Head of GE Jeff Immelt is a total disappointment. He giggles on Charlie Rose. He talks about projects as being good for the country so he goes after all the green business, sure to bubble.
And, he refuses to take responsibility for his stupid ideas about GE Cap. I can't believe Jack Welch chose this moron. Total stooge for Obama Cap adn Trade. Dumb as an Ox. and a crybaby to boot. GE is nothing now.
Thursday, June 25, 2009
How a Republican majority can stop Obama’s legislation in 2010.
Assuming we get a few dozen congressional leaders to cooperate with each other, they should operate off the same message. The theme should be, Obama, nice guy, but spends too much money and makes a train wreck of everything he touches.
The most vulnerable congressional and senate candidates should be attacked as if the ideas of Pelosi and Obama were there ideas alone. Every single bit of corruption and vote stealing should be attributed to each of these. If the Republicans can all stay on message and constantly be on the media, all media, all the time, and raise an army of folks to sanitize the voter lists, and get out the vote, we could get a veto proof minority.
Two years of vetoes should be enough to stop Obama and Nancy. The congress should constantly be talking about how much tax bills should come down. We must blame the democrats for every increased expense, every flawed idea. The emphasis should be criticism of policy, and criticism of corruption.
If we get the White House back in 2012, w should follow Obama’s plan and pass big legislation in the first three months.
How to undo the Obama legislation? For immigration, permit essentially unlimited legal immigration for college grads from around the world, from all countries. The big problem with immigration is not jobs, it is there expense and their criminality. College grads behave well, generate jobs, and pay taxes.
How to solve the medical crisis? Make adjustments to Medicare so that very few doctors and Hospitals use it, and so the rest of us are not subsidizing it. All other insurance should be completely free of any government interference. Folks can choose to have very cheap and Canada style insurance, and the rest of us can deal with the private sector. The insurance market should be unencumbered by any regulations at all, just that they can’t be used to subsidize Medicare. So, as Medicare rolls grow, folks can be told, this is cheap health care, Canada style. No state limitations, no guaranteed coverage, let the free market answer the call.
For the energy bill, administrative changes can simply have a revenue neutral policy like Brazil, where gasoline that contains alcohol from sugar cane is a few pennies less than regular. Coal plants can have the best pollution controls. Cap and Trade limits can be raised so there are no penalties.
The Republican party has to change the science of the USA from thinking of CO2 as a pollutant to thinking of water shortages, heavy metal pollution, food safety, and replanting the country with lots of vegetation. There are fabulous new discoveries for plants grown in brackish water or low water, and the US should push hard for more of those. The emphasis should be on building a huge reserve of cheap food so that we can be prepared for famine.
Once the big legislation has passed, then quickly the President must make thousands of changes to administrative law, reducing the complexity of the Income tax, reducing the size of virtually all Federal programs, all under the claim that we simply can not afford all this.
For the financial system, we must have strict laws for truth in packaging, so that risky debt must be labeled as such, and we must prevent banks and insurance companies from being too large and too big to fail. That’s it. Let the free market take care of everything else, and have Elliott Spitzer like prosecution of any copany that screws its customers.
For folks who are long term drug abusers, deport them and their families.
For future plans about recessions, make a constant shopping list of “shovel-ready” road, airport, and infrastructure. No more rail construction, just nice private run bus service on dedicated rush hour passenger lanes.
All education expenditures should go to college loan, or subsidies for private college loans, junior college loans, and trade schools. No more money for teachers in high school middle school or lower school. If kids drop out, they should be able to go to a short term of trade school to learn something. If kids want college, it should be easy for anyone to get loans.
The emphasis should be to get rid of Obama’s ideas and make sure they never return.
The military should emphasize whatever they can do to fight wars with few casualties by using technology and robotics.
Assuming we get a few dozen congressional leaders to cooperate with each other, they should operate off the same message. The theme should be, Obama, nice guy, but spends too much money and makes a train wreck of everything he touches.
The most vulnerable congressional and senate candidates should be attacked as if the ideas of Pelosi and Obama were there ideas alone. Every single bit of corruption and vote stealing should be attributed to each of these. If the Republicans can all stay on message and constantly be on the media, all media, all the time, and raise an army of folks to sanitize the voter lists, and get out the vote, we could get a veto proof minority.
Two years of vetoes should be enough to stop Obama and Nancy. The congress should constantly be talking about how much tax bills should come down. We must blame the democrats for every increased expense, every flawed idea. The emphasis should be criticism of policy, and criticism of corruption.
If we get the White House back in 2012, w should follow Obama’s plan and pass big legislation in the first three months.
How to undo the Obama legislation? For immigration, permit essentially unlimited legal immigration for college grads from around the world, from all countries. The big problem with immigration is not jobs, it is there expense and their criminality. College grads behave well, generate jobs, and pay taxes.
How to solve the medical crisis? Make adjustments to Medicare so that very few doctors and Hospitals use it, and so the rest of us are not subsidizing it. All other insurance should be completely free of any government interference. Folks can choose to have very cheap and Canada style insurance, and the rest of us can deal with the private sector. The insurance market should be unencumbered by any regulations at all, just that they can’t be used to subsidize Medicare. So, as Medicare rolls grow, folks can be told, this is cheap health care, Canada style. No state limitations, no guaranteed coverage, let the free market answer the call.
For the energy bill, administrative changes can simply have a revenue neutral policy like Brazil, where gasoline that contains alcohol from sugar cane is a few pennies less than regular. Coal plants can have the best pollution controls. Cap and Trade limits can be raised so there are no penalties.
The Republican party has to change the science of the USA from thinking of CO2 as a pollutant to thinking of water shortages, heavy metal pollution, food safety, and replanting the country with lots of vegetation. There are fabulous new discoveries for plants grown in brackish water or low water, and the US should push hard for more of those. The emphasis should be on building a huge reserve of cheap food so that we can be prepared for famine.
Once the big legislation has passed, then quickly the President must make thousands of changes to administrative law, reducing the complexity of the Income tax, reducing the size of virtually all Federal programs, all under the claim that we simply can not afford all this.
For the financial system, we must have strict laws for truth in packaging, so that risky debt must be labeled as such, and we must prevent banks and insurance companies from being too large and too big to fail. That’s it. Let the free market take care of everything else, and have Elliott Spitzer like prosecution of any copany that screws its customers.
For folks who are long term drug abusers, deport them and their families.
For future plans about recessions, make a constant shopping list of “shovel-ready” road, airport, and infrastructure. No more rail construction, just nice private run bus service on dedicated rush hour passenger lanes.
All education expenditures should go to college loan, or subsidies for private college loans, junior college loans, and trade schools. No more money for teachers in high school middle school or lower school. If kids drop out, they should be able to go to a short term of trade school to learn something. If kids want college, it should be easy for anyone to get loans.
The emphasis should be to get rid of Obama’s ideas and make sure they never return.
The military should emphasize whatever they can do to fight wars with few casualties by using technology and robotics.
ht mark Levin show
MEMBERS OF CONGRESS AT
202-224-3121 AND TELL THEM NO TO CAP AND TRADE
Repubs:
Bartlett (MD)
Bono Mack (CA)
Castle (DE)
Dent (PA)
Ehlers (MI)
Frelinghuysen (NJ)
Gerlach (PA)
Inglis (SC)
Tim Johnson (IL)
Kirk (IL)
Lance (NJ)
LoBiondo (NJ)
Petri (WI)
Platts (PA)
Ros-Lehtinen (FL)
Democrats:
Altmire (PA)
Bright (AL)
Dahlkemper (PA)
Drieshaus (OH)
Ellsworth (IN)
Kissell (NC)
Kratovil (MD)
Kanjorski (PA)
Minnick(ID)
Teague (NM)
MEMBERS OF CONGRESS AT
202-224-3121 AND TELL THEM NO TO CAP AND TRADE
Repubs:
Bartlett (MD)
Bono Mack (CA)
Castle (DE)
Dent (PA)
Ehlers (MI)
Frelinghuysen (NJ)
Gerlach (PA)
Inglis (SC)
Tim Johnson (IL)
Kirk (IL)
Lance (NJ)
LoBiondo (NJ)
Petri (WI)
Platts (PA)
Ros-Lehtinen (FL)
Democrats:
Altmire (PA)
Bright (AL)
Dahlkemper (PA)
Drieshaus (OH)
Ellsworth (IN)
Kissell (NC)
Kratovil (MD)
Kanjorski (PA)
Minnick(ID)
Teague (NM)
ht energy post
Steven Kopits of Douglas Westwood Energy research discusses this urgency in a new report, noting that in the last 37 years, the US has suffered six recessions. From the beginning of each, he says, oil played a central role. In every case when oil consumption breached 4 per cent of GDP, he notes, the US has suffered a recession. Indeed, he says, the current US recession began within two months of oil hitting the 4 per cent threshold, when oil reached $80 per barrel.
Kopits also notes that a sustained rise in the oil price of 50 per cent or more has always been associated with recession, and this applies to the current recession as well.
From his research, then, it seems there are three rules by which to avoid recession caused by oil prices:
Crude oil expenditures should not exceed 4 per cent of GDP.
Oil prices should not increase by more than 50 per cent year-on-year.
Oil price increases should not be so great that a potential demand adjustment should have to reach 0.8 per cent of GDP on an annual basis, as shedding demand at this rate has generally been associated with recession.
Steven Kopits of Douglas Westwood Energy research discusses this urgency in a new report, noting that in the last 37 years, the US has suffered six recessions. From the beginning of each, he says, oil played a central role. In every case when oil consumption breached 4 per cent of GDP, he notes, the US has suffered a recession. Indeed, he says, the current US recession began within two months of oil hitting the 4 per cent threshold, when oil reached $80 per barrel.
Kopits also notes that a sustained rise in the oil price of 50 per cent or more has always been associated with recession, and this applies to the current recession as well.
From his research, then, it seems there are three rules by which to avoid recession caused by oil prices:
Crude oil expenditures should not exceed 4 per cent of GDP.
Oil prices should not increase by more than 50 per cent year-on-year.
Oil price increases should not be so great that a potential demand adjustment should have to reach 0.8 per cent of GDP on an annual basis, as shedding demand at this rate has generally been associated with recession.
ht market ticker
In its current issue, HSL reports rumors that "Some U.S. embassies worldwide are being advised to purchase massive amounts of local currencies; enough to last them a year. Some embassies are being sent enormous amounts of U.S. cash to purchase currencies from those governments, quietly. But not pound sterling. Inside the State Dept., there is a sense of sadness and foreboding that 'something' is about to happen ... within 180 days, but could be 120-150 days."
andAnother FDR-style 'bank holiday' of indefinite length, perhaps soon, to let the insiders sort out the bank mess, which (despite their rosy propaganda campaign) is getting more out of their control every day. Insiders want to impose new bank rules. Widespread nationalization could result, already underway. It could also lead to a formal U.S. dollar devaluation, as FDR did by revaluing gold...
I think MS is right. The entire banking system is so loaded with bad debt as well as commercial loans which are now bad debt as well, I can see a bank holiday...this recession has a long way to go.
In its current issue, HSL reports rumors that "Some U.S. embassies worldwide are being advised to purchase massive amounts of local currencies; enough to last them a year. Some embassies are being sent enormous amounts of U.S. cash to purchase currencies from those governments, quietly. But not pound sterling. Inside the State Dept., there is a sense of sadness and foreboding that 'something' is about to happen ... within 180 days, but could be 120-150 days."
andAnother FDR-style 'bank holiday' of indefinite length, perhaps soon, to let the insiders sort out the bank mess, which (despite their rosy propaganda campaign) is getting more out of their control every day. Insiders want to impose new bank rules. Widespread nationalization could result, already underway. It could also lead to a formal U.S. dollar devaluation, as FDR did by revaluing gold...
I think MS is right. The entire banking system is so loaded with bad debt as well as commercial loans which are now bad debt as well, I can see a bank holiday...this recession has a long way to go.
ht Jesse's Cafe Americain
A serious bout of inflation is rarely caused by normal business activity, such as commercial bank lending and private debt.
In almost every case that I have studied, a very serious monetary inflation is triggered by excessive government debt obligations, and not private debt, that can no longer be adequately serviced by a productive real economy and domestic taxation.
That unserviceable debt becomes 'monetized' and a serious inflation results. It is a form of debt default.
Devaluation of a currency is a form of inflation which specifically addresses external debt obligations, as well as default on bonds which is a form of selective national bankruptcy.
The reason that the output gap is no barrier to this type of inflation is that it actually feeds it, since it dampens tax revenues and domestic GDP.
But the notion that banks must always lend to create inflation, or employment must be at robust levels, absolutely flies in the face of all historical experience.
A serious bout of inflation is rarely caused by normal business activity, such as commercial bank lending and private debt.
In almost every case that I have studied, a very serious monetary inflation is triggered by excessive government debt obligations, and not private debt, that can no longer be adequately serviced by a productive real economy and domestic taxation.
That unserviceable debt becomes 'monetized' and a serious inflation results. It is a form of debt default.
Devaluation of a currency is a form of inflation which specifically addresses external debt obligations, as well as default on bonds which is a form of selective national bankruptcy.
The reason that the output gap is no barrier to this type of inflation is that it actually feeds it, since it dampens tax revenues and domestic GDP.
But the notion that banks must always lend to create inflation, or employment must be at robust levels, absolutely flies in the face of all historical experience.
Wednesday, June 24, 2009
There are several fallacies making the rounds of the economic community, often put forward by pundits on the infomercials for corporate America, and also on the internet among well-meaning but badly informed bloggers.
The first of these monetary fallacies is that 'the output gap will prevent inflation.' The second is that a lack of net bank lending or other 'debt destruction' will require a deflationary outcome. Let's deal with the output gap theory first.
Output gap is the economic measure of the difference between the actual output of an economy and the output it could achieve when it is most efficient, or at full capacity.
The theory is that when GDP underperforms its potential, with unemployment remaining high, there can be no inflation because demand is weak and median wages will be presumably stagnant. This idea comes from neoliberal monetarist economics, and a misunderstanding of the inflationary experience of the 1970s.
The thought is that sustained inflation is due to a 'wage-price' spiral. Higher wages amongst workers cause prices to rise, prompting workers to demand higher wages, thereby fueling inflation. If workers do not have the ability to demand higher wages there can be no inflation.
While this is in part true, it tends to confuse cause and effect.
The cause of a monetary inflation, which is a broadly based inflation across most products and services relatively independent of demand, is often based in a monetary expansion of the currency resulting in a debasement and devaluation.
A monetary expansion is relatively difficult to achieve under an external standard since it must be overt and often deliberative. A gradual inflation is an almost natural outcome under a fiat currency regime because policy-makers can almost never resist the temptation of cheap growth and the personal enrichment that comes with it.
There can be short term non-monetary inflation-deflation cycles that tend to be more product specific in a market that is not under government price controls. But this is not the same as a broad monetary inflation or deflation.
The key difference is the value of the dollar which has little or nothing to do with a business cycle or product demand/supply induced inflation/deflation.
In the modern era the Federal Reserve can increase the money supply independent of demand by the monetization of debt, with the only restrictions on their ability to increase supply being the value of the dollar and the acceptability of US sovereign debt. This requires the acquiescence of the Treasury and the cooperation of at least one major money center bank.
People tend to invent 'rules' about how the money supply is able to increase, and confuse financial wagers and credit with money. This is in part because the average mind rebels at the reality behind modern currency and the ease at which it can be created. Further, people often invent facts to support theories that they embrace in an a priori manner.
In a pure fiat currency regime, the swings between inflation and deflation are almost always the result of policy decisions, with the occasional exogenous shock. A government decides to inflate or strengthen their money supply relative to productivity as a policy decision regarding spending, central bank credit expansions, banking requirements and regulations, among other things.
As a prime example of a rapid inflation despite a severe economic slump, what one might call uber-stagflation, is the Weimar experience.
Since pictures are worth 1000 words, let me be brief by showing you a few important charts.
The basic ingredients of the Weimar experience are...
A high level of official debt issuance relative to economic growth
High unemployment with a slumping real GDP
Wage Stagnation
I should stop here and note that although the statistics at hand involve union workers, in fact unemployment was widespread in the Weimar economy. The saving grace of being in the union was that one was more often able to retain their jobs and some level of nominal wage increases.
Anyone who has read the history of the times knows that unemployment, underemployment and slack demand was rampant, and that hoarding was commonplace as people refused to trade real goods for a rapidly devaluing currency.
Rapidly Rising Prices Despite Slack Demand and High Unemployment
So much for the wage price spiral and the output gap.
A Booming Stock Market, at Least in Nominal Terms
Booming Price of Precious Metals as a Safe Haven Even While Basic Material Prices Slumped
Notice the plunge in the price of copper as the economy collapsed and gold and silver soared.
If one can obtain a copy, as it is out of print, one of the best descriptions of the German inflation experience is When Money Dies: the Nightmare of the Weimar Collapse by Adam Fergusson. There is a copy of the book available online for free here.
From my own readings in this area, the people who tended to survive the Weimar stagflation the best were those who:
1. Owned independent supplies of essentials including food and shelter and were reasonably self-sufficient.
2. Had savings in foreign currencies that were backed by gold such as the US dollar and the Swiss Franc
3. Possessed precious metals
4. Belonged to a trade union and/or had essential skills or government position which guaranteed a wage
5. Were invested in foreign equity markets, and even in the domestic German stock market for a time
People will argue now that the Fed understands that inflation is caused by perceptions, and that by managing those perceptions inflation can be avoided because even those prices are rising and the currency is being devalued, if they ignore it the inflation cannot reach harmful levels.
This is what I call the "psychosis school" of behavioral economics.
Granted, perception is important, and managing perception may delay outcomes for a period of time. But unless the underlying cause of the problem is remedied during what is at best is an extended interlude, the resulting break in perception will ignite a firestorm of cognitive dissonance, loss of confidence, and social unrest.
In summary, in a purely fiat currency regime a sustained monetary inflation or deflation is an outcome of policy decisions regarding fiscal policy, monetary policy, and economic balance and output.
As long as the government is able to generate debt, deflation is a highly unlikely outcome. And when the government reaches the practical limits of debt creation, the underpinnings of the currency give way and the economy tends to collapse in a stagflationary slump.
There are no predetermined outcomes in a fiat monetary regime. Deflation, stagflation and hyperinflation are not 'normal' but are certainly possible if the central authority is permitted to abuse the real economy and the money supply for protracted periods of time.
What about Japan? Japan is the perfect example of a policy decision made by a fiat currency regime in what was decidedly NOT a free market, but under the de facto control of a highly entrenched bureaucracy, a single political party, and large corporate giants in pursuit of an industrial policy that favored exports and domestic deflation.
The difference between the Japan of the 1980s and the US of today could not be more stark. Choosing a deflationary policy and high interest rates as a debtor nation is economic and political suicide. It would be interesting to see what happens if the US elites try to take that path.
We will know if there is a true monetary deflation in the US because the value of the dollar will start increasing dramatically with regard to other hard assets, other currencies, goods and services, and precious metals and commodities. Prices will decline especially for imports as the dollar gains in purchasing power.
Remember that a true monetary inflation and deflation would only show up over time. Even in the Great Depression in the US, as demand slumped and prices fell, the stage was set for a significant devaluation of the US dollar and a rise in consumer prices well in advance of the eventual recovery of the economy that caused the Fed to tighten prematurely. As I recall the actual contraction in money supply lasted two years. This again highlights was an amazing piece of bad policy that Japan represents in its 'lost decade.'
People embrace beliefs for many motivations. So often I find they are not 'rational' and based on a scientific study of the facts, even on the most cursory level. Fear and greed and prejudice are often motivations that are surprisingly resilient, even in the face of overwhelming evidence against them. Leadership understands this well.
There are often appeals to private judgement. I do not care what you say, this is what I believe, what I think, what I feel. This is appropriate in the supra-natural realm, but in the natural realm there may be private judgement but the facts are public, and the outcomes are well beyond the complete control of the most fully-managed perceptual campaigns, at least so far in human experience.
"The lie can be maintained only for such time as the State can shield the people from the political, economic and or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State." Joseph Goebbels, of the perception modification school of economic thought
What is truth? It is difficult to estimate but not completely out of reach.
Our own view is that a serious stagflation with further devaluation of the US dollar as it is replaced as the world's reserve currency is very likely, after a period of slackening demand and high unemployment. A military conflict is also a probable outcome as countries often go to war when they fail at peace.
Weimar was not an anomaly although the level of inflation was indeed legendary. Argentina, post Soviet Russia, and most recently Zimbabwe are all similar examples. Serious Instances of Monetary Inflation Since World War II
There are many, many variables in play here, and policy decisions yet to be made. It is highly discouraging to see Obama's Administration fail so miserably to do the right things, but there is always room for hope, less so today than six months ago however.
Argue and shout grave oaths and wave our hands though we might, we are in God's hands now.
Let's see what happens.
A very special thanks to our friend Bart at Now and Futures who makes these charts, among other things, available on his highly informative web site for public review. If you are not familiar with his work you might do well to view it. We do not always agree, but he demands attention because of the rigor which he applies to his work for which we are grateful, always.
As far as my two cents goes, one could easily argue that the dollar's long-standing role as a reserve currency means that there are a great many "unnatural" holders of the U.S. currency around the globe. Generally speaking, they require more incentives than Americans to remain invested. In a world where the U.S. is no longer seen as the leader it once was, where the risks stemming from hyper-expansive fiscal and monetary policies are increasingly apparent and growing by the day, and where many old truths are no longer being taken for granted, it is not a stretch to think that today's demand for the currency could easily evolve into tomorrow's rapidly growing supply.
The first of these monetary fallacies is that 'the output gap will prevent inflation.' The second is that a lack of net bank lending or other 'debt destruction' will require a deflationary outcome. Let's deal with the output gap theory first.
Output gap is the economic measure of the difference between the actual output of an economy and the output it could achieve when it is most efficient, or at full capacity.
The theory is that when GDP underperforms its potential, with unemployment remaining high, there can be no inflation because demand is weak and median wages will be presumably stagnant. This idea comes from neoliberal monetarist economics, and a misunderstanding of the inflationary experience of the 1970s.
The thought is that sustained inflation is due to a 'wage-price' spiral. Higher wages amongst workers cause prices to rise, prompting workers to demand higher wages, thereby fueling inflation. If workers do not have the ability to demand higher wages there can be no inflation.
While this is in part true, it tends to confuse cause and effect.
The cause of a monetary inflation, which is a broadly based inflation across most products and services relatively independent of demand, is often based in a monetary expansion of the currency resulting in a debasement and devaluation.
A monetary expansion is relatively difficult to achieve under an external standard since it must be overt and often deliberative. A gradual inflation is an almost natural outcome under a fiat currency regime because policy-makers can almost never resist the temptation of cheap growth and the personal enrichment that comes with it.
There can be short term non-monetary inflation-deflation cycles that tend to be more product specific in a market that is not under government price controls. But this is not the same as a broad monetary inflation or deflation.
The key difference is the value of the dollar which has little or nothing to do with a business cycle or product demand/supply induced inflation/deflation.
In the modern era the Federal Reserve can increase the money supply independent of demand by the monetization of debt, with the only restrictions on their ability to increase supply being the value of the dollar and the acceptability of US sovereign debt. This requires the acquiescence of the Treasury and the cooperation of at least one major money center bank.
People tend to invent 'rules' about how the money supply is able to increase, and confuse financial wagers and credit with money. This is in part because the average mind rebels at the reality behind modern currency and the ease at which it can be created. Further, people often invent facts to support theories that they embrace in an a priori manner.
In a pure fiat currency regime, the swings between inflation and deflation are almost always the result of policy decisions, with the occasional exogenous shock. A government decides to inflate or strengthen their money supply relative to productivity as a policy decision regarding spending, central bank credit expansions, banking requirements and regulations, among other things.
As a prime example of a rapid inflation despite a severe economic slump, what one might call uber-stagflation, is the Weimar experience.
Since pictures are worth 1000 words, let me be brief by showing you a few important charts.
The basic ingredients of the Weimar experience are...
A high level of official debt issuance relative to economic growth
High unemployment with a slumping real GDP
Wage Stagnation
I should stop here and note that although the statistics at hand involve union workers, in fact unemployment was widespread in the Weimar economy. The saving grace of being in the union was that one was more often able to retain their jobs and some level of nominal wage increases.
Anyone who has read the history of the times knows that unemployment, underemployment and slack demand was rampant, and that hoarding was commonplace as people refused to trade real goods for a rapidly devaluing currency.
Rapidly Rising Prices Despite Slack Demand and High Unemployment
So much for the wage price spiral and the output gap.
A Booming Stock Market, at Least in Nominal Terms
Booming Price of Precious Metals as a Safe Haven Even While Basic Material Prices Slumped
Notice the plunge in the price of copper as the economy collapsed and gold and silver soared.
If one can obtain a copy, as it is out of print, one of the best descriptions of the German inflation experience is When Money Dies: the Nightmare of the Weimar Collapse by Adam Fergusson. There is a copy of the book available online for free here.
From my own readings in this area, the people who tended to survive the Weimar stagflation the best were those who:
1. Owned independent supplies of essentials including food and shelter and were reasonably self-sufficient.
2. Had savings in foreign currencies that were backed by gold such as the US dollar and the Swiss Franc
3. Possessed precious metals
4. Belonged to a trade union and/or had essential skills or government position which guaranteed a wage
5. Were invested in foreign equity markets, and even in the domestic German stock market for a time
People will argue now that the Fed understands that inflation is caused by perceptions, and that by managing those perceptions inflation can be avoided because even those prices are rising and the currency is being devalued, if they ignore it the inflation cannot reach harmful levels.
This is what I call the "psychosis school" of behavioral economics.
Granted, perception is important, and managing perception may delay outcomes for a period of time. But unless the underlying cause of the problem is remedied during what is at best is an extended interlude, the resulting break in perception will ignite a firestorm of cognitive dissonance, loss of confidence, and social unrest.
In summary, in a purely fiat currency regime a sustained monetary inflation or deflation is an outcome of policy decisions regarding fiscal policy, monetary policy, and economic balance and output.
As long as the government is able to generate debt, deflation is a highly unlikely outcome. And when the government reaches the practical limits of debt creation, the underpinnings of the currency give way and the economy tends to collapse in a stagflationary slump.
There are no predetermined outcomes in a fiat monetary regime. Deflation, stagflation and hyperinflation are not 'normal' but are certainly possible if the central authority is permitted to abuse the real economy and the money supply for protracted periods of time.
What about Japan? Japan is the perfect example of a policy decision made by a fiat currency regime in what was decidedly NOT a free market, but under the de facto control of a highly entrenched bureaucracy, a single political party, and large corporate giants in pursuit of an industrial policy that favored exports and domestic deflation.
The difference between the Japan of the 1980s and the US of today could not be more stark. Choosing a deflationary policy and high interest rates as a debtor nation is economic and political suicide. It would be interesting to see what happens if the US elites try to take that path.
We will know if there is a true monetary deflation in the US because the value of the dollar will start increasing dramatically with regard to other hard assets, other currencies, goods and services, and precious metals and commodities. Prices will decline especially for imports as the dollar gains in purchasing power.
Remember that a true monetary inflation and deflation would only show up over time. Even in the Great Depression in the US, as demand slumped and prices fell, the stage was set for a significant devaluation of the US dollar and a rise in consumer prices well in advance of the eventual recovery of the economy that caused the Fed to tighten prematurely. As I recall the actual contraction in money supply lasted two years. This again highlights was an amazing piece of bad policy that Japan represents in its 'lost decade.'
People embrace beliefs for many motivations. So often I find they are not 'rational' and based on a scientific study of the facts, even on the most cursory level. Fear and greed and prejudice are often motivations that are surprisingly resilient, even in the face of overwhelming evidence against them. Leadership understands this well.
There are often appeals to private judgement. I do not care what you say, this is what I believe, what I think, what I feel. This is appropriate in the supra-natural realm, but in the natural realm there may be private judgement but the facts are public, and the outcomes are well beyond the complete control of the most fully-managed perceptual campaigns, at least so far in human experience.
"The lie can be maintained only for such time as the State can shield the people from the political, economic and or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State." Joseph Goebbels, of the perception modification school of economic thought
What is truth? It is difficult to estimate but not completely out of reach.
Our own view is that a serious stagflation with further devaluation of the US dollar as it is replaced as the world's reserve currency is very likely, after a period of slackening demand and high unemployment. A military conflict is also a probable outcome as countries often go to war when they fail at peace.
Weimar was not an anomaly although the level of inflation was indeed legendary. Argentina, post Soviet Russia, and most recently Zimbabwe are all similar examples. Serious Instances of Monetary Inflation Since World War II
There are many, many variables in play here, and policy decisions yet to be made. It is highly discouraging to see Obama's Administration fail so miserably to do the right things, but there is always room for hope, less so today than six months ago however.
Argue and shout grave oaths and wave our hands though we might, we are in God's hands now.
Let's see what happens.
A very special thanks to our friend Bart at Now and Futures who makes these charts, among other things, available on his highly informative web site for public review. If you are not familiar with his work you might do well to view it. We do not always agree, but he demands attention because of the rigor which he applies to his work for which we are grateful, always.
As far as my two cents goes, one could easily argue that the dollar's long-standing role as a reserve currency means that there are a great many "unnatural" holders of the U.S. currency around the globe. Generally speaking, they require more incentives than Americans to remain invested. In a world where the U.S. is no longer seen as the leader it once was, where the risks stemming from hyper-expansive fiscal and monetary policies are increasingly apparent and growing by the day, and where many old truths are no longer being taken for granted, it is not a stretch to think that today's demand for the currency could easily evolve into tomorrow's rapidly growing supply.
ht weasel zippers
U.N. to Emerge as Global IRS
June 23, 2009
If implemented, the document would officially mark the end of the United States as the world’s leading economic power.
While our media sleep, the United Nations is proceeding, with President Obama's acquiescence, to implement a global plan to create a new international socialist order financed by global taxes on the American people.
The Conference on the World Financial and Economic Crisis and its Impact on Development that begins on Wednesday will consider adoption of a document calling for "new voluntary and innovative sources of financing initiatives to provide additional stable sources of development finance..." This is U.N.-speak for global taxes. They are anything but "voluntary" for the people forced to pay them.
The most "popular" proposals, which could generate tens of billions of dollars in revenue for global purposes, involve taxes on greenhouse gas emissions and financial transactions such as stock trades.
The document was agreed to at an informal meeting of expert "facilitators" and was made available on Monday afternoon at 3 p.m. It is doubtful that any changes will be made to it.
The conference was postponed from June 1-3 and will now take place June 24-26 at the U.N. in New York. While the "outcome document" has been watered down somewhat from the previous version, it still reaffirms attainment of the U.N.'s Millennium Development Goals, which would require the payment of $845 billion from U.S. taxpayers. A commitment to the MDGs was a stated objective of the Global Poverty Act, which Barack Obama had introduced as a U.S. senator. It requires the U.S. to devote 0.7 percent of Gross National Income to foreign aid.
Now, as President, Obama can bypass the Congress and simply direct his Ambassador to the U.N. Susan Rice to approve the U.N. conference document. Then the pressure will be increased on Congress to come up with the money and satisfy our "international commitments."
This is the pattern that he followed in regard to more money for the International Monetary Fund (IMF). After agreeing at the G-20 summit to provide more money for the IMF, the Obama White House slipped the cash and credit into the recently passed emergency war funding bill. The Obama White House had added billions in cash, as well as a $100 billion line of credit, for the IMF.
Rep. Mike Pence commented, "This legislation, which includes $108 billion in loan authorizations for a global bailout, for the International Monetary Fund-at a time when this government has run up a $2 trillion annual deficit-I believe does a disservice to taxpayers and to those that defend us. Passing a $108 billion global bailout on the backs of our soldiers is just not right."
The U.N. conference document explains where all of this is leading-the destruction of the American dollar as the world's reserve currency and the build-up of global institutions such as the IMF and the U.N.
It declares that "We acknowledge the calls by many states for further study of the feasibility and advisability of a more efficient reserve system, including the possible function of SDRs in any such system and the complementary roles that could be played by various regional arrangements." SDRs are Special Drawing Rights, a form of international currency that enables global institutions like the International Monetary Fund to provide more foreign aid to the rest of the world. The U.S. pays for SDRs through its financial contributions to the IMF.
If implemented, the document would officially mark the end of the United States as the world's leading economic power.
Urging socialism as the solution to the crisis, the document states that "Insufficient emphasis on equitable human development has contributed to significant inequalities among countries and peoples. Other weaknesses of a systemic nature also contributed to the unfolding crisis, which has demonstrated the need for more effective government involvement to ensure an appropriate balance between the market and public interest."
U.N. to Emerge as Global IRS
June 23, 2009
If implemented, the document would officially mark the end of the United States as the world’s leading economic power.
While our media sleep, the United Nations is proceeding, with President Obama's acquiescence, to implement a global plan to create a new international socialist order financed by global taxes on the American people.
The Conference on the World Financial and Economic Crisis and its Impact on Development that begins on Wednesday will consider adoption of a document calling for "new voluntary and innovative sources of financing initiatives to provide additional stable sources of development finance..." This is U.N.-speak for global taxes. They are anything but "voluntary" for the people forced to pay them.
The most "popular" proposals, which could generate tens of billions of dollars in revenue for global purposes, involve taxes on greenhouse gas emissions and financial transactions such as stock trades.
The document was agreed to at an informal meeting of expert "facilitators" and was made available on Monday afternoon at 3 p.m. It is doubtful that any changes will be made to it.
The conference was postponed from June 1-3 and will now take place June 24-26 at the U.N. in New York. While the "outcome document" has been watered down somewhat from the previous version, it still reaffirms attainment of the U.N.'s Millennium Development Goals, which would require the payment of $845 billion from U.S. taxpayers. A commitment to the MDGs was a stated objective of the Global Poverty Act, which Barack Obama had introduced as a U.S. senator. It requires the U.S. to devote 0.7 percent of Gross National Income to foreign aid.
Now, as President, Obama can bypass the Congress and simply direct his Ambassador to the U.N. Susan Rice to approve the U.N. conference document. Then the pressure will be increased on Congress to come up with the money and satisfy our "international commitments."
This is the pattern that he followed in regard to more money for the International Monetary Fund (IMF). After agreeing at the G-20 summit to provide more money for the IMF, the Obama White House slipped the cash and credit into the recently passed emergency war funding bill. The Obama White House had added billions in cash, as well as a $100 billion line of credit, for the IMF.
Rep. Mike Pence commented, "This legislation, which includes $108 billion in loan authorizations for a global bailout, for the International Monetary Fund-at a time when this government has run up a $2 trillion annual deficit-I believe does a disservice to taxpayers and to those that defend us. Passing a $108 billion global bailout on the backs of our soldiers is just not right."
The U.N. conference document explains where all of this is leading-the destruction of the American dollar as the world's reserve currency and the build-up of global institutions such as the IMF and the U.N.
It declares that "We acknowledge the calls by many states for further study of the feasibility and advisability of a more efficient reserve system, including the possible function of SDRs in any such system and the complementary roles that could be played by various regional arrangements." SDRs are Special Drawing Rights, a form of international currency that enables global institutions like the International Monetary Fund to provide more foreign aid to the rest of the world. The U.S. pays for SDRs through its financial contributions to the IMF.
If implemented, the document would officially mark the end of the United States as the world's leading economic power.
Urging socialism as the solution to the crisis, the document states that "Insufficient emphasis on equitable human development has contributed to significant inequalities among countries and peoples. Other weaknesses of a systemic nature also contributed to the unfolding crisis, which has demonstrated the need for more effective government involvement to ensure an appropriate balance between the market and public interest."
ht http://www.wilmott.com/blogs/paul/index.cfm/2008/12/12/Magicians-And-Mathematicians
Magicians And Mathematicians
Posted At : December 12, 2008 2:18 PM | Posted By : Paul Wilmott
Related Categories: General
Quantitative finance and risk management are not just about the numbers. Numbers play a part, but so does the human side of the business. When analyzing risk it is important to be able to think creatively about scenarios. Unfortunately the training that most quants get seems to actively discourage creativity.
Some of the following appeared on the BBC website in December 2008.
We've learned the hard way how important it is to measure and manage risk. Despite the thousands of mathematics and science PhDs working in risk management nowadays we seem to be at greater financial and economic risk than ever before. To show you one important side of banking I'd like you to follow me in an exercise with parallels in risk management.
You are in the audience at a small, intimate theatre, watching a magic show. The magician hands a pack of cards to a random member of the audience, asks him to check that it's an ordinary pack, and would he please give it a shuffle. The magician turns to another member of the audience and asks her to name a card at random. "Ace of Hearts," she says. The magician covers his eyes, reaches out to the pack of cards, and after some fumbling around he pulls out a card. The question to you is what is the probability of the card being the Ace of Hearts?
Think about this question while I talk a bit about risk management. Feel free to interrupt me as soon as you have an answer. Oh, you already have an answer? What is that, one in fifty two, you say? On the grounds that there are 52 cards in an ordinary pack. It certainly is one answer. But aren't you missing something, possibly crucial, in the question? Ponder a bit more.
One aspect of risk management is that of 'scenario analysis.' Risk managers in banks have to consider possible future scenarios and the effects they will have on their bank's portfolio. Assign probabilities to each event and you can estimate the distribution of future profit and loss. Not unlike our exercise with the cards. Of course, this is only as useful as the number of scenarios you can think of.
You have another answer for me already? You'd forgotten that it was a magician pulling out the card. Well, yes, I can see that might make a difference. So your answer is now that it will be almost 100% that the card will be the Ace of Hearts, the magician is hardly going to get this trick wrong. Are you right? Well, think just a while longer while I tell you more about risk and its management.
Sometimes the impact of a scenario is quite easy to estimate. For example, if interest rates rise by 1% then the bank's portfolio will fall in value by so many hundreds of millions. But estimating the probability of that interest rate rise in the first case might be quite tricky. And more complex scenarios might not even be considered. What about the effects of combining rising interest rates, rising mortgage defaults and falling house prices in America? Hmm, it's rather looking like that scenario didn't get the appreciation it deserved.
Back to our magician friend. Are those the only two possible answers? Either one in 52 or 100%? Suppose that you had billions of dollars of hedge fund money riding on the outcome of this magic trick would you feel so confident in your answers? When I ask this question of finance people I usually get either the one in 52 answer or the 100%. Some will completely ignore the word 'magician,' hence the first answer. Some will say "I'm supposed to give the maths answer, aren't I? But because he's a magician he will certainly pick the Ace of Hearts." This is usually accompanied by an aren't-I-clever smile! Rather frighteningly, some people trained in the higher mathematics of risk management still don't see the second answer even after being told.
This is really a question about whether modern risk managers are capable of thinking beyond maths and formulas. Do they appreciate the human side of finance, the herding behaviour of people, the unintended consequences, what I think of as all the fun stuff. And this is a nice question because it very quickly sorts out different types of thinkers.
There is no correct answer to our magician problem. The exercise is to think of as many possibilities as you can. For example when I first heard this question an obvious answer to me was zero. There is no chance that the card is the Ace of Hearts. This trick is too simple for any professional magician. Maybe the trick is a small part of a larger effect, getting this part 'wrong' is designed to make a later feat more impressive...the Ace of Hearts is later found inside someone's pocket. Or maybe on the card are written the winning lottery numbers that are drawn randomly 15 minutes later on live TV. Or maybe the magician was Tommy Cooper. Or it was all the magician's performance-anxiety dream the night before. When I ask non mathematicians this is the sort of answer I get.
The answer one in 52 is almost the answer least likely to be correct! Magicians only rarely rely on probability. Clue: How many times did Houdini die during his Water Tiorture trick? (Unless the magician was using an ordinary deck of cards, was aiming to pull out a different card but accidentally pulled out the Ace of Hearts instead! Accidentally not making the intended 'mistake.')
A member of wilmott.com didn't believe me when I said how many people get stuck on the one in 52 answer, and can't see the 100% answer, never mind the more interesting answers. He wrote "I can't believe anyone (who has a masters/phd anyway) would actually say 1/52, and not consider that this is not...a random pick?" So he asked some of his colleagues the question, and his experience was the same as mine. He wrote "Ok I tried this question in the office (a maths postgraduate dept), the first guy took a fair bit of convincing that it wasn't 1/52 !, then the next person (a hardcore pure mathematician) declared it an un-interesting problem, once he realised that there was essentially a human element to the problem! Maybe you have a point!" Does that not send shivers down your spine, it does mine.
Once you start thinking outside the box of mathematical theories the possibilities are endless. And although a knowledge of advanced mathematics is important in modern finance I do rather miss the days when banking was populated by managers with degrees in History and who'd been leaders of the school debating team. A lot of mathematics is no substitute for a little bit of commonsense and an open mind.
How can we get quants and risk managers to think beyond the mathematics? I'm afraid I don't think we can, the way the majority of them are currently educated.
Magicians And Mathematicians
Posted At : December 12, 2008 2:18 PM | Posted By : Paul Wilmott
Related Categories: General
Quantitative finance and risk management are not just about the numbers. Numbers play a part, but so does the human side of the business. When analyzing risk it is important to be able to think creatively about scenarios. Unfortunately the training that most quants get seems to actively discourage creativity.
Some of the following appeared on the BBC website in December 2008.
We've learned the hard way how important it is to measure and manage risk. Despite the thousands of mathematics and science PhDs working in risk management nowadays we seem to be at greater financial and economic risk than ever before. To show you one important side of banking I'd like you to follow me in an exercise with parallels in risk management.
You are in the audience at a small, intimate theatre, watching a magic show. The magician hands a pack of cards to a random member of the audience, asks him to check that it's an ordinary pack, and would he please give it a shuffle. The magician turns to another member of the audience and asks her to name a card at random. "Ace of Hearts," she says. The magician covers his eyes, reaches out to the pack of cards, and after some fumbling around he pulls out a card. The question to you is what is the probability of the card being the Ace of Hearts?
Think about this question while I talk a bit about risk management. Feel free to interrupt me as soon as you have an answer. Oh, you already have an answer? What is that, one in fifty two, you say? On the grounds that there are 52 cards in an ordinary pack. It certainly is one answer. But aren't you missing something, possibly crucial, in the question? Ponder a bit more.
One aspect of risk management is that of 'scenario analysis.' Risk managers in banks have to consider possible future scenarios and the effects they will have on their bank's portfolio. Assign probabilities to each event and you can estimate the distribution of future profit and loss. Not unlike our exercise with the cards. Of course, this is only as useful as the number of scenarios you can think of.
You have another answer for me already? You'd forgotten that it was a magician pulling out the card. Well, yes, I can see that might make a difference. So your answer is now that it will be almost 100% that the card will be the Ace of Hearts, the magician is hardly going to get this trick wrong. Are you right? Well, think just a while longer while I tell you more about risk and its management.
Sometimes the impact of a scenario is quite easy to estimate. For example, if interest rates rise by 1% then the bank's portfolio will fall in value by so many hundreds of millions. But estimating the probability of that interest rate rise in the first case might be quite tricky. And more complex scenarios might not even be considered. What about the effects of combining rising interest rates, rising mortgage defaults and falling house prices in America? Hmm, it's rather looking like that scenario didn't get the appreciation it deserved.
Back to our magician friend. Are those the only two possible answers? Either one in 52 or 100%? Suppose that you had billions of dollars of hedge fund money riding on the outcome of this magic trick would you feel so confident in your answers? When I ask this question of finance people I usually get either the one in 52 answer or the 100%. Some will completely ignore the word 'magician,' hence the first answer. Some will say "I'm supposed to give the maths answer, aren't I? But because he's a magician he will certainly pick the Ace of Hearts." This is usually accompanied by an aren't-I-clever smile! Rather frighteningly, some people trained in the higher mathematics of risk management still don't see the second answer even after being told.
This is really a question about whether modern risk managers are capable of thinking beyond maths and formulas. Do they appreciate the human side of finance, the herding behaviour of people, the unintended consequences, what I think of as all the fun stuff. And this is a nice question because it very quickly sorts out different types of thinkers.
There is no correct answer to our magician problem. The exercise is to think of as many possibilities as you can. For example when I first heard this question an obvious answer to me was zero. There is no chance that the card is the Ace of Hearts. This trick is too simple for any professional magician. Maybe the trick is a small part of a larger effect, getting this part 'wrong' is designed to make a later feat more impressive...the Ace of Hearts is later found inside someone's pocket. Or maybe on the card are written the winning lottery numbers that are drawn randomly 15 minutes later on live TV. Or maybe the magician was Tommy Cooper. Or it was all the magician's performance-anxiety dream the night before. When I ask non mathematicians this is the sort of answer I get.
The answer one in 52 is almost the answer least likely to be correct! Magicians only rarely rely on probability. Clue: How many times did Houdini die during his Water Tiorture trick? (Unless the magician was using an ordinary deck of cards, was aiming to pull out a different card but accidentally pulled out the Ace of Hearts instead! Accidentally not making the intended 'mistake.')
A member of wilmott.com didn't believe me when I said how many people get stuck on the one in 52 answer, and can't see the 100% answer, never mind the more interesting answers. He wrote "I can't believe anyone (who has a masters/phd anyway) would actually say 1/52, and not consider that this is not...a random pick?" So he asked some of his colleagues the question, and his experience was the same as mine. He wrote "Ok I tried this question in the office (a maths postgraduate dept), the first guy took a fair bit of convincing that it wasn't 1/52 !, then the next person (a hardcore pure mathematician) declared it an un-interesting problem, once he realised that there was essentially a human element to the problem! Maybe you have a point!" Does that not send shivers down your spine, it does mine.
Once you start thinking outside the box of mathematical theories the possibilities are endless. And although a knowledge of advanced mathematics is important in modern finance I do rather miss the days when banking was populated by managers with degrees in History and who'd been leaders of the school debating team. A lot of mathematics is no substitute for a little bit of commonsense and an open mind.
How can we get quants and risk managers to think beyond the mathematics? I'm afraid I don't think we can, the way the majority of them are currently educated.
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