Mittwoch, August 31, 2011

Inability to learn... a sign of severe aging. When you can't learn something new, it usually means that you've reached a point in your life where you've given up, in one way or another, on looking towards a future that includes change.

This and this reminds me of why I cannot be a Democrat. Anyone who can seriously believe that it is the government's job to force banks to make loans to those who cannot afford them shows an inability to learn, at least from past mistakes.

From the first link:

A government department is again intimidating banks into lending to minority borrowers at below-market rates, all in the name of combating "discrimination." Welcome to the next housing mess.

The 1990s may have brought us supercharged politicized lending, but Eric Holder's Department of Justice is taking the game to an entirely new level, and then some. The weapon is a "fair lending" unit created in early 2010, led by special counsel Eric Halperin and overseen by Civil Rights Division head Thomas Perez.

To make a long story short, Perez et alia are using their ability to bring lawsuits on the public dime to force banks to make loans according to political criteria, rather than financial criteria.

Good lord, that's what got us into this in the first case: here we have an absolute blindness to financial and economic reality in the pursuit of a political chimera - economic justice - that has essentially already bankrupted the housing sector.

These people are dangerous. You can ignore economics for a certain amount of time if you have deep pockets, but at some point or another, the markets will toss you out on your ear after taking all of your money. The only thing that happens when you force the banks to behave as if finances and economics didn't matter is that the banks fail.

I mean, how stupid can you be? If this is the calibre of lawyers that are running the gods. One of the best arguments ever for passing a constitutional amendment forbidding lawyers from holding public office (it's actually not such a bad idea, as conflict of interests are rife: lawyers-turned-politicians get laws passed that profit politicians-turned lawyers...).

The second link underscores how fundamentally clueless Democrats are. Seriously clueless, clueless in the sense that they apparently can't think things through to their logical conclusions (or, probably more accurately, they have been thinking things through, to the logical conclusion that they can create opportunities for crony capitalism and corruption).

Here the recommendation is for the resurrection of the Fannie Mae/Freddie Mac model for infrastructure investments, because those institutions worked out so well (actually they did for the Democrats, enriching the party faithful, including Barney Frank's boyfriend, while committing fraud upon the US taxpayers):

The new bank would be a government-sponsored enterprise, or GSE, whether or not anyone admits it. The bank would have an implicit subsidy for its debt because it is backed by the government. And the debt it issued would be "off-budget," which means it wouldn't show up in annual outlays. When she first proposed the concept in 2008, Connecticut Democrat Rosa DeLauro explicitly described the bank as a "public private partnership like Fannie Mae."

Such an outfit will inevitably be politicized, as similar examples have been all over the world. Japan's postal bank has been used for decades to finance public works. Japan's roads and bridges are grand but its economy has grown little in 20 years. Agribanks, regional development banks, Brazil's BNDES national bank have all become vehicles for the political allocation of credit.

Ms. DeLauro's bill admits as much, stating that the bank must take into account the "economic, environmental, social benefits and costs" of the projects seeking financial assistance. Among the considerations: responsible employment practices, use of renewable energy, reduction in carbon emissions, poverty and inequality reduction, training for low-income workers and public health benefits.

Right, Like that's going to work.

The inability to learn from past mistakes is a sign of deteriorating mental ability. Of course, that is assuming that both of these approaches is not the deliberate attempt to create institutions capable of committing, for political and personal gain, immense damages to the US economy.

Aren't we screwed enough already? I cannot, seriously, fathom why anyone can trust the Democratic Party, at this point in time, to behave like responsible adults. This is the party of the crony deals completed in back rooms, backed up with extortionate demands from "public prosecutors" whose sole job is to make it impossible for anyone to escape the fleecing.

This is not the America I grew up in. It is not the America that is the shining city on the hill. This is the America of race politics, of the Chicago machine, of deep corruption and vampire policies that aim only to bleed the productive dry while laughing their way to the bank. Like all corrupt societies, it is dysfunctional and can only end up in one way: chaos and collapse. It's just a question of time...

Montag, August 29, 2011

Keynes... going to be the ruin of us all.

Seriously: in today's Handelsblatt (the article isn't currently online, but it's in German anyway), the lead article is about how the "economic elite" in the US is calling, apparently in a Keynesian unisono voice, for additional spending: the hundreds of billions spent weren't enough.

Ye gods.

Apparently these folks still believe that throwing money at problems is all you really need to do: it is, after all, a classic Washington solution to any problem that shows up (which does explain part of the reason the budget looks like it does).

Here's a question that has, as of yet, not been answered: At what point does a Keynesian economist say that his set of dogmatic tools fails to work and that an economy must go through a very painful period of austerity - paying off the bills, as it were, after decades of Keynesian excess - in order to restore order to the country?

I fear the answer is that a Keynesian economist will admit the failure of the system about the same time that a Marxist will admit that the Marxist system failed as well.

In other words, never.

Ye gods. The way things are going, the economy and the country will be sacrificed in order to meet the belief structure of a long-dead economist. Keynes was right:

"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist."

How ironic can it be that the defunct economist that Keynes here speaks of is ... Keynes himself?

Another quote:

"The difficulty lies not so much in developing new ideas as in escaping from old ones."

That economists of the calibre of Stiglitz call today for increasing government spending underscores how bankrupt Keynes' thought has become.

Ye gods.

Montag, August 15, 2011

Should Anyone Be Surprised?

Just read this.

Does this surprise anyone? Scratch the surface of any government-mandated ecological pie-in-the-sky program and you will get the usual: graft, incompetence and, apparently in this case, sheer stupidity.

The government gives ethanol producers lots of money to produce the stuff using new technologies, it turns out that these don't work, then the government mandates the usage of non-existent products and fines companies for failing to use what the suppliers can't supply them with.

Ye gods.

Wonder what the track record of other government-funded ecological-wonder-programs that are based on untried technologies and wishful thinking are like.

I doubt that they are much different.

Oh, and as an aside: the way things look right now, the EPA will mandate buying massive amounts of ethanol from Brazil, rather than changing its targets, spending the money originally mandated for domestic production - which can't be generated - on foreign suppliers, subsidizing them to increase their market share, making it more difficult - you guessed it - for domestic production to ever get up to speed.

Gotta love the unintended consequences here...but should anyone, really, be surprised?

An Interesting Twist...

Recent events have made it partially clear what is wrong in Great Britain:

"England is a nation of shopkeepers."

While generally attributed to Napoleon I, it is based on what Adam Smith wrote:

"To found a great empire for the sole purpose of raising up a people of customers may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by shopkeepers."  — Adam Smith, The Wealth of Nations, Glasgow edition, 1976), Book IV, section vii. c.

Napoleon's quote is more to the point.

Back then, however, Napoleon was wrong: Great Britain, though with a much smaller population (half that of France in the day), had a superior manufacturing base and the "nation of shopkeepers" trounced the French. The same view was held by many Germans before WW2, belittling the ability of the UK to field a modern army. They were also wrong.


Goodness. Read this to understand that, if anything, Great Britain today is indeed a nation of shopkeepers, unable to assert itself in the face of what amounts to an assault on the core structure of any society.

It's an interesting twist: a general judgement of foreigners (Smith, after all, was Scottish) about the English turns out, after generations of being proved time and time again to be wrong, to be right.

Let's just hope for the case of the residents of the UK that it doesn't take generations to claw back their rights to not be intimidated by yobs and prove all those foreigners wrong. That would be the true tragedy.

Freitag, August 12, 2011

Bumpy Ride, Oh My...

We're in for a bumpy ride.

As long as governments continue to do things half-way, the longer it's going to take to run the speculators down into the ground.

A speculative bubble bursts when it becomes apparent that the only way to make money in the bubble is to have already left it. If you're still in it, you're screwed.

While I dislike the man intently, George Soros had something intelligent to say today in the Handelsblatt. I'm not going to link, but the gist of the story was that the core countries of the EMU will probably have to lose their AAA rating in order to save the periphery: the leverage that these countries will have to take on in order to bail out the welfare systems and failed government finances of many European countries - if not most - will mean, much like the US, that their pristine ratings are in jeopardy.

Which they are because of the political decision to support those countries come hell or high water, or both.

Now, speculators have a place in the world of finance. They are the ones who are willing to take great risks for great rewards.

Today, speculators who are desperately scrambling to get any sort of return of the kind that was barely adequate yesteryear are chasing mirages of high returns that are, under sober circumstances, more than outweighed by the risks involved: even the high-risk, high-return platitude of the past is under question. What we are seeing is the destructive phase of Schumpeter's creative destruction, a frenzy of self-destructive and Pyrrhic victories that is eating away at the soul of modern finance.

This is not an end game, the End of Days. It is, however, a major crisis, one that will see landscapes consumed by fire and floods, with "too big to fail" failing. It is a crisis of confidence, it is a crisis of fidelity, it is a crisis of trust. Wide-spread fraud, aided and abetted by politicians and by those who were charged with keeping an eye on things, must come out and be thoroughly cleansed from the system before trust can be established again.

Mittwoch, August 10, 2011

Rather Unusual Honesty...

Goodness. I never, ever expected this kind of honesty from a government statistical office. Maybe there *is* hope after all.

Today's release of the Monthly Wholesale Trade: Sales and Inventories report shows that the sales of merchant wholesalers was up 0.6% from the revised May number.

Not so bad, I thought.

Then I saw the +-0.7% after that number, in brackets. And an asterisk for the footnote.

The footnote says, and I quote directly:

The 90 percent confidence interval includes zero. The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero.

Goodness. Such direct honesty is severely refreshing in this day and age. I've always liked working with the Census folks. Now I know why. Rarely does one meet such honesty on the front page of a statistical document. Seriously: what they are saying is that after the rather extensive revisions, the actual values of the month-on-month changes are difficult to nail down. The year-over-year numbers, on the other hand, are not marked with that asterisk, indicating that while there may be a variance (which is documented), the values actually mean something.

Kudos to the U.S. Census Bureau. May you remain well funded...

Mark-to-Market, Instability & Just How Bad Are Things?

For those of you who have been following me for a while, you would know I am no fan of mark-to-market accounting.


Well, read why here, here, here, and here.

Seriously, mark-to-market is a disaster. There is one aspect of mark-to-market that has now emerged over the last several months that took me a while to notice: it leads to instability by inadvertently promoting what the Germans call "Beamten-Mikado". That's a version of the classic Mikado game, also known as "pick-up-sticks": dump a pile of elongated toothpicks on the table and try to remove them one by one without moving the other sticks.

In the German version called "Beamten-Mikado", played each and every day in German government offices, the one who makes the first move loses. Doesn't matter if you get any sticks, it is the inverse of the standard Mikado game. Move and you lose.

According to mark-to-market principles, if you see the value of an asset decline on the markets, you are required to re-assess your assets and change their value appropriately (well, not changing it all until you sell the asset would be the most appropriate thing to do, but you get what I mean). What happens when there is no market?

Hmmm. The mark-to-market people didn't think that one through.

What happens when markets start acting funny - and I scarcely think anyone can deny that this continues to be the case - is that companies cease acting within the market, deciding instead to see what the market will do. Given that every one of the bigger players is holding assets that may or may not turn toxic and, at the same time, take down those holding them if they were to revalue mark-to-market, what's a holding company to do?

Nothing, of course. Nothing that would require them to revalue their assets. Especially nothing that would require the revaluation of toxic assets.

As Brian Rogers of Fator Securities put it (link here to Zero Hedge):

The $60tr global economy can take a haircut on billions of dollars in Greek debt, but it simply cannot take a haircut on $700tr in global derivatives sitting on the balance sheet of every major government, hedge fund, financial services company, TBTF bank, insurance company and major corporation that engages in any hedging activity. 

In other words, anything that would require a change in valuation of the hedges that these companies hold destroys the world financial system.

Greece, Italy, Spain, Portugal and Ireland could all simply restructure their debt and life would go on were it not for the leverage of the banks that hold them.  In the US, real estate could be allowed to fall to its market clearing price or be written off by the lender were it not for the leverage of the banks that own it.  No matter which way you turn, all roads lead to the TBTF banks, their leverage and the $700tr derivatives market. 

Bingo: the system is fundamentally unstable because, at the end of the day, the markets are not being allowed to function. In the pursuit of some magic recovery, some strange and bizarre turn of events that would turn the game around from lose-lose to win-win, the powers-that-be have chosen not to allow markets to work, thus, in their eyes, removing the mark-to-market catastrophe that would otherwise loom, done in the name of stability.

In other words, in the name of stability, instability has been created, where the massive leveraging of finances means that any small change, anything that forces a major player to move, will instead bring down the system as a whole.

Right now, there is real incentive not to do anything: whoever moves first, loses.

The difference between this and Beamten-Mikado is that the latter doesn't actually exist as a game: it is a cynical observation.

Just how bad are things?

Consider the $700 tr derivatives markets. If these were to start to fail, it would represent the greatest destruction of capital bar a nuclear war. Not even the destruction of German and Japanese cities wholesale comes close to this. It is the inverse neutron bomb of the modern world: it would destroy capital, but leave the people alive.

Just how bad are things?

Consider the world population and the farm-to-person chain: disrupting logistics chains because of bankruptcies due to mark-to-market revaluations of derivatives. Millions starve because food can't move from farms to cities (and don't think that the government can "intervene" and get things running again: it doesn't work that way).

Just how bad are things?

I remember reading, back in the 1970s, some of the "get rich by financial manipulation" books that were the rage. One of them recommended living very frugally and maxing out your equity by leveraging your cash flow - aka income - as fully as possible. Keep on driving an older car, live in a small apartment, eat frugally, skip the movies, live off of 20% of your income in order to borrow as much as you could with the other 80%: "invest" the money in the stock market and you'd be a millionaire in 10 years tops. Of course, that meant that any small change in interest rates or returns would lead to personal bankruptcy, which, of course, back then wasn't that much of a problem (since changed). The major economic players out there apparently read those books, and as a result we have, speaking as a nation, no income for consumption, as it is so heavily leveraged.

Just how bad are things?

Consider this: growth in China, driven by politically determined prices to drive exports, has reached the point where additional debt no longer generates growth (see this for more). However, this hasn't stopped China from expanding debt and increasing investments with no regard to their profitability. This is the next catastrophe coming, one that will change the game and may even mean the end of China as we now know it.

Just how bad are things?

Keynes called for government intervention to improve worker's salaries during recessions. The governments, as they are wont to do, screwed that up royally and instead pumped money into the economy in the (vastly) mistaken expectation that vast amounts of really cheap money would lead to growth. It led, instead, to massive misallocation of capital - THE cardinal sin of economics as such - and a resulting landscape of financial ruins that are little more than empty shells behind a Potemkin-village-like facade.

Just how bad are things?

Consider this: the Fed interventions over the last several decades were made to stabilize the economy and dampen out negative effects, while allowing positive effects to expand (ending up in a series of bubbles). The cumulative effects of trapping corrections is that when the correction have to be made, they have to resolve not merely the current crisis, but rather any number of crises that haven't been resolved. Trying to impose stability on an unstable system - capitalism, after all, is fundamentally unstable,as it is designed to tear down and reconstruct on a continuing basis (Creative Destruction) - only leads to greater instabilities in the system, with new harmonics to the movements tearing the system apart from within.

We are heading to a new phase of creative destruction, one that will be, at best, a wild ride and, at worst, a write-off of debt that will make the Great Depression look like a minor accident. Writing off $700tr in derivatives means that the dollar will be worthless in its current form - there simply aren't that many dollars around - and that would mean the US taking a deadly, fell blow to the body in order to save the world economy.

Not going to happen, of course: that means that when push comes to shove, the same thing will happen.

Just how bad are things? Worse than you can imagine. Pretending anything else is naive at best and outright self-delusion at worst.

Gonna be a bumpy ride. Fasten your seat belts, put your tray in an upright position and review the safety manual in the seat pocket ahead of you. We will be turning off the entertainment system at this time.

Don't forget your air sickness bag as well.

Dienstag, August 09, 2011

The Sound of a Sacred Cow Being Gored...

What drives liberals and democrats into apoplexy is calling their sacred cows into question: the entire holy trilogy of Great Society, Medicare and Social Security. Raise even minor problems with these and you can watch their blood pressure increase by the second. The yelling starts, discourse is shut down and only by silencing their opponents can they start to recover their composure. It makes it hard, at times, not to tease, since you can get them so riled up with little effort.

This is a great example of how these folks react to criticism. It's a capture of a certain point in time, a point in time where the original author decided that she had enough lip and removed the comments. Read and see how she utterly fails to make her point and gets taken down.

Of course, there's more to the story than that. The woman involved is Froma Harrop, She is the President of the National Council of Editorial Writers and runs the Civility Project, designed to improve the quality of political discourse: in other words, shutting down discourse is an epic fail.

Read the comments - where there is no cursing and no ad-hominem attacks - and understand what liberals mean when they demand an end to incivility: they are really demanding an end to anyone talking back to them.

It is the sound of sacred cows being gored. They are losing, slowly, gradually, but consistently, their world picture of how the world should be working. They are the do-gooders and can do no wrong (and have done so much wrong that it will take a generation to fix it); they are the smart ones that everyone should listen to (whose ignorance is legion and legendary); they are the ones who understand how to make peace (and end up make wars not only possible, but inevitable); they are the ones sympathetic to the down-trodden and the disadvantaged (but exploit these groups in order to have a good life for themselves); they are the ones who will remake the world so that it is just and fair (but lack the understanding that there is no such thing in the real world and that by taking from others to give to others, they are just as unjust and unfair).

I could go on. R. Emmett Tyrell Jr. wrote a lovely book called "The Liberal Crack-Up" back in 1984. You could call it the disintegration of principled liberalism into trendy enthusiasms without principles.

Now the sacred cows of liberalism are being gored. It will get much uglier out there than anyone really wants to see, and that is the hope of the liberals: they want to shut anyone up who disagrees.

Donnerstag, August 04, 2011

The End of Keynes...

This pretty much says it all.

Fundamentally, if you actually go back and read what Keynes said, it's all about jobs and incomes: without improvements in either, the economy will tank. It really is that simple. No amount of redistribution can cover up a jobless recovery and stagnating wages.

While some may call for the end of Keynesian meddling with the economy, this would be too fundamentally wrong, since Keynes was right.

It's his followers that have royally screwed things up.


Because Keynes wanted the government to intervene in recessions in order to give workers both jobs and wages to get consumer spending back up. You can do that very well by cutting taxes for businesses and private persons so that they have more money to spend and invest; by making it easy to hire (and fire!) workers; by having the government go out and buy services directly to build and renew. It's a very simple solution to kick-starting growth and getting the economy back up to speed, and if done right - by putting expiration dates into the measures and having the decency to ensure that people's money isn't wasted - it works. It may not jump-start an economy in a depression, but it does prevent more serious collapses.

Of course, modern-day government interventions do anything but work. The TARP money was a boondoggle without end, generating virtually no jobs by enriching those who lobby well and government cronies, and the the pork - aka entitlements - has replaced any reasonable semblance of effective and productive government spending to counter the effects of a recession.

Obama and Bernanke have flogged the dead horse that is Keynes to the point where even the MSM can recognize that it is fruitless to continue to throw money at the problem.

The problem is that we now need an anti-Keynes to remove the parasite that is government spending today. Once that is achieved, a multi-generational undertaking, perhaps Keynes can be reinstated as the excellent economist that he was and for which he should be respected and taught.

But not the parody that he represents today.

Talk About Projection...

First of all, sorry for the extended absence: as you can imagine, given the markets and the contradictions of data from so many sources, things have been...hectic.

But this brought me back. Hmmm: that link doesn't seem to be working, perhaps it will. If not, simply go to the blog there and the article appears.

Key quote:

MSNBC host Martin Bashir interviewed Stanton Peele, a psychologist and an "expert on addiction," this afternoon. Bashir urged Peele to psychologically evaluate supporters of the Tea Party. "It reminds us of addiction because addicts are seeking something that they can't have," Peele said. "They want a state of happiness or nirvana that can't be achieved except through an artificial substance and reminds us of the Norway situation, when people are thwarted at obtaining something they can't, have they often strike out and Norway is one kind of example to one kind of reaction to that kind of a frustration."

Bashir later asked: "So you're saying that they are delusional about the past and adamant about the future?"

"They are adamant about achieving something that's unachievable, which reminds us of a couple of things. It reminds us of delusion and psychosis," Peele responded.

Sorry, guys: the ones who are delusional are the MSM, the left, the Democratic Party (sorry, but I repeat myself).

Addicts seeking something that they can't have? Sounds like the left with their visions of "economic justice" or "equality."

A state of happiness or nirvana that can't be achieved except through an artificial substance? Sounds like the left with their heavy meddling in business and their dependence on federal money (now there's an artificial substance if there ever was one!) to try to remake society after their own vision.

When people are thwarted at obtaining something they can't have, they often strike out? Sounds like the name-calling and hysteria of the MSM, the left and the Democratic Party (again, I repeat myself) towards the semblance of responsibility that the deficit ceiling agreement appears to be (it's a long, long way from being really responsible, but it's a start...).

They are delusional about the past and adamant about the future? Doesn't that sound like the delusions about the Great Society - which led to a worsening of society, rather than an improvement - and the whole edifice of New Deal beggar-thy-neighbor-especially-if-he-has-more-money distributional policies?

Delusion and psychosis are some of the fundamental core values of those who have dedicated their lives to maintaining the shibboleths of US liberalism: that the government is there to do wonderful things for society, that throwing money at problems is a solution; that the government can do no wrong; that by dwelling on the past and making injustices of the past inviolate and holy, one can achieve a better society.

Those are delusional and psychotic, my friends: the reality is that government is doing terrible things to society in the name of a utopian good; that throwing money at problems only serves to corrupt; that government does wrong each and every day; and that by maintaining and enhancing grudges and hates, the government divides in order for the politicians to conquer.

Talk about projection!