply in mode alternate to Currency. I should write a Paper on the instability of sustained debt over Time, but my own Pay Scale is so low it is not worth the effort.

The Baltic Dry Index has been increasing rapidly; it being a good measure to evaluate the stability of industrial production. I do not know that I would use the term ‘Capesized’ in the discussion of Ships as the, something which is close to ‘capsized’ in nautical terminology. The Cargo loads awaiting outside Chinese harbors, in itself, may be a worrying factor; this occasioned by a potential Downsize of harbor personnel, a factor analysis should be advanced on unloading speed at the harbors. I would not call this Index a ‘Green Shoot’ until I see an equivalent fill of these Ships in Chinese harbors; a process I find unlikely without extensive Chinese recruiting of industrial labor. lgl

Wednesday, May 27, 2009

Return to Zero Gain

One can always state correctly that whatever Arnold Kling finally gets into publication should be studied, this short article being one; where he proposes ‘messy’ structure in mortgage lending, much like banks attempted late in the 20th Century with devaluation and purchase of failed banks by successful banks. I do not know whether Arnold is right in his assumption, believing there will always be crisis under recessionary conditions in the greater economy. Arnold assumes much the same, but believes that financial coverage for failed institutions can be organized under such conditions, which I do not. Arnold might better turn his efforts to design rescue of Credit provision under those recessionary conditions, rather than support for financial avenues. I might suggest a 3% mortgage contribution to a national fund, managed by the Fed, with further Fed involvement in such Crises prohibited beyond loans from such a fund. This obviously would inhibit mortgage provision, and would naturally lead to individual savings for a Down Payment of major level. Here is probably the only salvation to recurrent financial crises.

Home prices are still down across the board, though some areas are showing some improvement. I have always stated I believed that Home prices had to revert to 2004 Pricing, having first stated such in late 2007. This was only Statement of my belief that there was a balloon in the Housing market. I will now be a little more explicit, and suggest that the Housing sector has been the venue by which the inflationary balloon of the Bush Tax Cuts has been vented; a troubling element factor for Homeowners, who are destined to pay for the Bush exuberance through their own loss of value; Business having escaped the guillotine, except for loss of easy credit. It was telling that Ian Shepherdson would relate loss of housing equity to the GDP of China, basically a Statement that Business avoided undue hazard from the fiscal policy of the Bush years, while Consumers and Consumption were stuck with the bill.

I will finish this effort with a portrayal of the Consumption schedules as they have altered under Recession. The material is self-explanatory; people are buying the cheaper, greater-value, product under greater difficulty in financing Consumption. It is telling that Sellers must provide higher value than they can recover, so that their Profit margins are less, simply to maintain a viable generation of business income. It is exactly this loss of Profit which may be the most difficult to recoup in future performance, as Consumers through their own Consumption patterns reset what Profit margins they are willing to fund. As stated in the previous paragraph, Business avoided the bullet; but Consumers will not allow permanent evasion with overlarge Profits going to Business structure. I would bet We are back in single-digit Profit levels for Business as experienced under the Worker protection of the 1960s. Does this tell Us something? lgl

Tuesday, May 26, 2009

Brave Old World

I like Tyler’s approach to the Problem, but I ask if any action must not be considered a Cost; the Expense being so high, and the environmental impact so small. I would like Someone to define the percentage degree of addition of Carbon into the Heat Cycle in Retention, and how much the Problem is simply the generation of Heat by humanity in the first place. I think greater Heat Exchange could be accomplished with greater Combustion shielding, leading to fewer Burn Spots and hotter Exhaust plumes reaching higher atmosphere. Humanity must first admit that We heat too much, and the excess heat We generate is the real Pollution–not Carbon fumes. The trouble really can be understood by imagining that every major City emits a Carbon plume equal to that of a Volcano, with as much Heat of lower Temperature but greater constancy; the mix of Carbon, Acid, and Carbon blanketing elements lower in amount though without relative variation. You can count on your fingers, or admit there are far more Cities than volcanos, and that the Earth-Cooling technology might best be employed at ground level rather than in the atmosphere.

Mike Shedlock must be getting as tired of discussing the financial crisis as I am, coming up with this missive about the re-entrance of Japan into the Arms Race. Japan has been in the Race for decades, actively supplying Parts for Weapon systems to Manufacturers, and designing a vast array of Robonics, most of which make no sense outside of a Combat mode–with useless designed mobility and independence of automatic reaction. There is actually no deviation in Japanese development, only a clarification that Japan seeks to actively pursue a position in the Arms industry.

This article asks Why do Corporations show an aversion to using auctions? The Answer may well be that Corporations do poorly at anything which cannot be attained with a consensus approval of a Board of Directors. Suggested delegation of Bidding prerogative to a designated Employee allows that Employee free rein to alter the Profits schedule of the Corporation through his bidding, and suddenly the faceless autonomy of the Corporation is threatened. The pressures quickly rise to forego such activity, or to supply influence to forestall such activity wherever possible. The Corporate structure wants a predictable Outcome, first of all in Contract award, but even more so in Profits realization; at not point as they willing to risk their Profits schedules on outside influence, or internal empire-building. lgl

Monday, May 25, 2009

Proper Language (Not Cussing)

How much can the current Recession be blamed on the huge Oil run-up in Price? This article makes only a cursory review, without genuine comment. What exactly do high Oil prices do, and what did they do to bring the last Recession? Well, they first made Mortgage-Holders highly conscious of not only the magnitude of their monthly House payments, the real reduction of their disposable Income by what can be called Shelter Costs, but significantly raised their Commute Costs if continuing the natural Commute of their own vehicle. There was even an Increase in the Cost of communal Transport systems due to higher fuel Costs. The real horror of their Commutes was highlighted, as the Oil price did not present a real reduction in Traffic as Everyone had the necessity of maintaining their Work Schedule; based upon their own personal need for Cash, and mass Transports’ inability to establish sufficient lines. A real number of Homeowners, I estimate around an initial 300,000, simply abandoned their Homes and Mortgages almost immediately; they early recognizing that they could not maintain the effort. A couple million more Mortgage-Holders followed as the debt load was realized. Here was the real causation of the Recession.

Mark Thoma gives Us a Contribution from Barry Eichengreen. It comes with a good presentation of the Issues, but with a sparsity of definition of potential Solutions. The Chinese are unlikely to alter their Savings ratios, under the impress of current economic conditions there; unemployed industrial labor are returning to the land in Record numbers, as they can no longer afford simple subsistence in the Cities. Their Wages levels are still far too low for the majority of Chinese labor to accomplish both Consumption and Savings, with the horrors of Unemployment still too vivid to contemplate a reduction of Savings. The Chinese cannot commit Chinese labor to expenditure of what personal wealth they presently possess on Consumption at the present time, with an impossible task of imposing a Consumer Credit system when people are insecure of their next Paycheck; a situation faced in the United States today, where Americans have ramped up their Savings schedules with and under the threat of Paycheck loss. The Fed provision of funds to the Equation makes little difference when confronted by a mass of individual decisions to curtail Consumption for Household stability. Sooner or Later all must realize that Monetary policy will not provide a Curative, nor will fiscal policy. The best Answer will probably be higher Business taxes, lower fiscal Spending, a balanced Budget, and a greater Safety Net under Unemployment.

John Quiggin wants to take on Bryan Caplan, when I ask what does it matter. Loss of the quality of life through dumping Welfare measures to protect Labor is not even worth the loss of Consumption of this segment of the Population, let alone the higher Wage levels which must be paid to generate willingness to Work. A lot of people believe that abandoning Labor, while subtracting Business from taxation, promises economic growth and success. I suggest such an attitude ignores the Consumption Demand needs of an economy which must sell most of its Product domestically. Competition on World markets is a useless proposition if domestic demand suffers as a consequence. Less than 1% of American businesses pay their Expenses through foreign sales, though they achieve sometimes up to 85% of their Profits from such Sales. I would suggest all such Dreamers who envision great success from Exports, to start paying their Maintenance Costs from their Export Profits. lgl

Sunday, May 24, 2009

The Bush Legacy

I would first advise the Readers to examine this Post by Mish, then ask themselves whether the Fed has been a Help, or a Hindrance. The Fed has kept the markets awash in Cash by their actions in traditional Keynesian style. They did this though conscious that this is a Recession driven by Consumer failure, the major element being the fact that Homeowners are burdened by overly large mortgages. The Fed Cash was all intended to keep Banks afloat, using the Statement that some Banks are too large to fail. In truth, it was exactly that mortgage structure which should have fallen. The heavy excess Cash has threatened the value of the Dollar, maintained the price of Commodities above their Supply model, and actually raised the Operational Costs of all business, with the worst aspect slamming into small business–the heaviest Employer in the system. Mike thinks the Fed policy is mismanaged; I believe the Fed is becoming the major Cause of the Recession.

The Fed needs to remove itself from direct interference in the markets. It must first stop supplying additional Cash to a market structure which is already overcapitalized. One does not pour Gas onto a burning Fire, if one wants to put it out; the Fed funding is actually granting more fuel to a Fire which is already burning because Debtors cannot maintain their Repayment schedules. One should not support Debt holders, who can thereby insist on repayment of loans granted foolishly to Borrowers without the Income to repay the listed schedules. The only Problem solution has always been Bankruptcy for both Debtors and for Creditors, all of whom were stupid enough to have organized such mortgages in the first place, when the evidence was always present to establish that failure would be the only Result.

We are now in the unenviable position of having wreaked Production schedules, and watching Commodity pricing march back to pre-Recession values, all based upon the Fed provision of Cash to the markets. The World is shivering with anticipation–our great Exporting partners–as they can hold to their current Prices, and watch the American economy disintegrate under the Fed paying Everyone, except for that select majority of Americans who actually need the Cash. The humor of the Situation lies in the Answer to our woes, which will shock Everyone but this Author; We need to discontinue the Bush Tax Cuts. This Removal would curb Consumer desire to purchase Imports, make Business assume some of the Cost of Government, bring in a major flow of taxes to pay for excessive Government expenditures, and produce huge outrage at those Government excesses in the first place. It is the Solution, but it will never be adopted, so that We will stumble along in Recession for many years! lgl

Saturday, May 23, 2009

What Did I say?

One can believe this Tract from Edward Hugh, or One can imagine that the carry trade cannot be maintained without an equivalent proportional Export Trade. I still believe that emerging markets cannot withstand this level of autarky, and inter-trade among themselves will not gain them the growth factors desired. We can be assured that the emerging economies will be much greater affected by high Energy Costs than will the stabilized economies, and gains for these Currencies will quickly disappear as significant elements of their societies face acute Living Conditions. I would key the growth potentials of emerging economies much lower than does Hugh, and name extraneous factors of Poverty within emerging economies as the Cause.

Calculated Risk gives Us graphical display of the impact of the FDIC over the years. Banks have stabilized under FDIC management, though failure has been increasingly of higher Cost. The particular Problem associated with the realm is the exact creation of the Investment Banks. The introduction of the FDIC brought an end to Banks engaging heavily in Investment Banking. This led to the rise of the Investment Banks, whose claim to fame was their independence from the FDIC and its regulations. Everyone wanted their Cake, and the ability to Eat it as well. Now, the Investment Banks are failing in Concept and Operation, just as the Banks continually failed in the 1920s and earlier years. Regulation of Investment Banks will actually only reduce them to regular Banking institutions, and We again do not get to eat our Cake. It might be time to reject the idea of Investment Banking, or send in total back to Wall Street as simple Brokers.

I feel called to contest the findings of Paul Krugman and Felix Salmon on this Issue of Openness in blogging. I never locate my position on any Issue, rarely cite my sources, obfuscate both my Opponents and Readers; generally even confusing myself. I feel very competitive with my fellow Bloggers, basically because I make very little off my Blog. Felix suggests there was once a ‘Golden Age’ of blogging, but I suggest that it was just as big a mess then as now; none of Us actually knowing anything about the medium back then. Blog Services should likely label all Blogs for Content, a simple Reading of Toxic or Non-Toxic. While I commiserate with Paul and Felix about the poor quality of material We must trod through, Journalists were a vital asset back in the Days when they were the only News outlet. I also tire of the all the accreditation I must storm beyond to get to the meat of the message. I hope this establishes my unequivocal position on the Issue in question. lgl

Friday, May 22, 2009

The new God--Credit

One maybe should read this article with a jaundiced Eye, because the poor Credit Card companies will be losing only about what they intended to gouge from Cardholders in dollar terms, a Windfall which they had designed for themselves. The Government is really saying that they can only scam about half as much. These companies borrow their money in tranches which are written so they cannot be prosecuted if they can’t get the repayment Cash, then want to loan out this money at about four times what they themselves pay for it. Investors and Management of these companies think it is a great idea which the Government should not step on because of the rate of Return promised by the Schedule. These people are supposed to be Risk-Takers in the idealistic model of economics heralded by Economists, but it does not take a great amount of courage to invest a relatively small amount in Stock, to borrow a great amount of money at little Cost, and lend it at great Cost to Consumers. The really appreciated element is that these individuals have incorporated the business, so they cannot be personally threatened in any Bankruptcy proceeding by either the company, tranche owner, or Card Subscribers. Isn’t it nice to be protected by Government, if the Government would not limit their Usury by regulation!

I will present this Post with the intent of allowing the Reader to broaden his understanding of such Credit Cards, though I would hope Everyone has this primary grasp of such Credit already. A government-sponsored access to Transactional Credit may seem like a benefit, but what about Those who cannot generate a consistent flow of Income? It really is amazing how well Cash in Hand works, while most all other efforts fail to achieve the same simplistic beauty. Cash itself was the Transactional Credit originally designed to facilitate Trade, where once equivalence between Product values were hard to assess on the Spot. I, as a historian, often read tales of complaint about Trade caravans charging a very high finance Charge based upon distance from point of origin. Credit Cards are now trying to present a high Charge for Consumers’ distance from adequate Credit resources. The Complaints are basically much the same, and Government might be well-advised to simply take their Tariffs on the Trade, and not interfere in the operations; something which could lead to Everyone having less of the Good in question. Trade Wars are always fascinating, as Trade volume rarely declines, but Somebody always loses.

I like this Post for its ‘More is Less’ theme. I especially enjoy Rule 3 for its Stoicism. Rule 1 is somewhat redundant, as such lists only appear when We are in the midst of Recession. One always chooses a lifestyle away from family to get away from what makes them crazy, so Rule 2 may not be helpful. The World has declared that the USA has brought them to the Party, even if only by not buying at Our previous rates, so One might want to pass on Rule 4. Rule 5 has a caveat, most of Us have only 40 years to make Our pile, so the Rule must be discounted. Rules 6 and 7 must be understood by traveling to a poor country without benefit of Credit Cards. Rule 8 is nonsense, as Government cares about the Consumer; they being the only ones still paying Taxes. Rule 9 and 10 can be deposed in the same manner: One needs a place to stay and One hunts a Job, or One eventually has to revert to Rule 2. lgl

Thursday, May 21, 2009

Did I actually Write this?

I read this article, and ask myself if I want the new autos to have any new Add-Ons or Add-Offs. I decided I wanted nothing to make Americans more uncomfortable in their in their car seats, so I thought that redesign of the Seat belts which are practically Standard would be nice. I conceived of a Static modulator which would proscribe Cell-phone use within the vehicle confines. I dreamt of Sound isolation of Rear Seat from Front, so the phrase of "Are We there yet?" would endure the dishonorable death that it deserved. Then I woke up and turned to the Practical. It was at this point that I came up with a real initiative, which would be intermittent transmission of Vehicle ID and Mileage to roadside receivers, which information could be transmitted to Taxing agencies to withdraw regular amounts of tax from an draft Account which a Driver would be required to maintain with minimum balance.

I immediately deduced I wanted a $.02 per mile federal Tax coming from these Accounts to pay for Road construction, then I thought that these Accounts should pay all State and Local Toll charges so that the periodic Slowing and Speeding of Traffic could be avoided. I decided that there would be a real Problem with Accounts not kept filled with funds; so I envisioned an additional Beeper set off by Roadside transmission in autos where Drivers did not keep the Accounts stuffed with Cash, with a nice sensible fine of $50 for the lack of funding plus Proof of Account fill, else the Beeper again sound in 7 Days. My evil Side enjoyed the Thought that Many would be caught Short, dampened only a little by the Thought I would probably be One of Those caught.

My imagination really went into Overdrive at this point, and I conceptualized a ‘No Fault’ Insurance program whose finance would be the same little Transmitters broadcasting the current mileage of the Vehicles, the Cost distributed to Drivers in the form of a Tax upon mileage driven per Taxing period. I thought of the lack of financial award for animosity, replaced with only durative Cost of Injury. I remembered the persistent attempts of Tax avoidance through disablement of the Transmitters, and decided on Patrol Car test capacity, and a $1000 Fine if the Unit was not transmitting properly. I began to compile the huge Cost of these Transmitters which I desired to be Plug-Ins easily purchased by Drivers to avoid follow-up fines, and decided that Plug-In Wiring and Transmission units would even cost about $25. I finally rested on the First Day, knowing I had earned the hatred of my fellow Drivers; one of the hellion Costs of Road Rage. lgl

Tuesday, May 19, 2009

The Problem with Stimulus

I received a few inquiries about my previous Post, and thought I would present some Answer to those Questions. Stimulus is somewhat more complicated than Economists and Politicians would reveal. Stimulus to be Stimulus must have a heavy Stimulus Impact. Economists always like to claim Stimulus Impact to be at least One, though there are many features to reduce the Stimulus dollars below a simple addition to Production. Much of the Stimulus funds are devoted to providing a Profit for previous bad Investment, closing down unprofitable lines of production, Laying off labor by Buyouts, and selling off Inventory below Production Cost to generate Profits on previously bad Production facilities. It is a fact that Stimulus Impact can reach a Low of $.60 for every Dollar of Stimulus.

Another factor entering the Picture is the reality that if Production is financed, then Stimulus Impact must attain a probable level of around 116-118% of Stimulus outlay, before there is any Stimulus at all. Economists will criticize this Insistence, but it is a reality if One would desire actual Repayment of the Debt with the countervailing pressures of Government Spending. The real deterioration comes from the fact that Stimulus Spending becomes solely Production Cost on future Production, if this 118% range of Stimulus Impact is not reached in the length of time where Stimulus is granted, with a residual 18% Tax on such Production Gain is following years until Debt repayment is complete.

We return to the issue of whether Stimulus Impact can automatically be accounted as 1:1 with the Stimulus funds spent. Wherever the Stimulus Impact is less than One for every Stimulus Dollar spent, then the Production Cost rises against the future Production. A scenario where Stimulus Impact is only $.60 for every Stimulus dollar spent leads to a Production Cost of 56-58% on the increased Stimulus. Everyone knows that Business and Corporate Taxes are limited to far less than that figure–some 30-40% of the refined Profits–so that the Production Cost generated must be spread over already existent Production, and even debt service minus actual repayment must be so spread because of the Tax laws in existence. Here We are at the point where Stimulus actually becomes a Production Cost not only to future Production facilities, but also to current Production facilities already in stress. I know there will be vast dispute of this line of Reasoning, but Policy-leaders should be aware of it. lgl

What is Wrong with Keynesian Thought

The precepts behind this Piece have long needed an evaluation, practically since Keynes himself, and should be examined from the viewpoint of actual existence. Sticky Wages might exist, but Layoffs and Reorganizations express more value than Government replacement of Demand, a Condition guaranteeing Inflation and Waste Spending. Government Spending as Stimulus works only if there is lack of specialization of labor; any degree of labor specialization means that Government Spending only supports the Wage Demands of limited groups of specialized personnel, and does so in a manner which actually increases the unemployment of unskilled labor. No Study I know has been specific because of the political dynamite of the clime, but Stimulus may increase Unemployment in the Aggregate; the Inflation generated actually cutting Private Consumption. The Reader should understand that Economics is all about balance, or a distribution of resources among various Production functions, and Government Spending always has counter-cyclical adverse effects, often greater than the nominal benefits desired.

The multiplier effect of Stimulus is often much in question, though One could not detect it in the writings of Economists. It is always assumed to be at least 1, though there is some evidence that more efficient alternate use of Resources is the real number 1, not the nominal Dollar value stipulated by Government–which does not even account the Inflation engendered. Nobody stipulates this harsh fact, but the multiplier effect must be greater than the Tax rate necessary to repay the assumed debt under Stimulus, or the Stimulus has an negative effect on the Economy; even if the Repayment is assumed to be delayed, as is normal for Stimulus Spending. One has to be careful, for We could technically stimulate Ourselves straight into a Depression, and not realize it until We have already left the normal correction of a Recession.

The propensity to under-consume has always been an endangered Species, a Bird rarely seen in the Wild. Economists are doing the Tap Dance, trying to explain How a return to normal Savings patterns among Consumers leads Us into Recession. Current analysis seems to imply that Government debt aggregation must be complemented by Consumer debt aggregation, else there is no Stimulus; i.e., We must spend our way to the Poorhouse, else We won’t have a Job when We get there. There is something wrong with that Scenario, and Congress may need to review its passage of the stricter Bankruptcy law, just to accommodate the greatly increased Traffic through the Court system. There are Those, both within and without the Economics profession who would say I am too harsh in analysis of these factors; I can only say that Bankruptcy can be even harsher, and Politicians are reaching for the unreachable Stars. lgl

Monday, May 18, 2009

Going Down for the Third Time

Greg Mankiw came up with an excellent short Post, if you read all the links he placed within it. I have been thinking of the Carbon Tax v. Carbon Permits, liking none of the proposals advanced so far. A better method need be devised. I came up with a Proposal which no one will like because it will entail immense Cost, and will be difficult to implement; the only thing it has going for it is the fact that it kills about 3 birds with one Stone. The law would be simple: Every Carbon Emitter must come up with an equal amount of composted Sewage or Garbage delivered at a Government-designated site to get Carbon Permit to emit Carbon. The Dream behind the Essence envisions as many Compost trains moving West as Coal trains going East. The Government would be entailed with the task of finding adequate Land Reclamation areas, along with provision of sufficient Waste water for the irrigation necessary, and the Disposal of Human Waste would be handled in an adequate manner, alongside a Labor-intensive program which could employ up to a potential million people. It would force major Business interests with the task of being Good Citizens, while funding the necessary programs needed for continued existence on an over-used land.

Study this Post, and ask yourself if you want a Soylent Green alternative to health care. I suggest rather a fundamental correct Pricing formula for Health Care, with escalating Prices placed where they belong, and the Cost of such Treatments left to the Individual. Such designation would bring many changes, and the decline of much of the Cost. I favor Surgical Rooms limited to the specific function entailed: Heart, Neural, Bone, and Intestinal; this restriction brings greater usage to the facilities, as they become geographically centered and used on a 24/7 Scheduling. I would separate Drugs into two types: Temporary Short-term use, and Long-term medication, and insist the later be reviewed by a medical board to certify validity of use. I would allow unlimited long-term use of medical benefits from Public and Private funding, but set a Limit as to the yearly allowable Benefit. The Devil is in the Details, and I would make the Details reflect the true Expense occasioned by their use.

Here are a group of Individuals who rightly think our Money is going down a sink hole, and not working for Us at all. I cannot say I agree with all or any of them, without through study of their evaluations; I only know that the current mess is beginning to smell as much as the aforementioned Compost above. We need less-expensive, more effective measures to deal with the economy that are not simply to Double-Down on our losses, so that We will really fall when the next Precipice is passed. lgl

Sunday, May 17, 2009

Government may be its own worst Enemy

Pretensions of Journalism kills the Economist in Us all. It is a regrettable fact as true for David Henderson as it is for Paul Krugman. I agree with Henderson that the current Run of Krugman articles and Posts leave something to be desired, but so do his own. Take his assessment of the 2001 Tax Cut. Henderson states that the Tax Cuts were about equal for each Tax Group. He does not stipulate that under increasing Inequality of Income, equal Tax Cuts mean a loss of progressivity in the Tax rates. The Whole works out that higher Incomes achieved both a nominal and real Tax advantage which lower Incomes missed. This factor made it harder for lower Income groups to enter the higher Income field, while higher Incomes had a much easier time in staying within their Grouping. That said; Krugman is wrong, Henderson is wrong, and I am wrong for suggesting that there exists a real greater impediment of entrance into the higher Income groups; if there has been a real gain in productivity through the ideas or labor of any element of labor. Loss of Importance in the Productivity Process still is followed by loss of Income, which is the real determinant of Income.

Here is a prime example of a Company’s attempt to preserve their own Income base, with Microsoft borrowing Debt to preserve their Equity value. The loss of Innovation by the Research facilities at Microsoft meant a loss of additional Income without an ability to reduce Production or Research Costs, the Staff necessary to meet Customer Concerns. Microsoft had the choice to either dilute the Stock, or borrow Operating Capital. They chose to borrow so the major Stockholders could maintain their flow of Income. All Debt has to be subscribed by Debt Holders, who insist on some equitable rate of Return which will reassert itself in the near future, and such Borrowing places undue pressure on all subscribers of finance, so that all artificial subscription of debt brings added pressure and higher Pricing to acquiring Capital. A small, select group of wealthy individuals thereby raise the total Costs of all in need of Debt finance.

Here is another approach to the Problem, one where the Government itself may be an impediment to the adequate finance through their insistence on Debt Return suppression. The Government insists on low rates of Interest on Debt, but which brings a corresponding reduced rate of finance supply. The Government has no vested Collateral backing their provision of funds, which suppresses all Interest rates. Continued Government supply of necessary finance will only lead to Inflation, while the Private Sector will not replace the Government supply of finance, until such time as the Interest rates return to normal. My Estimates, and I repeat my Estimates, suggest that the Inflation rate will not drop below 3% annually without Private Sector provision of finance; a circumstance unattainable until the rate of Return on loaned Capital exceeds 5% annually. It could be that the Government and its policies are the real impediment to normalization. lgl

Saturday, May 16, 2009

Real Words for a Fairytale Land

David Leonhardt has made the brave attempt to try and capture the relationship between China and the United States which is now developing. It says as much, and as little, as any of these endeavors. The basic problem for American observers comes from the fact that China is an ancient civilization, possessing all the power, control, and resistance of an adult society. Americans insist on viewing China as backward and undeveloped; while Chinese recognize themselves as cultured and wise in the ways of personal and commercial politics. Americans do not grasp the significance of six thousand years of civilization, which also means an equal time of political corruption. Americans fail to interpret Chinese resistance to modern technology and social structure, believing it stupid or at best unenlightened; never realizing it is a polished Senility designed to maintain the traditional corrupt mechanisms in power. Chinese families and Governments might change personnel, but not a practice developed through the Centuries to define the personal and familial power within Chinese society. Americans think in terms of Years and Decades, though you average Chinese thinks in terms of Centuries, the quest being the long-term survival of the family unit on which the Concept of Life revolves to the Chinese.

Greg Mankiw expresses a sentiment on which I must agree. The Obama administration shows a distressing tendency to refocus Public Sight from things which are difficult to accomplish, to things equally difficult to accomplish but where actual failure will not be observable for years. The federal government has pumped an estimated $4 trillion into the economy by one venue or another, all funds being in truth a reduction of the Profitability of the last eight years. Financial Stimulus to recover favorable production within a Bust should and must be considered a reduction from the previous production levels of the prior Boom. It is sad that such Stimulus has such a poor track record in returning production to Boom levels, and the real rationale for transferring Public Attention elsewhere.

The Obama administration are not the only Ones who try to confuse the issues. There is a huge segment of the economic profession which extols the value of Trade, while never coming up with hard numbers to back their claims. This article expounds such ideology. High levels of Trade have had many effects, a great many of which have been good, but there a an equal number of bad aspects to Trade. Trade has created Jobs, but also eliminated the viability of Millions of Jobs which could no longer finance a lifestyle of equality with their Peers in Society. Goods became cheaper, and cheaper to Produce, but often only at a Cost where a vast number of the Labor Force no longer had the Skills with which to support themselves. This establishes a base level of both Unemployment and Underemployment in Society, a great Danger when Bust conditions exist under the altered economy, because reduction of Consumption under this circumstance creates a vast pool of unfunded Population. It not only increases the necessity for Welfare payments, but multiplies the magnitude of such payments. Several alternate losses to social unity could be discussed, but the Road is long, and it is sufficient to state that Trade can be as Costly and Utility-Defeating as it is Beneficial; dedication to Trade could be as destructive as devotion to Tight Money, or ‘Back to Nature’ pursuits. lgl

Friday, May 15, 2009

The Bold and Almost Beautiful (That is a Joke)

Alex Singleton uses the Anniversary of the repeal of the Corn Laws to praise Richard Cobden with the traditional litany of British history. The four Comments to the Piece rouses a Cheer for the northern business leadership above Watford Gap, Thomas Babington Macaulay for the Reform Bill, Sir Robert Peel’s actual repeal of the Corn Laws but with their failure until Imports from America could supplement the diet, and the lack of Trade model which existed at the time of the Repeal. No one mentions that it was a Victory of the Industrialists, who wanted cheap labor which could only be bought with cheap food. The whole Collection can trace the conflictive nature of British history still resonating Today, while also ignoring foreign response which reproached Britain until the 1890s for their restrictive Trade policy. The British possess the irritating habit of self-praise of the Nonexistent, while turning a blind eye to the necessary Resources of foreign nations and Colonies underpinning the natural rise in economic power, both in Britain and elsewhere.

Blind honors for Trade must have a Counterpoint, so I will provide this Post, which criticizes the proposed loan of $100 bn to the IMF. Peter Orszag, head of the OMB, says there is no chance that the loan will not be repaid, so that the loan should be scored at ‘$0' for the purposes of the federal budget. The CBO says there is a 5% chance of default on the loan. I say that the IMF loan will have as much chance of repayment as the US Treasury Debt, where Surpluses under Carter were quickly canceled by Bush and Congress. The entire issue, though, misses on the point of Trade, where the halcyon swap of Goods and Services under the financial buoyancy of Credit Default Swaps will never again come. Honest finance is missing everywhere in the World, and could never reach the high goal of financing such levels of Trade. Corruption of federal lending practice will never make a difference in the financial alignment, and We will need the funds elsewhere eventually. Be sure to read the Comments here again, as all three Respondents present a frame for the loan. I would state myself that modern economic policy always advocates rolling debt over rather than it’s repayment, whether Silent or Vocal, and We should worry about Collateral structure even in this great Country of Ours.

I will finish this Post with reference to the article by John Quiggin. It is centered on Australia rather than the United States, a good reference because it is a wealthy land, but one where the American belief in unlimited Credit is not present. Keynesian theory is again raising up to replace Monetary policy; the trouble comes my lack of faith in both. Each establishes a huge Reservoir of Debt–whether Public or Private–and neither has actually shown a physical value to match the loss of an average 8% of GDP in finance charges to non-Participants in the Production process. I could almost advocate a mandatory $5000 Bond must be filed with the FDIC in Cash, before any mortgage is granted; sums collected to pay for the potential losses incurred from default on such Notes–whether Commercial or Personal. Government debt is something else, and I might advocate a ‘Clawback’ procedure of federal Employee salaries, if they were involved in the decision-making process leading to under-projections of the budgeting process. It might seem far-fetched, but far better than witnessing Mobs attacking Tax Collectors. lgl

Thursday, May 14, 2009

Alternate Views

Why does the American Auto companies suffer so? Many would have you believe it to be Shakespearian opera—Play with Vocals. The fact is that the Sector sells Millions of Cars, provides Maintenance to vast Millions more; churning a vast level of Service and Product. The level of business is huge, even in the midst of Depression where We most definitely are not! The Reader should understand that all of the Auto industry’s problems are Internal, not External; there being no real loss of Consumption, only Mismanagement. There is excessive Plant, there are excessive Pay Scales at all levels, and there are excessive numbers of various Vehicle Types. The Solution resides in Bankruptcy Court, but only if these Courts induce a realignment of the bad Management by elimination of previous Management. Vast amounts had been spent where it should not have been spent, and old Management would have Us continue the practice while taking over the financial supply quandary. They are falling off a cliff, and telling Us that We could make it a easy landing, but adding Weight to it.

This article assumes that the only way to get Credit Cards to Consumers is to charge high rates of Interest. Good, great, and totally untrue! Alternate Plan: adopt the same venue as Car Insurance companies. Make the Cards good for only Six Months at a Time, all carrying a standard rate of Interest of 1% per month, to a maximum of 12% per year–slightly lower than the 1% per month overall. Good practice without Usury, and high Production levels of Cards; all without prime high Cost to Credit Card companies. Catch 22: All Credit Cards are to be Sold only through Banks, with Charge based upon Cost of Card plus Risk premium associated with the Cardholder Credit rating. Banks have another source of funding through sale of the Cards for the Credit agencies, whose liability is limited by Time and Initial Charge, and Consumers get new Cards which are not broken, shattered, or smeared to obstruct going through the accreditation machines. The Interest rate set in Stone for Credit Cards, then Congress and Credit Card companies can argue about the Card acquisition fees, really about the largesse of those Fees. The Cards will not work in those machines beyond the Time Period subscribed, the Fees will give Card applicants pause in Spending practice, a decent rate of Interest will be integral, and Everyone get screwed except Congress. lgl

Wednesday, May 13, 2009

The range of the Lone Stranger

Recovery of a sense of humor must always be a prerequisite of a economic recovery. It is Why I present this Mess for the entertainment of my Readership. I tend to agree with Tim Duy on the Recovery, and I am really tired of Green Shoots. Bernanke will probably go down in history as the ‘Green Shoot’ guy, and curse the day he ever spoke to Congress. I can, as a old farmer, state that the economic performance as yet seen is the poorest Planting season ever witnessed. We always insisted on a Germination rate of better than 90%. Ben has a Germination rate of approximately 30%, and Everyone acclaims him as a Master Gardener. I would beg to differ, but I have been as equally wrong as He over this economy which no one seems to understand. I provide this Post to further the cause of economic humor.

A sound, staid evaluation of the current economy can perhaps be glimpsed by this reference, which also might suggest that Monetary policy itself might be the Culprit, so don’t pick on the Butler. I am thinking of the possibility that Monetary policy actually only places delays in the Road, refusing financial and production outcomes which would actually clear the production process. If this establishes as the Case at any Point, then Monetary policy will actually lengthen the period of Recession and failure of sharp Recovery. Economic failure and Bankruptcy as excellent methodology for opening up the field for new talent in economic leadership. I fear the bureaucracy of financial leadership even worse than the systemic idiocy of entrenched labor.

Read this commentary from Christina Romer, and ask whether Monetary policy can ever affect production in any manner than through the creation of asset bubbles. The Answer is that it is doubtful any Monetary policy can do anything, except fuel asset bubbles. Adding funds to the economy simply provides a higher Price schedule to existing assets (Inflation), and only ensures a higher financial rating for production, even if actual production declines. I doubt this is an ideal Solution for the ills of the economy. lgl

Tuesday, May 12, 2009

Where the Music stops

The concept of bringing Medicine back to the Consumer has always appealed to me. Retail clinics appeal to me in the sense it is the direction to start the process of bringing Medical Costs down. A pet idea of mine consists of tying broken bones and Limb injuries to the retail clinics. It not only detours Patients away from primary care physicians already overrun with Child and Elderly Care, but allows Waiting Room delays to be cut short by Shopping opportunities. Bone injuries and Such can be considered External, rather than Internal, Medicine; a better realm for Specialists rather than Primary Care. We break off a basic different medical science, and bring higher special technological training to both halves. Ambulance availability to both ER and primary physician is universally available, while Consumer Transit Time could be cut to a third of the current rate.

It is particularly revealing that Oil pricing consistently claims an adherence to fundamentals in a rising Oil Market, but can equally dismiss massed Inventories in pegging favorable Oil prices. American Oil Stocks are at a 19-year High with a huge amount riding in Ships at sea, but Oil companies assert that a doubling of Price will not grant Windfall Profits. I would love a doubling of the value of my Investments, but doubt seriously that it will ever happen; a clear monopoly, on the other hand, enjoys the ability to manipulate Markets to obtain such advantages whenever their Supply sources are secure. Hint: What is one of the basic causations of Recessions in the first place? Re-channeled Profits denude effective Payment Schedules, cutting the profitability of primary Suppliers through diversion to introduced Middlemen, without their contribution of production efficiency.

Calculated Risk will give the Reader a good Review of the Trade Deficit. Exports are off 17.4% year over year, while Imports come in a 27% lower. A Trade Deficit is not necessarily a bad thing, depending on the spread of Products, Services, and Financing. A Fiscal Deficit combined with a Trade Deficit indicates a loss of economic power, especially if Consumer Debt is being financed from Overseas sources. A continued decline in Imports would be to the advantage of Americans, but is probably the most volatile, and doing the most damage. Americans must learn to Buy domestically, but probably will not because of lower Pricing of Imports, until American Credit Score in much lower. Foreigners are not likely to cut off the Credit as long as Americans are maintaining their Production through purchase of Imports, but Credit contractions will be swift and large when foreign economies dismiss Americans are vital Consumers. lgl

Monday, May 11, 2009

The Horror within the Ideal

I could state this Post by Richard Posner holds a real Truth, but that would be a shade off the Truth. Conservative Intellectuals have suffered no more than Liberal Intellectuals in having solid values discarded for morally dubious flags. Both Liberal and Conservative Intellectuals tacitly accept lack of fiscal restraint; Liberals accepting ballooned military expenditures for Welfare awards, while Conservatives sell their Souls for Tax Cuts. Liberals, though, do not hold the ‘High Ground’, accepting the Conservative position of Welfare if and only if it provides a high Profit ratio for Business. The monetary policy which Posner may be proud of as vindication of Friedman is starting to show some wear; containing the Concept of the worthlessness of adding another two Courses to a four Course meal–appetite and desire diminish in the face of absurd weight gain. There is a Place and Time where Growth curtails from a real limit to profitable extraction of resources; past that point, Money only raises Wages and Prices. Marginal Tax rates only gain power when the Taxes are onerous. Estate taxes only supply a Public mortgage to wealthy heirs, simply to level the field for Those who must earn their own. Neither style of Intellectual advocates a real reduction of Government, bowing to the Educated pursuit of employment for their children. Conservative and Liberal alike entertain a major degree of hypocrisy in the exposition of their ideology, which is Why only emotional appeals work with the younger generation; the later still worried about trusting Anyone over Thirty, even after all these years!

Gary Becker generally presents a more sensible attitude to Conservatives which has more pragmatism, if not ideological underpinning. Becker assumes that modern Conservatism harks back to classical Liberal views, something which may require a huge stretch of the imagination; as there seems a far better affinity to the Ku Klux Klan, and riding Deviants from the Norm out on a Rail after "Tar and Feathering". The Conservative ideal finds its origins in the lower ranks of the Middle Class, which spawned equally Communism, Fascism, and Nazism; it being only a factor of special interest prominence at the moment. Liberalism came from the deluded halls of Ivy, and suffered Corruption through translation for the masses. Any Concept falters in the face of Special Interests, the final outcome rests on dual elements of Police force and the attitude of the Wealthy.

One must ask if any ideology can endure the perversion of Politics; this later the process of co-aligning personal desires with a justifiable base of support. The attainment of that Support will always destroy the beauty of the Concepts, allowing personal greed dominance over the fairness behind structured ideals. The Reader should understand there is a basic destructiveness involved in all Communist fairness, Fascist fairness, and middle class fairness in general. Parochial Interests will serve only the established interests of the Past, and extend their evil into the future. One has to be conscious of the Winds of Politics, simply to protect against attacks upon your Self. The one sure evidence of Corruption within ideals comes in the development of personal attacks upon individuals; then it is time to relocate, else you suffer the consequences endured by the Jews under the Nazis, or the Wealthy under a Communist regime. lgl

Sunday, May 10, 2009

The Best Laid Plans

Tyler Cowen may have missed the actual sentiment in the land of fantasies. Who can tell? Congresspersons and Senators are first of all Politicians, and individuals incompetent to sufficient level to believe that their efforts are important. They are passing responsibility off on faceless administrators within the various Departments of Government because they don’t have any idea of what is going on anymore, and secondly, in hopes they could personally detour around any wreckage of the current policy. It is their belief that they can avoid disaster if It all goes South. Tyler should not condemn Congress too severely, as greater involvement of Congress could only bring loss of focus, and unwarranted Spending with Add-Ons to the executive policies of Fed and Treasury. You should not want a failed institution to decide the fate of other failed institutions, as the Policy will fail. Can We really afford that?

Menzie Chinn has a Post on Unemployment with the worsening state of Underemployment. He graphs wonderful Tables, but expects that Everyone can understand those Charts as well as he can. Unemployment in down 5%, but Underemployment is down over 7%. Businesses are not consolidating to produce more effectively, they are actually losing Production orders. Their labor force is standing idle more often, and Payrolls are more difficult to cover. Many Employees are looking to alternate Work, often under advisement of Management; the trouble being the huge increase in the Labor Search market, through a declining production clime. It bodes an ill Wind for the future, with lengthening periods of Unemployment not yet seen.

Spencer asks the rationale behind the Oil price. The background is easy to establish: Oil Exporters have watched the declining purchasing power of the Dollar, and have long thought that their Profits should be much higher; especially as they detest the lifestyle of Americans. The trouble for them has always been their financing Costs, being as subject to huge Debt loads. American Oil Importers, on the other hand, have kept their Oil supplies filled throughout the Downturn, knowing that they could force a sustained Price for their Product; backed as they are by huge reserves of Cash. They are now armed by huge production Receipt contracts at good Price, and want arbitrage to act in their favor for large Profits to themselves. Oil Exporters have reduced their outstanding Debt load, and Oil Importers have strengthened their position; so it is now time to bleed the American Consumers. The only crimp in their Plan is the fact that American Demand has slowed, and shows every indication of further decline with higher Pricing. lgl

Friday, May 08, 2009

Name that Tune

We are in the land of the Stress Tests. Is this Post about them–No—Maybe—Yah. Consumer Credit was One-Quarter the size in 1990 as Today, and Economists deplore that it plunges some $11 billion in March; it being down some 5% from its actual High. This is absolutely horrible, Right? If only Economists had a louder Voice to admonish their fellow Citizens!! I think that these very Citizens are confused about data which Economists put out in Whispers: The Banks are writing off another $200 billion after having dropped a Trillion dollars already, and the federal government is Spending a couple Trillion a year just to keep Production up (I would actually say it was almost double that, but would receive a Visit from the Men in Black with their Nurealizer). I would suggest that the great American miracle is vastly underfunded, especially with Profits, and deplorably over-capitalized.

I would advise Readers review this article, as Obama Democrats appear to desire eventual federal sponsorship of Spending to overpaid health care providers, rather than to Banks; the current goal of the Federal Reserve and Treasury. They somehow expect a better provision of health care, with more equitable distribution of Government expenditure, by giving Citizens the benefits of government-expended health care. Adversary politics insist that the worst elements of both Sides will succeed, while any benefit is actually canceled by Opposition restraint. I would simply pass a law stating that health care providers became Employees of the State after Income awards of $250k per year (even let them file their Expense accounts according to the traditional bullcrap), and require them to take a set percentage of Patients from Government subsidy. I fully expect that We would have more untreated Patients than We have today.

Dean Baker comes up with this Truism which the Reader should contemplate. A modest year over year increase in Retail sales comes with a total reduction of Retail outlets, so the same number of people are buying from a reduced number of Stores. I live in a City where it is traditional to ignore Recessions, and commercial building is still very rapid. I expect that We are still in an expansion of Retail outlets. I simply ask myself, though, how such Stores expect to remain in business; a Concept where Retail traffic must increase to maintain Sales, in the face of increasing Prices and static Incomes common to Recessionary conditions. The second quandary consists of the question of large chain store maintenance, if the new Retail outlets could actually raise a sincere competition for the chain stores. I have depressed myself again, a state greatly to be feared in Recessionary times; I often though to establish a correlation between reduced Consumer Sales and consumption of Prosac. lgl

Thursday, May 07, 2009

Old Dogs need no new Tricks

Jacob Hacker again proves that he has more brains than Most. Study of the concept of Risk-Taking suggests many things: paramount of which is the idea that only so much Risk will be assumed by the Risk-Taker. This becomes relevant when one studies the individual case, where not only is there potential economic loss, but additional health issues or potential provision losses for the family. Innumerable are the situations where individuals will not alter their employment because of a health care issue for a child, which they could not otherwise afford except through current employment. There are vast ripple effects other than that noted, the heaviest possibly the inability of a Spouse to find equally valuable employment with a geographic deployment. It all adds up to the Statement that leaving all Risks on the shoulders of the individual is probably more damaging than lack of Capitalization.

Judge Posner regales Us with a litany of woes, many of which he presupposes could be avoided in some manner. He an I know that what is being done by the Government should not be done, though it seems We are both in the dilemma of not knowing exactly what should be done. One should not rant against Anyone doing something without an alternate Suggestion, especially when the livelihoods of people are dependent upon that action. I do know that federal action should be directed at the protection of the American households, rather than at protection of American Banking or Business. My one proposed Solution would be opposed by the good Judge, and probably all Economists: A guaranteed Minimum Income through reverse Income Tax, funded by retraction of all Tax exemptions and excusals of every type. Adoption of a basic philosophy of ‘Reach for the Stars, and when you land on your butt, it will be on a pillow’.

Nick Rowe reminds Us all that Words are designed to confuse Us. He takes Us from a ‘rallod’, Dollar, Old Dollar, New Dollar, and back to Dollar. He uses all these terms when he could equally simply asked for a 5% Tax, serving equally well, and insuring that Government is financially sound even if other businesses and institutions fail. I await some great Thinker to come forward at this time, and suggest the Truth, that We should tighten the flow of Cash. It is the old draconian methodology of forcing poor business formats into bankruptcy, then utilizing the saved resources to prop up the remaining economy. It is the only method proven to succeed by substantial previous practice. lgl

Wednesday, May 06, 2009

What is that Smell!!

I would simply assign an appellation of vented hostility to this article, except for the nature of the Government behavior. Chrysler is bound to lose their autonomy through this action, Stockholders are expected to lose everything, and Lenders are expected to lose the majority of the Stake in the Company. Taxpayers has spent a whopping amount already (think $8 bn), are expected to spend much more on a bankrupt entity, and control of Chrysler will pass out of the Country. The greater rub comes in the fact that such losses will do nothing to spur the economy in the Short Run, and Chrysler could survive in an alternate liquidation process. The Speed of Government activity must be questioned, especially the obvious Push to get Chrysler through the chosen Bankruptcy process. I would simply appeal for a Court Injunction against a final determination for one calender year, with the Refusal to allow Plant closings based upon the length of time necessary to accomplish the Bankruptcy. The Court should admonish Chrysler to continue operations as long as they are profitable for the duration of the Judgement.

My previous paragraph should explain that I am not enamored by Government policy, but in the interest of assigning blame where the Chips should fall, I refer you to this Post. Glass-Steagall could not have been revoked, Gramm-Leach-Bliley would not have been invoked along with the Commodity Futures Modernization Act, without the majority support of Congress; Everyone believing that huge political contributions would come their way. The abandonment of financial regulation had started under the Clinton administration, and the bravado of Bush administrators was hailed by All as the new heyday of the Cowboy Capitalists. Everyone was for it, no one was against it, and Taxpayers have spent literally trillions of Dollars bailing out the Cowboys, simply because they make the political campaign contributions.

I am not saying with the Above that the Recession is not on Us, or that individuals can be picked out who are responsible for the debris of failed financial instruments around Us. Those Things were written by individuals, but they were Sold and Bought without vetting by Anyone. We bought into that ‘Gold Brick’ and can hold no one else accountable, but We should not cover the Cowboys so that they can keep their ill-gotten Gains. It is doubly foolish when these Cowboys are the only Americans protected by this protective process, abandoning responsible Lenders, Stockholders, and Labor to the depredation of unregulated markets. It is finally an abomination that American Taxpayers are stuck with the final Bill. lgl

Tuesday, May 05, 2009

What is your Problem?

Claire Miller gives Us a good discussion on the Venture Capital Crisis. It is sad that it lacks the presence of Consumer Demand, which is Why there is a Crisis in the first place. Venture Capital rests upon Consumer Demand, which requires the creation of new desire for Product in the Consumers. This requires a healthy input of Advertising, which must be successful. The later insists on some degree of innovation which is demonstrably New and Exciting. The criteria here revolves around Consumer awareness of the Product being somehow Special, not to be found elsewhere. A rehash of old functions in a new Package will not excite the honest Consumer interest necessary for Venture Capital success. A great share of the Auto problem derives from the lack of development of the next thing past SUV or Crew-Cab pick-ups. Technical Products are like Clothing, and must come up with a new Style to sell, and there are relatively few opportunities for Venture Capital elsewhere, except for Credit Default Swaps; We all know how they turned out. The Consumer must be enticed with something real again, not just Ad hype.

One cannot have a thin Skin in this life, and my Students should read this article which discusses the structure and nature of college rejection letters. Often such letters are the first adult rejection received by the Student, and Parents should not sugarcoat such things for their children. People are going to face a lot of such rejection in their lives. There is on average about 17 Job application rejections before One can get a Job in American society. The average current Retiree from the American Job market has worked for 6-8 Businesses, been Fired from one, had two go Out of Business, and been Laid-Off or Downsized from the rest. You find out continually that you have been superceded by a more qualified individual (yaa, Right!) in receiving a promotion about twelve times. Life is not fair, and no one cares about your household bills but yourself. It is not rugged individualism so much, as it is who gives a damn! Get used to it!

Here is a new technique which is more Interesting, though I wonder if the prediction rate will vary that drastically from the traditional, or achieve greater Insight in the trouble. They obviously have not run their own model form through their own calculations to determine how often it will to achieve the End desired. All Situations involving multiple input factors will generate a multiple Solution set, of which only about 15% of Solutions are in any way viable in the matrix. The Solutions are winnowed by further math processes, until there is a limited set of viable options to choose from by policymakers. The optimum solution has invariably already been subtracted from consideration somewhere in the Process, and the lobbying process of Special Interests in the political sphere will complicate any chosen venue, so the Risk has not been lessened in any manner. It is a great effort, but one which will be ignored, even if proven consistently Right; all within the realm that the model will fail somewhere based upon its own calculations. lgl

Monday, May 04, 2009

Who needs Money?

I do not think much of Mike Shedlock’s idea of letting Warren Buffet buy Wells Fargo; still, I would like to hear the Tender Offer. Berkshire might have serious problems with the Acquisition that Buffet might not have contemplated, especially Treasury review of his own Books. Warren may be particularly perceptive in estimating there is still real problems in Housing; I believe that the Government support of the Banks had an unfortunate effect on Home Prices, which need to reduce another 8% (my estimate–solely contemplative) before We actually reach real value in the market. I am glad Warren had a pleasant Weekend, though he should have sent me a Ticket for the free food. I promised I would not have written on the Event (unless, of course, there was something to write about); I am always too busy Eating to take Notes.

Those who have the time should pursue this Paper by Lopez, Jewell, and Campbell. The abandonment of Property rights by the federal government under Kelo will eventually bring great losses to every Property holder. The basic problem will be multiple interpretations of property rights by the various States, with a consequential Result of financial institution resistance to subscription of mortgages in particularly offending States. The lack of unified definition of Property rights will lead to the degradation of cellular worth in aged Property, alongside a loss of diversity in the Capital landscape. We will wind up with channeled Development with an increased readiness to abandon effective Property in pursuit of new developmental factors; it bringing a forest of clutter and lowers overall Property values.

One can get a history of past Inflation in this article. Allan Meltzer also presents a good discussion of why Fed reaction when it comes will do little to contain Inflation. It is connective process which will build inflationary pressures within a relative stability, then the pressure is released in a Rush to underwrite residual sustained losses. The Fed must be Willing and Able at the time of Release to immediately raise Prime rates to 7%, else the inflated Pricing simply grind forward. Ben Bernanke is not prepared to accept an Prime rate above 5%, even if you stole his personal equity assets. Pumping funds into an Economy unprepared for expansion will not stimulate Production, only Inflation; while expansion must be governed throughout by Consumption Demand for the excess Product. We are in a Time of sated Demand, and with the only high Interest rates being on actual Consumption; We don’t need the extra Cash. lgl

Sunday, May 03, 2009

The Polder Model

Russell Shorto has become fascinated with the ‘polder model’. He does not understand that Americans once had their own form of polder in Farmer and Consumer Cooperatives, which were always limited by a Government who feared countervailing power, and actually driven into extinction by the Corporate domination of the Government starting in the 1980s. American Cooperatives basically were the brainchild of European settlers still not acclimated to American life in the later half of the Nineteenth Century, which operated quite well in the Capitalist system of this Country. Their success led to the Corporate envy which demanded an end to the tax preferences granted to such organizations, forcing a metamorphism to the more traditional Corporate form. I irreverently once stated that Corporations could not tolerate a Business structure which actually protected the interests of its own Stockholders; Corporations were tired of the existence of financial organizations which actually cleared it’s Books yearly. American Cooperatives met their own demise in Tax regulations which stated they must meet the Corporate model in order to obtain the Tax advantages of Corporations, as lobbied into existence by the Corporations. Thereafter, Cooperative members had to suffer the same ineptitude as Corporate Stockholders.

Robert Shiller advanced the position that there is no Depression because People cannot believe there could be a Depression. He indicates an element of Wonder at this attitude, while I ask why he should. Americans witness the huge Labor Force currently employed with employed labor heavily outnumbering unemployed Workers. They are aware that conscious control of their own expenditure patterns has brought down the price of Energy, and suppressed the rise in Prices in other Retail outlets. The majority of Americans are well on their way to owning their own homes, with ability to refinance what remains of their mortgages upon Need. Every American who is threatened by economic duress is outweighed by eight Americans who will curse within a Recession, but will only lose their Entertainment outlet. The Rich may have lost trillions of Dollars in the Recession, but all their wealth basically derived from the last Booms; the average American is in much better shape than they were prior to the previous two Booms, with no Warnings Signs that such Gain is in any way threatened. Americans are still doing well, though the Rich may feel ill.

Contrast what I have said with this Post. Surveys are poor vehicles to determine how People feel; they believing the Survey being a stage to vent their frustrations. A probable 80% of Those surveyed are far more Content than the Survey Results would indicate. The huge Percentage of People adopting lower-paying occupations express a huge level of Comfort. The primary indication over the last decade has been an innate American desire to pursue the ‘polder model’ of Europe, where Crisis Management is not a daily fact of life. I agree with my fellow Americans, and would suggest the Corporate types solve their own troubles without Expense to Ourselves. lgl

Friday, May 01, 2009

Some Things never Change

One has to read Tim Duy’s Tour through the economic climate, Thanks to Mark Thoma. It is a particularly good analysis, though it does little to position fund reservoirs within the Inflation Debate, something in which Fed analysis is equally lacking. One has to ask Who has the Money at the end of the Day, and the Stimulus has not translated into loans to Business. The excess funds are sitting in Banks, serving as Reserves to cover their bad loans. This makes much more inflationary pressure than does excess Cash in the hands of Consumers. Bank ability to extend loans without inhibition means a loss of Vetting of new loans in a scarcity environment, which moves into the Resource markets, so Pricing will not reflect the value of the Input and the Product. My Bet is on Inflation, when the Fed eventually tries to contract the Money Supply after unadjusted provision of funds to generate Output which has no Market for its Product.

Stephanie Flanders expresses a British parochialism in concentrating solely on the British economy, but the Work can be extended to the United States and the World. Neither Great Britain or the United States had a clear-cut Boom prior to the latest Recession, both the Boom and resultant Bust did not show the traditional criteria of Boom and Bust. Employment numbers in the Boom were very slow to aggregate, and Job Drops was extremely massive in the Recession. Provision of Product during the Boom consisted of fulfillment of generated Consumer Product Demand; i.e., Business first creating a desire in the Consumer, before satisfying that desire. The Recession implies Consumer abandonment of these artificial desires to Consume, without really abandoning the basic underlying principles. Consumers are not buying the new SUVs, but they are also not buying the economy cars; choosing instead to drive their big SUVs longer, making them less expensive to the Consumer. The entire Process can be extended past the auto industry to all elements of the economy, with Consumers buying the more expensive Product, but far less often to obtain value; be it Homes, Autos, Clothing, Durable Goods, or technical Goods. All of the Economic and Business leadership have been complaining about this lengthened phase of Consumer purchase, even if they did not know it.

There will be some bright Reader out there, who thirsts for knowledge of the Chrysler Bankruptcy, and I will give them this CalculatedRisk Post, which I have not read; at least not the links within. It is sufficient to understand that a Deal has been struck, to force a Deal to be made under the pressure of a Judge. The final Deal will establish who Wins and who Loses, and a Willingness to accept the final decision is the criteria for having a Seat at the Negotiating table. No One can go on Strike, no one can Walk Out (notice this is not a Rant against Labor–Walkouts by Banks, Investors, Stockholders, and Management are equally accompanied with lack of representation in the final Settlement), and the final Deal has implied federal troops backing up the Agreement. A Deal will be struck, on which no one wholeheartedly will support (not even the Government), but it will Write Off bad assets basically through a political decision. It reminds of old-time Political Conventions and religious Revivals, where Promises of future behavior are generated by envelopes of Cash changing Hands. lgl