Sunday, April 25, 2010

The Means of Regulation

Robert Frank may have answered the question of the Wall Street bonus system, with all its outrageous benefits in all their ugly glory. An old professor once told me that fanaticism hangs at the extremes of any ideation. I also remember the happenstance where I could not convince a head of an economic department that statistical data will always become skewed at extreme range of data points; the reason Why mathematicians often get rid of the Highs and Lows of statistical datum. Businesses need to pay their labor on the basis of the Mean of productivity, not the Average; all due to potential erratic performance from their best Help. Wall Street insists that Wages and Bonuses be guided by individual performance, and statistically, these firms are at much greater threat of high loss of productivity; a major factor behind the failure seen in this arena. It is truly appalling when these firms insist on Government protection of their structural soundness. I once proposed that all Wall Street labor who averaged 3 years of higher than the Mean compensation should be forced to endure 1 year of unpaid leave until they approached the Mean of Income of their fellow employees; all this to demand the creation of universal Contacts and associations, buttressing the Mean productivity of all Workers, while limiting the Gain of the few outstanding Earners. This is not something which was well-received by business personnel.

Read this Review, and ask whether ordinary bankers compile the necessary information to set boundaries on their Credit extension. Loans bring Interest which are Profits to bankers, without their ability to estimate the soundness of their extension policies, except to try them and witness whether they fail. The free market is not a self-correcting beauty in operation, needing almost a universal firm failure to even begin to function. This may be construed as an inefficient approach in evaluation if either Employer, Employee, or Investor in the enterprise regulated. A Doctor might decide to forestall blood flow prior to triage, simply to forestall Patient complaints. Emergency measures call for intervention, and the only means the Public may have to achieve intervention may be regulation. We are in an actual discussion of Who should pay for Emergency services, and How those services should be extended. It might not be profitable to the Public to listen to the Patients, who have a tendency to show up at the Emergency entrance.

Read this Piece from Rajiv Sethi, and ask if self-regulation can be effective. Can self-regulation, or any regulation, be sound if the performance criteria alters in mid-stride? What I mean states that Reserve requirements based upon previous Profits performance, itself produced by an escalator ride of past performance, will always fail at some point; producing an elevator ride to the bottom. It might function well, if there is only short distance between floors, but would you ride an unbroken escalator to the top of a skyscraper; something which the anti-regulators would propose to Us as adequate regulation of the markets. I am not an expert at regulation, but suggest that real enhancement criteria must be followed, or We will be destined to continuous interruption of productivity at great Cost. lgl

Friday, April 23, 2010

The Bank Problem

Conservatives have been fighting the concept of central banking at least since Andrew Jackson abolished the Philly bank way back when. Are they really that Conservative? Read this article, and then postulate the Question that the businessmen behind this demand are not that Conservative. Business likes inflation. They like to contract huge amounts of Debt in Capitalization of enterprise, then pay back a much less-valued amount. Every central bank attempts to limit this practice by maintaining the value of the Currency, and so, Business has always opposed central bank policies. Labor should always support central bank policy, as it preserves any Savings achieved by themselves. Current Fed activity, as explained by the article, clearly outline that Business controls Fed policy; a further injury to both the dollar and Depositors who lose real value. What I worry about, and every economist should, consists of the fact that the Fed will not only begin to resemble another business player in the economy; but that it will resemble the corporate entity of Enron, with hollow assets based upon its own evaluation. It not only nullifies Fed policy, but the institution itself.

There is this Reading List to study the issue of large banks. I do not know whether putting a Cap based on percentage of GDP on bank holdings is the right method. It turns the entire effect of legislation to basically Accounting procedure, which will always lead to confusion. I would propose much simpler legislation which actually provides some protection from inflation. The basic Concern must be the expansion of leverage under the banking system, and here there is little control. A different approach might be devised.

I am just throwing this proposal out there, without much contemplation; the rationale is simply to get the large expected criticism. The later might highlight the serious areas which must be addressed. I propose that a simple law be implemented which would require that 25% of all Profits must be returned to Depositors as a percentage increase of their Deposits every year; that 25% of all Profits must be returned to Stockholders every year; and that Wages and Bonuses to Bank employees can exceed more than 25% of such Profits every year. It would leave 25% of all Profits free for business expansion; generating a simple method of bank improvement of position with least support of leverage. The Proposal may be too simplistic, but it might be the exact place to start the discussion. lgl

Thursday, April 22, 2010


It is fundamentally rare in occurrence when I disagree with Mark Thoma, but this may be one of those times. His basic position would have everything trail from core inflation numbers, which on surface would seem to be the best. It holds down Welfare payments and taxation, while inciting the least Government expenditures. This on the surface appears to be the excellent product desired, but is it? We are in a period of necessary Stimulus, where We are attempting to get Production restarted from the lows of the last Recession. Incentives to business from Tax Credits work least well when there is an absence to Consumer Demand. What does this information tell Us?

I actually think that Welfare payments should be geared specifically to the Cost of Food and Energy. My analysis states that the quickest method of Stimulus is to incite Consumer Demand. Setting Welfare payments to the most volatile Consumer products which are most in Demand under the issuance of available Cash generates the greatest expenditure of Government stimulus; at probably the greatest rate of actual Spending. This higher Delivery Rate to Consumer Demand, along with business desire to share in the Wealth, actually lends itself to suppression of the more stable Consumer prices. I say this knowing full well All recognize my long-standing opposition to special Tax Credits–especially to business organizations.

We now have to consider the impact on long-term inflation by such a policy. Here is the thing! Long-term stable Demand for Energy and Food will lead to economies of scale within these industries, and eventual rise in the Supply of Product. Such a reduction in Food and Energy prices will never be realized, unless the Government will face reductions in Welfare payments when and if Food and Energy prices reduce. Business, which relies on such reductions where possible, will pressure those reductions whenever they can. Government reduction of Welfare payments after reduced Food and Energy prices will suppress all Consumer prices over the longer period, if done successively and correctly. It is here where We find the Problem: the inability of Politicians to buck the Voters in Election seasons. It requires a bipartisan commitment by all Parties with firm guarantees that no Promises will be made to the Public advocating any repeal of legislation set to impose such Welfare payment reductions. I do not know whether Congress can actually act in unison about anything. lgl

Wednesday, April 21, 2010

Topics of Discussion

This might sound like good News, but is it? I have yet to see data on project assignment where Temporary Employment has replacement rates to Permanent Hires. I know that project assignments, or Temps, have been increasing against Permanent Hires, though no one is putting out any significant information. I believe this is the most pertinent element of the Employment situation, and that small firms have the more stable platform for long-term employment. Failure to examine these trends closely will probably bite us eventually, as Skilled Labor drifts towards small firms; who are more understanding units in that labor policy of the firm has a face. Large firms will likely find an inability to develop native skilled labor, and due to the job requirements, imported labor will be ineffective because of cultural and language barriers. This remains a field of Study for young graduate students.

One can talk about great men, and in the discussion, learn a great deal. I cannot remember Where, or in what context, Paul Samuelson made this comment: "In actuality, modern Man pays a great deal of Money to be a Fool". I don’t know whether that explains anything about the Man, but that seemed appropriate after reading this Krugman Post. I have often thought that the Words reserved for private contemplation should have Public expression, simply to explain the level of competency of the Speaker. It contains the inbred feelings behind all ideation, and reserves ability to define the Individual; remember the Bush/Chaney open-Mike discussion of a Reporter in the first of their Presidential bids? We might have saved much Wealth and Heartache if We had evaluated the two men then, rather than after 8 years of toil. Paul Samuelson, on the other hand, should have been more recognized for his decades of real labor in the interest of all humanity.

Somewhere there is a connection between the Goldman Case and the above information. You play the Game, you finally must carry the Name. The mafia only wished they had the Earning capacity in their own lines of endeavor. Investment banks, through Crisis, Recession, and Bad Times, always manages to pound out the bonuses for their Executives; if I were a Prosecutor, I would claim to an identity between investment banking and Pyramid Schemes. I would call it all the Chain Letter for the Millionaires. There is a similarity, knowing that the Authors of these CDSs make millions, while the Wannabee gets the Shaft of that famous Gold Mine. We must move on soon, as the Recession will never disappear until We turn away from it. It is necessary to curtail the causes of it before We turn attention elsewhere, but it should be Short in duration, and Heavy in punishment. It is unlikely to be either; I will probably still be discussing This next year. lgl

Tuesday, April 20, 2010

The idea of Taxes

The appearance of things in China lead me to ask some serious questions, most centering around the existence of Consumer Demand in China for fixed placement assets. The Real Estate is simply too upscale for Chinese households to pay for considering their Income. Other Consumption Goods are also targeted for higher Incomes rather than that which the average Chinese household can afford. One has to ask what will be the end loss, after all such Goods must endure a period of degradation before Chinese will be viable as Consumers; this means, by the way, that at least half of the Investor principal must be lost. Sensible Investors will long have abandoned the Chinese investment market; those left suffering real losses.

Joseph Stiglitz writes a very good Piece, except that it is way too long! It fits in nicely with the above message in stating there is insufficient Profit in investment for necessary Capital development, while the modes adopted for investment could never pay for itself; there not being a capable market for the Product. Consumer Demand insists on both desire for the Product, and the ability to pay for it. Consumer Credit was originally designed to cancel the restriction of ability to Pay, but the truth states Consumer Credit can only succeed in an environment of rising Wages or rising Inflation. Stiglitz praises the Governments of the Past far more than he should, which never managed any great Restart of any economy. The real Restart capacity of the economy comes from the Profits from Production not downgraded by the previous Recession, searching for new Investment opportunity and eventually finding it; Wars always seem to help. The important things is that the previous Investment made before the Recession was wrote off as loss.

This definition of the workings of the economies lead to a relative number of observations. The first must be that normal Production develops excess Profits; they in excess because of lack of investment opportunity with adequate Return. This suggests that the level of Taxation of those Profits can be much higher, without any effect made on the Capital construction. Investment profitability is the old Story of attempting to implant a middleman Cost into the Production cycle, it being a Profits center established as specific ratio of Production Profits. Investors always wonder Why it fails of performance under the Long-Run. Taxes could replace much of this attempt, replacing other taxation to pay for Government services, while not seriously deducting from the eventual overall Return to Investors over the real period of investment. Some might not understand this Statement, which simply says that the Investors will lose the Cash anyhow, because of worthless future investments. The Government can also attain much more of Investor Profits by the increased price of licensing of Capital constructions, again without any serious interruption of Investment schedules. I would hate to state that Taxes are good for you, but can state that taxing the right people is much better than taxing the wrong people. lgl

Monday, April 19, 2010

Monday, Monday!!

Paul Krugman probably knows as much about the financial crisis as Anyone, and the Reader should preview this article; but why can’t he develop a proper table? The six rationales are an easy fix: Size is simple–just create a business tax which penalizes excessive size. Shadow banking is also simple–just nominate a Commission who can declare businesses banks anytime they wish; hell, some criteria might even be defined. Opacity may be the easiest–the IRS allows to declare anything Null and Void without Tax exemptions if it cannot be easily understood, and taxed to the maximum. Predation–allow Bankruptcy Courts to order the return of any and all financial charges made on financial instruments the Judge finds difficult to understand. Government intervention perhaps could be forestalled by a uniform system of regulation. Monetary mismanagement could best be handled by Congress by setting adequate fixed rates on Credit; pin down Consumer Lending, and you pin down all following Wildcatting in the financial markets. A lot of Readers will think I find this entire Situation rather simple, which I do not! What I am trying to say is that any Solution must be clear, clean, universal in application, and stand the test of Time. The concept of a Quick Fix must be left behind, and a permanent change of direction envisioned, else We will always be back to the temporary gaps which must be financed by Government intervention.

It might help to read this thing, or it might not. My first opinion on it must be that there could be a definition by Congress on what constitutes Investment, and what constitutes Gambling; all with the Intent to tax Gambling at a higher rate than Investment. That definition should be based upon the security of funds within the transaction. What I mean is does the fulfillment of the contracted obligations itself guarantee reimbursement of the Principal? If it does not, then Congress should declare it Gambling. Congress could set aside the funds drawn from the excess Tax revenues as a fund to reimburse the Principal on financial instruments which fail due to partner noncompliance.

I will throw in this Post so that everyone can feel bad at the beginning of the Week; it is about as bad as the volcano. Maybe a Earthquake would be more educative, as Consumer Sentiment seems to be suffering from liquefaction. There is not much hope that things will get better for the households in the near future, and it seems that it will require an alteration in the Goods model before it occurs. The trouble with studying any type of continuous system operation is the feeling of being a wounded animal, as the systems habitually sour in operation. Depressing, isn’t it? lgl

Saturday, April 17, 2010

Putting Sense back into the Cents

I could have written this thing, though of course, I did not! I am not as sanguine about the Time when Government stimulus turns negative, especially with the continued existence of bad Paper out there. Consumption is bound to fail after all these households find a Rent situation which they must actually pay for, even if the actual rate of Consumption does not fall. The economy is much more devoted to Consumption employment now than it was in previous Periods; Consumption used to fund Production, presently, it only fuels Retail employment. I must say that I believe in the traditional U which will hold, far more than will a V or any form of ‘reverse square root’. The road back up will be long and slow, and possibly impossible with the banks’ current attitudes towards actual lending at the grass root’s level. There is always the tendency during Planting Season for the green shoots to turn out being Weeds.

I can join forces with John McCain on this one, and think Bruce Bartlett calls the Pot too black while standing in the Soot. The Value-Added Tax has a great number of things wrong with its methodology, pressuring exactly the wrong elements with high taxation, while allowing perennial Tax escape for exactly Those who should be most taxed. Retail outlets under Value-Added taxation remain the tip of the Whip, always facing the worst of the Tax; Consumers, angered by the Pricing of Product, stand totally consistent in their demand for low Profit yields for Retail, thus forcing constraint in the employment-generating sectors. Businesses are left to pursue Production from foreign sources, thereby avoiding the impact of the Value-Added Tax; further reducing domestic levels of employment. We do need a Flat Tax, where Taxpayers are actually shocked by How Much the Government wants!

I disagree with Mark Perry most often because of his sensationalism, but never because of his numbers. Tax preparation is much too costly for Americans to bear, though it does employ a great number of academically-trained personnel. The Tax Codes must be made simpler, and Tax Credits must go the way of the Battleships in the Navy. They are too large, too bulky, and always grant far more license than originally intended with passage. I could even make an Argument for elimination of the Personal Tax Exemption, as it costs about $80 billion in tax revenues going to individuals who should be paying the Tax. Any line of Tax reductions which allow a significant segment of the Taxpaying population to cut their taxation by more than 30% of the nominal rate produces more injury than aid. Taxpayers should never ask What a Tax Cut does for them; but ask Who gets out of paying how much. There should never be any Tax reduction greater in amount than Twice the Amount of taxes paid by the poorest Taxpayer. Open-ended Tax remissions are the greatest bane in our Tax Code, and should be treated like an infectious disease. lgl

Friday, April 16, 2010

Oh, the wicked web We weave

Government policy often only introduces bureaucracy into real-time events; causing delays in performance which does not explicitly help in any manner. Federal policy slowed the rate of mortgage failures last year, but the repossessions rate is regaining previous levels. Here is the trouble with the government action. The mortgages issued were bad, with mortgage takers failing of Income performance, and mortgage holders engaged in extreme leverage. Everyone was saying they could make their obligations, and no one could. The Government taking up that Proclamation after the Participants grew tired of the pretentious claim only held back the onset of failures; it did nothing to alter the state of such failings. Everyone took the money which granted a breathing space, but then they went back to failure as the Income generation was still missing. Government policymakers spent a lot of Taxpayer money (which they did not even collect–simply borrowed) to buy what was about as valuable as the initial mortgages.

I will present the Reader with this delayed Post from James Hamilton; it all being a question of my inattention when it was written. I am not as confident about Oil Price as James, though he seems to have the graphs on his side. My concern is that the drop in Miles Driven should be a counterfactual pressure on Oil price, though I only witness an entrain process of maintaining routing service Profits. It seems to be a Private Sector response similar to the above Government policy, where poor enterprise business lines are maintained by overabundant support pricing. Higher Oil prices will have an impact on the economy, if this support pricing is not reduced in the face of the higher normal Profits–which in no way do I believe it will. The $12 billion additional siphoned from Consumer pockets which James mentions will grow to be about $14 billion per month without support price reductions, and this is a serious reduction in Consumption over sustained periods like a Quarter or Year.

Paul Jackson thinks that people are actually spending their mortgages, from which I cannot really demur. We have about 7.4 million mortgages in arrears, and most households are spending the absent payments on Consumption. I wish I had better information of the total amount value of the lost payments per month, but I can state rigidly that reinstatement of consistent mortgage payments will bring a major drop in personal Consumption by households. We have reached that point where return to sound financial management will again bring on recessionary decay. Vast introduction of Government funds can only further destabilize a shaky financial market. lgl

Thursday, April 15, 2010

Name your Poison

Cactus again presents us with a good Post, which should be read carefully. The timing of Tax Cuts and Recessions is a very important subject, whose examination leads one eventually to the supposition that Tax Cuts may be a underlying cause of the Recessions themselves; remember that no one but myself would say these words, as it is a claim which even liberal economists find hard to swallow. I, though, contemplate strange things like the possibilities of releasing too much investment capital for the level of Production currently in force, with resultant forces from this overexpenditure leading to a lack of Profits in the overall Production schedule–it is the old resource pricing thing again plus a lack of Consumer Demand for the additional Product. There has been a lot of work on marginal increments in economics, but no one but me has considered the knife-edge characteristics of the Profits. Here it is entirely possible than an alteration is uniform Profits (Average) of 1% or less can mean the difference between Boom or Recession; possible because no one has statistically checked. It is remarkable as economists check out every other variable.

I should explain myself somewhat further on the above issue, as I believe that too significant a Profit ratio is as troublesome to a balanced economy as is too insignificant a Profits ratio. This means that excess Profitability may indeed be a cause of Recessions. There may be a Profits boundary which is a knife edge, where less than the optimum Profit brings loss of Growth and underdevelopment, while more than the optimum Profit brings Recession with overproduction and under-Consumption of Product. A statistical Study could revamp the study of economics once more, with one more Revisionist ideation.

I was going to discuss a different Post also; but as I examine what I have already written, I will honor Tax Day by explanation that if the above Speculation is accurate, then Government taxation becomes clearly important. Government tax rates become the forum to artificially alter the profitability of Production, and influence Consumption patterns. A refusal to consider higher taxation may be an insistence on recurrent Recessionary conditions. The Reader must understand this Speculation is way into the Outfield, but it is the area where you get the Home Runs. Enterprising young Graduate Students should consider this an arena to make a Name, because it will bring a greater understanding of Profit ratios even if the Suppositions are proven Wrong. Fool I was, and Fool I be, but Who gets fooled when the Day is done? lgl

Wednesday, April 14, 2010

Tax Day

Casey Mulligan can make you believe in the old adage: If Horses were Wishes, you would get Alligators! What that means is don’t let Anyone absorb your Dream, as you will get back a Nightmare! It is overwhelmingly apparent when discussing Taxes; universal input will only bring an Extreme. I could explain how bad it can get! I like the Concept of a Life Cycle Tax which is scheduled by the Age of the Taxpayer. The whole idea revolves around a Tax without remissions of any type, where the yearly Tax is defined for All, then a Schedule written where Tax imprint is defined for the statistical earning years. This means that the burden is heaviest in the peak Earning years, while lighter is the Household Formative years. Sound Good? How about if the law assigned 104 hours of Community Service per year, which would not be discontinued until the Tax was paid, and would be accumulative over Time until Community Service equaled 60 hours per Week? Told you We would get to the Nightmare part!

Here is another look at the Tax issue. David Leonhardt simply suggests the Rich are bitching solely because they are earning more than they used to compile. Here again, One could achieve great award by a process of scheduling; assigning a set Tax per $10,000 dollars without tax remissions, then doubling, tripling, and so on as Income rises. Everyone gets to Moan, and no one gets to Protest. Much simpler in operation, but much greater in tax bite. The good part of such a Tax would be the low level of Tax accomplishable–possibly $180 per $10k. The bad part is Some would have of multiples of huge numbers, and it would almost be impossible to touch the Payroll tax without tripling the initial Tax rate; still, it is worth investigating.

David also predicts that less than 10% of all Households do not pay federal taxes; most are simply the revenues from hidden forms of tax. One also has to understand the extreme difficulty of escaping the nearly universal impact Sales taxes of States and Communities. There has been no Study which I know of which asks How Much Sales tax revenue is paid by other units of Government; this would include all Welfare transfers. It does get complicated does it not? We take, We give, We take it back! Could We come up with a simpler system?–Yes! Would We like it any better?–Probably Not! We all face the horrors of Tax Day, even when We do not know We are! Be brave, as it will soon be over for another year. lgl

Sunday, April 11, 2010

Efficient Government Operation

I first read this short missive, and wondered Why Mark Thoma would be publishing it now, then remembered he was on a trip to Great Britain. I still believe that if he can rehash arguments; I should be given equal right to do so. I once long ago make an Argument that Everyone championed the democracy of ancient Athens, when We should champion the discipline of Sparta. I always was a Contrarian who made the life of college professors unbearable. My thesis held that everyone owed the State simply for their own existence, and this could be translated into a labor Cost. My idea stated that every achievement an individual accomplished incited a cost to the State, and the individual should bear it. He would owe the State so many labor hours simply because he was borne, he would owe the State for the primary education he received, he must pay for the secondary education he received; there would be further labor hours assessed for any business he started, or honorable position he achieved. The individual would owe this labor time, and he must pay by labor service, supply of alternate labor of the Skill required, or pay a huge Cash replacement. The State would pay only a Living Allowance, and nothing else!

The entire Concept behind this argument consists of a real payment by the individual for the help he had received from society and the State. Now, he could always present himself for labor service, or he provide hired alternates; in either case, the State was not responsible for unusual labor Costs–paying only the basic Living Allowance. The State could assign labor cadres to their most efficient positions, and insist more educated personnel must provide equivalently educated personnel for labor service if other than themselves. The Benefitted in society would be held responsible for the supply of labor, and for payment of that labor. The State would only be responsible for their survival within reasonable limits, and assuring rational placement of labor assets.

The Advantages of such a system may not immediately be apparent. First, the State would automatically retain the Right to dismiss all labor because of insufficiency of Skill. The individual owing the debt could be transferred without appeal, and hired replacement labor had to meet State demand for skills. The entire Concept of a Civil Service could be dismissed, while the Skill levels of the labor could be increased. Employment and Partial Employment would go up, as the Successful attempted to continue their success without interruption. The Cash Award Substitute could be set high enough that much of Government taxation could be reduced. Every individual would have an innate, personal stake in the State by such a system; no one would want serious disruption of State function requiring a labor cadre replacement of any kind. The State could call up any amount of labor reserves required from any level of Skill with the least amount of restriction, and individual labor would have the easiest form of Tax displacement from such a Corvee. The State would also receive the best form of labor; that which is outsourced, and therefore does not have to be Saved of reputation. All elements would be outsourced, and as such, completely indifferent to the anger of other Participants, when saving their own Record. The Whole would provide the best labor with the least Cost, and endure few of the Hiring Costs now a constant factor of employment. lgl

Saturday, April 10, 2010

Debt Creation

I leave it to the Reader to figure out Why they should read this, other than it is interesting. I would comment that Greece has always failed in the primary of matching equal status with other European powers ever since the origins of history. The basic rationale behind this development was the continued existence of rival City States for sustained period; elsewhere one City established its dominance early over all others, leading to suppression of the regional sentiment which Greece endures. This rivalry led to a Civil War in the Truman era, a military dictatorship scant years after, and creates an impossibility to reduce Government expenditures now; the old resentments immediately reassert themselves upon any reduction of benefits to geographic areas of the country. Greek Nationals still get drunk, and shoot off weapons into the air. They also possess a history of partisan activity for much of the last two hundred years. It is not easy to state that Taxes will increase, while Government benefits are going to disappear.

David Beckworth presents good material on the American debt situation. We are currently dependent on outside resources for finance, and the major question becomes exactly How dependent are we on this outside sourcing. There are two lines of Thought on debt as such: One thinks that a constant debt level is mandatory for a given level of GDP; the Other believes that there are methodologies to reduce debt levels drastically, without incurring a major loss of GDP. I am of the later base. The whole question will become as vital to Americans as it currently is to the Greeks as the debt levels rise. It is all about the creation of Consumption markets through the maintenance of easy finance. The problem arises by the debt taking on a life of its own, where the generation and payment of Interest becomes an industry in itself, and introduces a major Cost into the Production schedule. All the nations discussed by Felix Salmon faced adverse Production Costs due to the arrangement of debt around their capitalization; a position which We are fast approaching, and with no indication that the Demands will even be different for ourselves.

It is now time to examine this article. We have not been keeping the pace of Job creation to fulfill full employment for the last decade. We are actually about 15 million Jobs short of full employment. Another decade of such failure could truly bring great changes for ourselves. The primary area of impact may be the very discussion We are having on debt creation. I have been looking for some effective data on the acceleration of debt per individual upon loss of employment, over the creation of debt under employment. I would believe debt creation would accelerate without a Job, but there is little data I can find on the subject. It is know that at current levels, We could have somewhere around 25 million or greater Unemployed by 2020. It makes the debt acceleration factors more keen under such circumstance, and resolution of debt repayment must be much better planned than We have seen to this point. lgl

Thursday, April 08, 2010

Do not stay the Course!

I found this Post which I do not believe at all, though I am great distance from doubting either the information or the integrity of it. I know there is not disinflation, but how do you explain the hidden inflation? This is the real problem! I know, as should every economist, that we will have to endure a burst of inflation prior to a return to normal Production; people simply cannot return to a normal purchase pattern without such a burst. What the second graph in the Post needs is an expression of the line of production since the Recession began; not in monetary terms, but in real production of physical units. It would also be indicative if there was a red line expressing where Production would have to be to maintain a previous Consumption pattern from prior to the Recession. My contention is that to get from the current Production line to the red line of necessary production would require a high level of consistent inflation.

I read successive reports like this one, which all say the same thing, and repeat the same formulas for the advance of education. The trouble comes in the fact that none of the suggestions will actually affect the outcome. One of the real problems lie in the insistence that the educated bear the cost of his education, rather than the business and institutions which actually benefit from the Skill-levels acquired. It would make far more sense to tax such entities for every hour of Skill level labor they receive, while receipt of such funds would require acceptance of a mandated Wage level for academics; this later ensuring that there would be a Union-style Wage negotiations between Government and academics. Students would be able to avoid extreme Expenses when they are in a low-Income generating class. Businesses could assure themselves of a consistent supply of skilled labor, while paying a probable lower educational cost in the long-run. Educators could be assured of a consistent Living Wage, while the Wage differentials could be minimized; so that the extreme jealousy of Tenure and Placement could be reduced.

It shows the respect I have for David Beckworth because of the degree with which I agree with him, even though I feel that he is far too conservative for me. This Post is a prime example, as it explains exactly what caused the Recession. The reasons cited for the Recession are exactly what did cause the Recession, and central banks and monetary policy has did little to correct any of the conditions. I wish David would come up with some practical suggestions for correcting the current mess, and start a discussion thereby where some understanding could be reached. I would supply some such rationale, but it is too likely to be dismissed. lgl

Wednesday, April 07, 2010

Gott ist mit uns

Here is a bit of information which all, but especially Students, should read. I imagine that taking a economics course under Jodi Beggs would be fun, with a preponderance of learning through simply letting it sink in. I will give Jodi a little Hint: the place to find both Giffin Goods and Veblin Goods are the economies of a military occupation. The Poor utilizes Giffin Goods under such striated performance, while the raised leadership become fascinated with preeminence. I have some doubt as to the validity of her second set of graphs, finding an upward shift in the Demand curve, rather than an outward shift in the Supply curve, but what do I know? Life is too short to spend arguing with a pretty lady!

I feel like Paul Vigna, though I care a lot less. Things are truly bad, and bound to degenerate. I may be a Burnout Case as Things might be going to Hell in a Handbasket, but what will the Morning After bring? The seeds of our destruction lay in Lenders getting tired of buying Government securities; an Event which will come sometime. Still, what comes after? The population is still there; the Production schedules are still there; and people will continue to Shop even if they have to use Wampum. I have witnessed so many crises that I almost hope for the Big Bang, just to prove that We could live through it. We will someday have to ride the Snake Oil salesmen out of Town on a rail again, and go back to work; still, it might be refreshing for our jaded personalities. One should remember that Few would advocate throwing Us all into Debtors’ Prison; the Support Costs of such a refined system could not be borne by Anyone but Americans.

The Fed may think they are copying my Playbook, but they are not! Only two things will save the Dollar and American economy–higher taxation, or much higher Interest rates. Both can substitute partially for the Other, though it takes both to get the real position required; individually, neither can accomplish more than 30% of the impact necessary. With neither on our Plate, then We will lose 30% of the Value of the Dollar within 3 years. A lot of economists believe this will aid our Trade position, though Trade could not make up even a Tenth of the loss; and the Transport systems would be heavily stressed. The later Event would cause a mandated increase in capital construction at much higher Price levels; bound to be Budget-defeating without a massive Tax increase. The Situation seems rather bleak, but remember this is all relative; Americans simply forced to go back to being only marginally better Paid than the rest of the World. lgl

Tuesday, April 06, 2010

Making Bonuses prove their benefit

One always finds a certain lassitude in Critics, who would call for greater regulation and reform of the banking system. It consists of a relative disrespect for the loss of other peoples’ money, where they think bank failures cannot rob people of their Cash as effectively as bad management. There is a basic untruth in that assessment. The primary goal of any financial reforms must be the protection of the aggregated capital of the Depositors. There is a failure in financial regulation when Depositors take a Nosedive along with bank management.

There are two basic elements wrong with most of the proposed regulation and policies. The first consists of the insistence of treating the financial system as distinct and separate from all other business sectors. Any effective financial regulation must contain Constraints across the economy, not simply target financial institutions; else banking systems will be absorbed and hidden by other business powers, all in the name of efficient business management. All business management is in a continual search for the most Profit-laden means of acquiring operating capital. Financial instruments will flee faster than legislators can capture control of Risk suppression. The second thing wrong with proposed legislation remains the substitution of Regulation for leadership and brains. Following complex Rules will never be as effective as intelligence and sound judgement, especially in the arena of Speed; no bureaucracy will ever keep up with a Traders environment.

My approach to the entire Problem would be universal in scope, and effective in action. I would start by first limiting the Windfall capacity of Bonuses and Profits sharing; and doing this across the board for all business. I would pass legislation detailing there would be a 5-year delay in the reward of all such items, under the control of neither the business awarding the sum, or the control of the beneficiary of the award. The funds must be placed within a blind trust operated by a federal Trade Commission, and beneficiaries would have to appeal for the release of said funds after the 5-year period; businesses being able to appeal for repayment of such funds to themselves anytime they find error in the initial award due to malfeasance or poor policy on the part of the beneficiaries. The Approach would realign Salaries, returning them the role of life subsistence; while bonuses and such would retain their value as retirement capitalization. It would serve two purposes: again making Wages the primary vehicle of Income; and allowing review time to assess the soundness of previous awards–proving their actual value before release of funds. It is also clear such a system is critical and necessary throughout the economic structure, not just the financial sector. lgl

Monday, April 05, 2010

Contango has an odor

I began the morning by reading this Post, which drew me to this contemplation of arbitrage. It seems quite alien to anyone who is not engaged in the practice on a regular basis. Those invested in the situation utilizing these functions make a marginal bet, or plug numbers into a computer program. Most of the time, there are Profits to be made; as long as backwardation does not function beyond its normal range. This basically revolves around a spiral forward of Inflation, or what is known as a functioning of Inflation in the trenches. Backwardation is only a reduction, or reverse operation of this spiral. One has to understand that technically one cannot expect real Profits from futures betting, if the Inflation spiral is reduced, or reversed in minutia. Most economists would claim this is not necessarily the case, but almost all Traders would agree. Everything centers on the convenience yield; all things discussed or linked to in the two Posts. It is basically a practice equal to Betting in a Poker game, where one bets upon the look of degree of ease in fellow players; all dependent upon the safety of the quality of your own Hand.

Study this work by James Hamilton. It is obvious that the convenience yield has gone up in certain sectors, and that backwardation has dropped back within normal range. This makes Traders happy, because it reopens their normal method for draining Profits from the Inflation spiral; the traditional road of Trader profits. The information in the later Post, though, does not please me as much as it had Hamilton. The Employment numbers suggest a delayed return to employment, as found in the later Recessions experienced. This all means the deployment of a reduced labor market in the US, where a return to Production means a smaller return to Employment. Such Conditions will evolve into a forward-reaching Inflation spiral; probably good for no one but Traders.

Readers likely wonder Why I would study Contango at this Point. The issue revolves around the massive Pay schedules being paid to people engaged in this Trading during the previous year; where such Trading was supposed to have been reduced in Profits drain terms. This can only come through a labor market readjustment lower. Something smells in the State of Denmark–read your Hamlet! It also seems strange that China is buying more than America; a place where the convenience yield would seem to be highest. The economy is very shaky, and I do not like the terms of redeployment. It is all very disturbing! lgl

Saturday, April 03, 2010

The Chaos Theory of Economics

History is replete with Stories of Jobs which fled, then never returned. I was reading this Post by Robert Reich, when I captured this Thought. Now, I might be quite in error about the final numbers, but I will try to get as close as possible. Labor has to be a kind of Renaissance Man who must be capable of all Skills, until somewhere around where his Product must supply 8 or more people with a specific desired item. Technology develops in Production, not as an equation of Supply, but of the speed of Production; innovation of Product coming from the insistence of Demand for immediate service. It is basically a function of eliminating Production Steps, especially time-consuming Steps; the Point here being neither levels of Production, or Quality, has much effect on the development of Technology.

Technology, while utterly necessary for the contentment of Demand, is a Curse as well as a Blessing. Examination of the entire process of Production will reveal that technology is basically a elimination of as many labor Steps as possible while maintaining the viability of the Product item. This may seem like a continuous benefit, because it manages to maintain a profitability throughout the entire spectrum of Production models. The problem at heart is that technology manages to maintain it’s viability of introduction because of profitability, until somewhere after 1 laborer can supply around 250 people, whereafter the expense of technology reduces its value; it is all a question of profitability, Competition becoming too extreme for enterprise survival when technology becomes too cheap. Monopoly and concentration of Production becomes the only viable model after this variable point, depending on the nature and craft of Production; nothing else can create profits.

There will be a great deal of contention about the above Argument, as it has several large holes within it, which would allow for Trains to pass through it. What I am trying to do is simply to explain the general run of technology within the Production cycle, and not doing a very good Job of it. Now comes the Problem: Production stands at risk where labor is too critical, and labor stands at risk when technology is too critical. It varies across the Production spectrum, but forms of Starvation stands at both ends of Production. If labor cannot achieve a high level of Supply, there will be shortages of Product; if there is too high a level of Supply, then there will not be sufficient labor demand. Technology helps Us avoid initial Starvation, but rapidly generates a labor oversupply. Cottage industry matches the labor supply, but presents a threat to Supply under adverse conditions; technology supplants this threat, though it presents a scene where there is created a leisure class of too great a magnitude to be viable, given the Profitability of Production. This element may be the real Generator of recessions. lgl

Friday, April 02, 2010

Economic assimilation

I started out today wanting to discuss economic assimilation, and found that the World considered it to be something other than what I do; after a short period studying Search results. I started to gird myself to take on the entire World over the definition of the Term; then reconsidered in the face of possibly losing the Contest. I decided to get sneaky, and act somewhat more temperate in manner. I felt an impulse to simply ask what economists call the process where the reaction Starts and Ends when one economic force blends into another. I ask this to understand the length and duration of economic pressures, something which I feel is very important before you can even discuss Stimulus or financial liquidity. How long does a Materials Shortage actually last, and Who calls the Safe on Base? My intention was perfectly innocent in all this, as I was simply trying to establish some boundaries for economic policy other than a Time scale. The excellent Post by Menzie Chinn inspired my quest for understanding about economic assimilation of economic forces; this does not mean, kiddies, that your can avoid reading the Menzie Chinn message which has a vitality which must be read.

One of the basic hazards of economics come from the lack of clinical conditions for studying the economic effects of Change. It is here that economists fail of the precision of Science, as We can never produce Results which can be replicated across two separate spectrums. Close counts in Horseshoes and Grenades, but the outcomes are still very imprecise even there. So it is with economics. I still believe that there is Beauty within the Beast, and it is not simply and solely the fancy Graphs. We are basically in search of that diamond cut perfectly, which contains no flaws.

I know that there are Those out there who would suggest that beauty appeared more rapidly, if one has subjected himself to a uniform, structured education in the study of economics. There are some of us, though, who cannot withstand the rigidity and Cost of such advanced education; to say nothing of the Time expenditure. Economics should have a relevance among All, not just to a specialized Ph.D. A rather greater concentration upon the Endpoints of economic forces could be in order to understand the flows of economics. One should think of the Populations data of mathematics, with all those interacting circles of differing conjunction. One needs this type of theory, after which one can determine what part of the economy any action, policy, or force might affect. The largesse of the circle circumferences could outline the power and impact of the condition within the greater economic circle. Here I started out writing on economics for the specific purpose of avoiding the Graphs! Life leads one down strange paths. lgl