President Obama and Nancy Pelosi, his enthusiastic sycophant in the House of Representatives, are concocting a disastrous bit of legislation. Reportedly, the House passed it while parts of it were still being written.
When they passed the “stimulus” bill earlier this year at least they had a one-thousand plus page document. The ink wasn’t dry, but the ink was on paper. I wonder if the sections written after the bill was “passed” are legally part of the bill. Logically, they couldn’t be, but a lack of logic has never been an obstacle to Congress and it’s been only a minor obstacle to the Supreme Court.
I wonder why Nancy Pelosi and Barack Obama are pushing so hard for this “Cap and Trade” legislation. I wonder why Congress doesn’t have hearings to look at the scientific evidence that supports a global warming trend and also the evidence that refutes it.
I wonder why this is a crisis when global temperatures have cooled over the past 11 years. I wonder how any member of congress can consider increasing the cost of doing business in the United States, and on living in the United States, when the economy remains in recession and the financial crisis may not yet be over.
I wonder why any member of Congress who truly thinks global warming is a crisis could support a bill that is predicted by its scientific supporters to reduce overall global warming by 0.07 degrees Fahrenheit after 50 years.
I wonder if there isn’t some completely different agenda at work here. I cannot believe 218 members of the United States House of Representatives are stupid enough to vote for this job-killing, recession prolonging, retirement damaging, freedom reducing, and completely ineffectual in obtaining its official purpose monstrosity.
I’m not a conspiracy theorist. In general, I think real conspiracies can’t be kept secret and anyway people aren’t smart enough to pull them off. In this case though, I hope there is a conspiracy. To think otherwise one would be forced to conclude that “The Keystone Cops” and “The Three Stooges” have a majority in Congress and a moron lives in the White House.
Tuesday, June 30, 2009
Tuesday, June 23, 2009
Economic Stimulus: Part 5 – Government Policy Options
Current United States government policies are inappropriate to the objective of ending the recession and starting a sustainable economic recovery. They are not directed at reducing the private debt-service to income ratio.
So what government policies might help people reduce their debt-service to income levels? The strategy is simple. Debts must be reduced, incomes must be increased, or some combination of the two.
There are three mechanisms to reduced debt service. (1) It can be paid down. (2) It can be refinanced at lower interest rates. Or (3), it can be repudiated. Two mechanisms could increase incomes. (1) Taxes could be cut to increase net incomes after taxes. Or (2), inflation could push up wages across the board.
For government policy to assist in paying down private debt the government would have to directly pay on the debt or provide additional money so people could pay down their own debt.
For government to increase private refinancing, government could reduce interest rates. However, many people who most need to refinance cannot because the value of their homes have fallen below the balance on their mortgages. In this situation, banks won’t write refinance mortgages. So, to affect this objective, government may need to purchase the current mortgages and reissue them at lower fixed interest rates. This might be accomplished through Fanny Mae, Freddie Mac, or even by the Federal Reserve Bank.
In order for government to increase debt repudiation the bankruptcy laws would need to be rewritten loosening the requirements for Chapter 7 bankruptcies. Or, the government might directly purchase bad debt from lenders and simply forgive the borrowers while writing the debt off the government’s books. This would probably be poorly received politically because of the perception of unfairness to all other borrowers.
For government policy to immediately increase incomes across the board tax cuts and tax rebates are the only tools available. Spending is too localized in its affects.
For government to increase nominal incomes broadly and continuously government could inflate the currency in a controlled and consistent manner.
Real government policy options for reducing private debt-service to income ratios are: (1) tax cuts and rebates; (2) buying private debt directly; (3) relaxing the bankruptcy laws; and (4) inflating the currency.
The United States government has cut the payroll tax slightly but is proposing income tax increases on high earners, the establishment of a new European style value added tax, and the imposition of carbon use taxes. These tax increases will have the reverse affect from what is needed. They will reduce net incomes and make private debt service more difficult.
The Federal Reserve has purchased some private debt in the form of mortgage backed derivatives; but they have no stated intention to forgive the debt or rewrite the terms at low fixed interest rates. Freddy Mac and Fanny Mae are offering somewhat helpful subsidized low fixed rate refinanced mortgages to borrowers who meet certain criteria. However, only a small fraction of at risk borrowers meets the criteria.
I’ve heard of no initiative to relax the bankruptcy laws. On the other hand, the government is doing everything possible to inflate the currency. The Federal Reserve is rapidly increasing the money supply and the Treasury is selling government debt overseas, repatriating dollars at rates unimaginable before it actually started happening. So far, the efforts to inflate the currency have been unsuccessful, but they will certainly succeed eventually.
Unfortunately, when the inflation begins it will drive up interest rates, slow the economy, and increase the cost of selling more government debt.
Current government policy is not helping to restart the economy.
Links to Other Topics in the Special Report: Economic Stimulus
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So what government policies might help people reduce their debt-service to income levels? The strategy is simple. Debts must be reduced, incomes must be increased, or some combination of the two.
There are three mechanisms to reduced debt service. (1) It can be paid down. (2) It can be refinanced at lower interest rates. Or (3), it can be repudiated. Two mechanisms could increase incomes. (1) Taxes could be cut to increase net incomes after taxes. Or (2), inflation could push up wages across the board.
For government policy to assist in paying down private debt the government would have to directly pay on the debt or provide additional money so people could pay down their own debt.
For government to increase private refinancing, government could reduce interest rates. However, many people who most need to refinance cannot because the value of their homes have fallen below the balance on their mortgages. In this situation, banks won’t write refinance mortgages. So, to affect this objective, government may need to purchase the current mortgages and reissue them at lower fixed interest rates. This might be accomplished through Fanny Mae, Freddie Mac, or even by the Federal Reserve Bank.
In order for government to increase debt repudiation the bankruptcy laws would need to be rewritten loosening the requirements for Chapter 7 bankruptcies. Or, the government might directly purchase bad debt from lenders and simply forgive the borrowers while writing the debt off the government’s books. This would probably be poorly received politically because of the perception of unfairness to all other borrowers.
For government policy to immediately increase incomes across the board tax cuts and tax rebates are the only tools available. Spending is too localized in its affects.
For government to increase nominal incomes broadly and continuously government could inflate the currency in a controlled and consistent manner.
Real government policy options for reducing private debt-service to income ratios are: (1) tax cuts and rebates; (2) buying private debt directly; (3) relaxing the bankruptcy laws; and (4) inflating the currency.
The United States government has cut the payroll tax slightly but is proposing income tax increases on high earners, the establishment of a new European style value added tax, and the imposition of carbon use taxes. These tax increases will have the reverse affect from what is needed. They will reduce net incomes and make private debt service more difficult.
The Federal Reserve has purchased some private debt in the form of mortgage backed derivatives; but they have no stated intention to forgive the debt or rewrite the terms at low fixed interest rates. Freddy Mac and Fanny Mae are offering somewhat helpful subsidized low fixed rate refinanced mortgages to borrowers who meet certain criteria. However, only a small fraction of at risk borrowers meets the criteria.
I’ve heard of no initiative to relax the bankruptcy laws. On the other hand, the government is doing everything possible to inflate the currency. The Federal Reserve is rapidly increasing the money supply and the Treasury is selling government debt overseas, repatriating dollars at rates unimaginable before it actually started happening. So far, the efforts to inflate the currency have been unsuccessful, but they will certainly succeed eventually.
Unfortunately, when the inflation begins it will drive up interest rates, slow the economy, and increase the cost of selling more government debt.
Current government policy is not helping to restart the economy.
Links to Other Topics in the Special Report: Economic Stimulus
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Tuesday, June 16, 2009
Economic Stimulus: Part 4 – Reducing Debt vs Increasing Consumption
This recession was caused by debt from banks financing their lending operations, from families taking on mortgages beyond their ability to pay, and from individuals financing personal consumption with credit cards, home equity loans, and refinanced mortgages.
When the ratio of private debt to private income shrinks to its historical norm, private consumption will naturally increase from its new lows. Until then, the folks will save and pay down debt and, where they can, defer consumption to make room in their budgets for saving and debt service.
Government policy may be able to reduce the severity and length of the recession if it is directed at helping families reduce their debt and increase their savings. A successful policy would help people restore their personal debt-service to income ratios faster creating the conditions necessary to sustain economic growth sooner.
Stabilizing the banking system was and is necessary to continue financing viable businesses, especially small businesses. But increasing government consumption will not end the recession. Government spending, as opposed to tax cuts or rebates, is necessarily targeted at things government can spend money on.
Projects that receive government money will prosper while the rest of the economy continues to founder because the people still must pay down their debt. Families and individuals must reduce their debt payment obligations and save money for the proverbial rainy day.
For some the rain has already arrived and they were caught without an umbrella. These folks are reducing their debt through bankruptcy and foreclosure. The rest of the folks can see the storm coming and are trying to restore their debt-service to income ratios before the rains reach them.
Links to Other Topics in the Special Report: Economic Stimulus
When the ratio of private debt to private income shrinks to its historical norm, private consumption will naturally increase from its new lows. Until then, the folks will save and pay down debt and, where they can, defer consumption to make room in their budgets for saving and debt service.
Government policy may be able to reduce the severity and length of the recession if it is directed at helping families reduce their debt and increase their savings. A successful policy would help people restore their personal debt-service to income ratios faster creating the conditions necessary to sustain economic growth sooner.
Stabilizing the banking system was and is necessary to continue financing viable businesses, especially small businesses. But increasing government consumption will not end the recession. Government spending, as opposed to tax cuts or rebates, is necessarily targeted at things government can spend money on.
Projects that receive government money will prosper while the rest of the economy continues to founder because the people still must pay down their debt. Families and individuals must reduce their debt payment obligations and save money for the proverbial rainy day.
For some the rain has already arrived and they were caught without an umbrella. These folks are reducing their debt through bankruptcy and foreclosure. The rest of the folks can see the storm coming and are trying to restore their debt-service to income ratios before the rains reach them.
Links to Other Topics in the Special Report: Economic Stimulus
Tuesday, June 9, 2009
Economic Stimulus: Part 3 – Why Government Spending Will Not Work
Government spending will not lead us out of the current recession. The economy of the United States will eventually recover but government spending will not “prime the pump” to use FDR’s words. This recession was caused by too much debt. So much debt that it couldn’t be paid back or serviced by overextended borrowers.
Citizens have started saving, paying down debt, and in some cases defaulting on it. This must happen. The level of debt must come down to historically normal levels as a percentage of incomes in order for a recovery to sustain itself.
Since the federal government’s income from taxes is falling, and since the government has zero savings, the expansion of government spending is funded with borrowed money through the selling of Treasury Bonds.
With the yields (the effective interest rate based on the price paid) of Treasury Bonds creeping up past 4.0% there are not enough buyers. The Federal Reserve (Fed) is, therefore, buying Treasury Bonds for its own account in order to keep the yields from rising higher and faster.
However, when the Fed buys Treasury Bonds they don’t use real money. The Fed pretends to have the money. They literally just send data indicating the amount they are supposedly paying for the bonds to the accounts of the US Treasury Department. Individuals who attempt this are guilty of a felony; bank fraud jumps to mind.
The financial press, when referring to this process, say the Fed is “printing money”. The Fed doesn’t actually print it – they make fraudulent accounting entries; Sarbanes-Oxley jumps to mind.
In addition to the purchases of bonds by the Fed, many bonds and the shorter term Treasury Bills are purchased from outside the United States - especially by foreign governments – especially by China. Foreign purchases have the same effect as purchases by the Fed; more dollars become available for circulation in America.
All of these dollars are briefly in the hands of the federal government.
The idea is that since the people are spending less (they are busy paying down debt) the government must spend enough to make up for the lack of private spending. The problem is two-fold. (1) Government is creating public debt faster than people and corporations can pay down private debt so the total debt problem continues to grow. (2) Government borrowing from overseas, and from the Fed’s creative accounting, increases the number of dollars in circulation without increasing goods and services available to buy.
Government is also diverting some economic activity to low priority projects not previously deemed worthy of funding. The people, meanwhile, still must pay down their debt. So, consumer spending will remain suppressed as the excess dollars find their way into circulation. Eventually price and wage inflation will become noticeable - and then alarming.
Inflation will help some people service their debt since fixed debts like 30 year fixed rate mortgages will remain unchanged while wages increase. These people will have more dollars available to make the same monthly payments. Their debt will be a smaller portion of their inflated income.
People with variable debt (adjustable rate mortgages and credit card debt for example) won’t be so fortunate. Their interest rates will rise - perhaps faster than their wages. Inflation will also hurt the banks as their portfolios of fixed rate loans lose value.
Independently of government spending and inflation issues, banks and housing prices are already queued up for another round of mortgage defaults. There is a large group of mortgages out there with balloon payments or major payment resets due in 2010 and 2011.
It’s an open question whether these mortgage payment resets will, by themselves, delay the recovery and the ensuing inflation, or whether the recovery and inflation will start first and the new mortgage resets, and subsequent defaults, abort the recovery and throw us into a double-dip recession.
Another possibility is that the second round of mortgage defaults will join the inflation in progress - resulting in recession with inflation similar to the “stagflation” of the late 1970’s and early 1980’s.
The least likely possibility is a recovery without inflation and without a double-dip recession. The probability of this rosy scenario is slightly higher than a snowball’s chance in Hell.
Links to Other Topics in the Special Report: Economic Stimulus
Citizens have started saving, paying down debt, and in some cases defaulting on it. This must happen. The level of debt must come down to historically normal levels as a percentage of incomes in order for a recovery to sustain itself.
Since the federal government’s income from taxes is falling, and since the government has zero savings, the expansion of government spending is funded with borrowed money through the selling of Treasury Bonds.
With the yields (the effective interest rate based on the price paid) of Treasury Bonds creeping up past 4.0% there are not enough buyers. The Federal Reserve (Fed) is, therefore, buying Treasury Bonds for its own account in order to keep the yields from rising higher and faster.
However, when the Fed buys Treasury Bonds they don’t use real money. The Fed pretends to have the money. They literally just send data indicating the amount they are supposedly paying for the bonds to the accounts of the US Treasury Department. Individuals who attempt this are guilty of a felony; bank fraud jumps to mind.
The financial press, when referring to this process, say the Fed is “printing money”. The Fed doesn’t actually print it – they make fraudulent accounting entries; Sarbanes-Oxley jumps to mind.
In addition to the purchases of bonds by the Fed, many bonds and the shorter term Treasury Bills are purchased from outside the United States - especially by foreign governments – especially by China. Foreign purchases have the same effect as purchases by the Fed; more dollars become available for circulation in America.
All of these dollars are briefly in the hands of the federal government.
The idea is that since the people are spending less (they are busy paying down debt) the government must spend enough to make up for the lack of private spending. The problem is two-fold. (1) Government is creating public debt faster than people and corporations can pay down private debt so the total debt problem continues to grow. (2) Government borrowing from overseas, and from the Fed’s creative accounting, increases the number of dollars in circulation without increasing goods and services available to buy.
Government is also diverting some economic activity to low priority projects not previously deemed worthy of funding. The people, meanwhile, still must pay down their debt. So, consumer spending will remain suppressed as the excess dollars find their way into circulation. Eventually price and wage inflation will become noticeable - and then alarming.
Inflation will help some people service their debt since fixed debts like 30 year fixed rate mortgages will remain unchanged while wages increase. These people will have more dollars available to make the same monthly payments. Their debt will be a smaller portion of their inflated income.
People with variable debt (adjustable rate mortgages and credit card debt for example) won’t be so fortunate. Their interest rates will rise - perhaps faster than their wages. Inflation will also hurt the banks as their portfolios of fixed rate loans lose value.
Independently of government spending and inflation issues, banks and housing prices are already queued up for another round of mortgage defaults. There is a large group of mortgages out there with balloon payments or major payment resets due in 2010 and 2011.
It’s an open question whether these mortgage payment resets will, by themselves, delay the recovery and the ensuing inflation, or whether the recovery and inflation will start first and the new mortgage resets, and subsequent defaults, abort the recovery and throw us into a double-dip recession.
Another possibility is that the second round of mortgage defaults will join the inflation in progress - resulting in recession with inflation similar to the “stagflation” of the late 1970’s and early 1980’s.
The least likely possibility is a recovery without inflation and without a double-dip recession. The probability of this rosy scenario is slightly higher than a snowball’s chance in Hell.
Links to Other Topics in the Special Report: Economic Stimulus
Tuesday, June 2, 2009
Economic Stimulus: Part 2 – How We Got Here
Recessions and depressions have triggers. They also have fundamentals. They are always the result of some excess. They are the practical, ironic, and perhaps divine response to academic arguments that markets are efficient and reflect in prices all known facts.
Some recessions are triggered by disasters – natural or man-made. Normal recessions are about reducing excess inventory. When one company cuts back production because its inventories are too high a few people temporarily lose some wages. When many companies cut back at the same time it’s called a recession.
Excess inventories build up because of excessive optimism by some critical mass of producers. When the critical mass cuts production their suppliers see reductions in demand and therefore instant excess inventories. Of course, they respond by cutting production as well.
The current recession is different. It’s not about excess inventory it’s about excess debt. It was triggered by rising interest rates resetting upward the monthly payments of certain classes of mortgages. Fundamentally, far too many people bought homes they could not afford, financed by mortgages with terms that were absurd under any conditions save one – that of continuously and forever raising real estate values.
We should have known we were in trouble when “house flipping” turned into prime-time television entertainment; when 5-year interest only balloon mortgages were resurrected from the their 1930’s graves.
But when mortgages were written allowing borrower’s to “name their own” monthly payment for the first five years while tacking the unpaid interest onto the principle – sirens should have sounded - whistles should have blown.
But no – for fifteen years the nation was “charging it.” Personal credit card debt doubled, tripled, and then quadrupled. Home mortgage debt did the same. Corporate debt, especially bank and finance company debt led the way with banks borrowing cheap from Uncle Sam, lending dear to the public, and raking in leveraged profits for as long as the party lasted.
And government? Government was the cheerleader encouraging and enabling every additional dollar of debt – while simultaneously running up government spending and just “charging it.”
Congress eliminated the wall of separation between commercial banks and investment banks. Congress encouraged writing mortgages to “sub-prime” borrowers. The Federal Reserve reduced bank capital requirements and kept interest rates too low for too long. The FDIC waived premium payments from the bank’s for their deposit insurance. The regulators of Fanny Mae and Freddie Mac stood aside as the two government-sponsored lending agencies purchased and created bundles of high risk loans and called them AAA securities. Congress then stood aside refusing to consider tighter regulation of Fanny and Freddie.
Government enabled and encouraged the conditions that led to the recession but government did not cause the recession. Excessive optimism about real estate values and excessive debt serviced by insufficient income caused this recession
Links to Other Topics in the Special Report: Economic Stimulus
Some recessions are triggered by disasters – natural or man-made. Normal recessions are about reducing excess inventory. When one company cuts back production because its inventories are too high a few people temporarily lose some wages. When many companies cut back at the same time it’s called a recession.
Excess inventories build up because of excessive optimism by some critical mass of producers. When the critical mass cuts production their suppliers see reductions in demand and therefore instant excess inventories. Of course, they respond by cutting production as well.
The current recession is different. It’s not about excess inventory it’s about excess debt. It was triggered by rising interest rates resetting upward the monthly payments of certain classes of mortgages. Fundamentally, far too many people bought homes they could not afford, financed by mortgages with terms that were absurd under any conditions save one – that of continuously and forever raising real estate values.
We should have known we were in trouble when “house flipping” turned into prime-time television entertainment; when 5-year interest only balloon mortgages were resurrected from the their 1930’s graves.
But when mortgages were written allowing borrower’s to “name their own” monthly payment for the first five years while tacking the unpaid interest onto the principle – sirens should have sounded - whistles should have blown.
But no – for fifteen years the nation was “charging it.” Personal credit card debt doubled, tripled, and then quadrupled. Home mortgage debt did the same. Corporate debt, especially bank and finance company debt led the way with banks borrowing cheap from Uncle Sam, lending dear to the public, and raking in leveraged profits for as long as the party lasted.
And government? Government was the cheerleader encouraging and enabling every additional dollar of debt – while simultaneously running up government spending and just “charging it.”
Congress eliminated the wall of separation between commercial banks and investment banks. Congress encouraged writing mortgages to “sub-prime” borrowers. The Federal Reserve reduced bank capital requirements and kept interest rates too low for too long. The FDIC waived premium payments from the bank’s for their deposit insurance. The regulators of Fanny Mae and Freddie Mac stood aside as the two government-sponsored lending agencies purchased and created bundles of high risk loans and called them AAA securities. Congress then stood aside refusing to consider tighter regulation of Fanny and Freddie.
Government enabled and encouraged the conditions that led to the recession but government did not cause the recession. Excessive optimism about real estate values and excessive debt serviced by insufficient income caused this recession
Links to Other Topics in the Special Report: Economic Stimulus
Tuesday, May 26, 2009
Economic Stimulus: Part 1 – Economists & Witch Doctors
I am not an economist. I am also not a witch doctor. The two professions are roughly equal in usefulness. Witch doctors predict, diagnose, and treat human illness with approximately the same success economists predict, diagnose, and treat national and global economies. They are as successful as the local weatherman predicting a thunderstorm over your home for 2:00 PM six weeks from next Monday.
Macro-economics is Voodoo economics to resurrect a phrase from the 1980’s. The economics that matter are the incentives, costs, benefits, and decisions taken by individual and corporate actors. Government is just another corporate actor. Its decisions influence the incentives, costs, benefits, and decisions taken by other individual and corporate actors.
Government policies potentially affect more people than those of other actors because government is by far the largest corporate actor in the economy. But economists pretend they know what will happen as a result of government policies despite their record of being wrong 100% of the time.
They don’t know what the unemployment rate will be next month. Why do you suppose economists every month anxiously await the government published numbers? Why are they always surprised that the result is worst than or better than expected?
They don’t know what inflation will be next month.
Markets swing when almost any economic statistic is published because whatever the actual number is – it is different from what was expected. And oh, by the way, the “actual” number that was reported yesterday morning will be “revised” upward – or downward –retroactively in three months time. The current recession was officially announced last fall, in September 2008 as I recall. It was then announced that the recession began in December 2007; a surprise and a retroactive correction of the data.
Why does anyone believe professional economists? For the same reason that the tribe believes the witch doctor – they don’t know any better. The witch doctor looks really competent in his headdress, made-up face, leggings, and sheep skin cloak. He looks like he really knows what he is doing as he dances around the sick bed chanting rhyming incantations. The tribesmen don’t know those incantations. They don’t know those dances. They don’t own a sheep skin cloak.
And we don’t understand those macro-economic formulae. We don’t even understand the words uttered by professional economists, But they sure sound like they know what they are talking about. Universities even gave them all sheep skin PHD diplomas. Some of them even won Nobel Prizes. They KNOW more than we do.
For some reason – the tribesmen don’t know why – the sick person gets well, or doesn’t, whether the witch doctor is there or not. And for some reason - we don’t know why – the economists are always wrong. The world seems never to work according to their models – any of their models. Regardless of which of the many conflicting economic models you consult they are always wrong.
So is economics worthless? Not completely. If you use common sense and concentrate at the micro level where real people are making real decisions about their own real lives then you can get some insights into reality. Perhaps, if you are very careful and through, you can aggregate some of the real decisions and infer a few general principles to guide public policy but no more than that.
Warren Buffet recently said, “Beware of geeks bearing formulas.” His quip is insightful and universally applicable. All academic disciplines trend toward ever more complex mathematics in their attempt to explain data. Before any mathematical model can be relied upon for decision-making it must be rigorously tested by reality and by smell.
Correlation does not equal causation or even connection.
Links to Other Topics in the Special Report: Economic Stimulus
Macro-economics is Voodoo economics to resurrect a phrase from the 1980’s. The economics that matter are the incentives, costs, benefits, and decisions taken by individual and corporate actors. Government is just another corporate actor. Its decisions influence the incentives, costs, benefits, and decisions taken by other individual and corporate actors.
Government policies potentially affect more people than those of other actors because government is by far the largest corporate actor in the economy. But economists pretend they know what will happen as a result of government policies despite their record of being wrong 100% of the time.
They don’t know what the unemployment rate will be next month. Why do you suppose economists every month anxiously await the government published numbers? Why are they always surprised that the result is worst than or better than expected?
They don’t know what inflation will be next month.
Markets swing when almost any economic statistic is published because whatever the actual number is – it is different from what was expected. And oh, by the way, the “actual” number that was reported yesterday morning will be “revised” upward – or downward –retroactively in three months time. The current recession was officially announced last fall, in September 2008 as I recall. It was then announced that the recession began in December 2007; a surprise and a retroactive correction of the data.
Why does anyone believe professional economists? For the same reason that the tribe believes the witch doctor – they don’t know any better. The witch doctor looks really competent in his headdress, made-up face, leggings, and sheep skin cloak. He looks like he really knows what he is doing as he dances around the sick bed chanting rhyming incantations. The tribesmen don’t know those incantations. They don’t know those dances. They don’t own a sheep skin cloak.
And we don’t understand those macro-economic formulae. We don’t even understand the words uttered by professional economists, But they sure sound like they know what they are talking about. Universities even gave them all sheep skin PHD diplomas. Some of them even won Nobel Prizes. They KNOW more than we do.
For some reason – the tribesmen don’t know why – the sick person gets well, or doesn’t, whether the witch doctor is there or not. And for some reason - we don’t know why – the economists are always wrong. The world seems never to work according to their models – any of their models. Regardless of which of the many conflicting economic models you consult they are always wrong.
So is economics worthless? Not completely. If you use common sense and concentrate at the micro level where real people are making real decisions about their own real lives then you can get some insights into reality. Perhaps, if you are very careful and through, you can aggregate some of the real decisions and infer a few general principles to guide public policy but no more than that.
Warren Buffet recently said, “Beware of geeks bearing formulas.” His quip is insightful and universally applicable. All academic disciplines trend toward ever more complex mathematics in their attempt to explain data. Before any mathematical model can be relied upon for decision-making it must be rigorously tested by reality and by smell.
Correlation does not equal causation or even connection.
Links to Other Topics in the Special Report: Economic Stimulus
Wednesday, May 20, 2009
Inflation is Coming
Inflation is coming. Serious inflation like we have not seen since the days of Jimmy Carter.
The United States Treasury is borrowing money from overseas and the Federal Reserve Bank is creating money out of thin air; Lots of money; Mind-numbing quantities of money.
The sum total of all goods and services produced in the United States has fallen every quarter since the end of 2007 and it continues to fall.
The prices of oil, gold, and copper are slowly rising from their recent lows. Yields on long term Treasury Bills are rising as well, moving from less than one percent to over three percent in six months.
Whether fiscal stimulus will increase or retard economic growth is unclear. What is clear is that a lot more money will be available to spend or a lot fewer goods and services. This is practically the definition of inflation. I don’t know when it will start – perhaps it already has. When inflation gets started dollars will become worth less.
Inflation may be the only way out of the excessive personal debt load carried by millions of Americans. It will reduce the value of debts and tend to increase wages making the debts more affordable. That’s the good news.
It will also make most things cost more. Adjustable Rate Mortgages (ARM) will reset upward as inflation inevitably raises mortgage interest rates. It will make doing business more complicated. Some businesses will fail because of their inability to raise prices as fast as their costs increase. It will erode the value of savings and annuities and give the United States government a way to reduce Social Security and Medicare benefits on the sly by increasing benefit levels more slowly than the real rate of inflation.
Inflation is coming. Get ready.
Link to Featured Posts
The United States Treasury is borrowing money from overseas and the Federal Reserve Bank is creating money out of thin air; Lots of money; Mind-numbing quantities of money.
The sum total of all goods and services produced in the United States has fallen every quarter since the end of 2007 and it continues to fall.
The prices of oil, gold, and copper are slowly rising from their recent lows. Yields on long term Treasury Bills are rising as well, moving from less than one percent to over three percent in six months.
Whether fiscal stimulus will increase or retard economic growth is unclear. What is clear is that a lot more money will be available to spend or a lot fewer goods and services. This is practically the definition of inflation. I don’t know when it will start – perhaps it already has. When inflation gets started dollars will become worth less.
Inflation may be the only way out of the excessive personal debt load carried by millions of Americans. It will reduce the value of debts and tend to increase wages making the debts more affordable. That’s the good news.
It will also make most things cost more. Adjustable Rate Mortgages (ARM) will reset upward as inflation inevitably raises mortgage interest rates. It will make doing business more complicated. Some businesses will fail because of their inability to raise prices as fast as their costs increase. It will erode the value of savings and annuities and give the United States government a way to reduce Social Security and Medicare benefits on the sly by increasing benefit levels more slowly than the real rate of inflation.
Inflation is coming. Get ready.
Link to Featured Posts
Wednesday, May 13, 2009
Liberty is Radical – Part 4 – States Rights
The second meta-decision at issue in the Civil War was the meaning of the Constitution’s 9th & 10th Amendments.
The 9th & 10th Amendments are shown below along with a link to a copy of the entire Constitution.
http://www.usconstitution.net/const.html
Amendment 9 - Construction of Constitution.
“The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.”
Amendment 10 - Powers of the States and People.
“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”
The Confederate States, in defense of slavery, asserted their right to secede or withdraw from the United States of America and form a new country with laws more to their liking.
The United States invaded the Confederate States and the eventual success of the Northern invasion ended slavery – clearly a good thing. But it also ended the then universal assumption that the power of the Federal government was limited by the 9th and 10th Amendments to the US Constitution. And, that the states had the right to secede from the union they had voluntarily joined.
The balance of US history from 1865 to this day reveals a continuous growth in the powers of the Federal government and ever tightening constraints on the rights of States and of individuals.
If you don’t believe me try any one of these tests:
Carry a belt knife into the security zone of an airport.
Protest in front of an abortion clinic.
Upgrade the windows of a house in a designated “historic district”.
Drain a swamp and prepare to build a house on the land.
Refuse to rent an apartment to a homosexual couple
Though you may agree with these restrictions they are, nevertheless, restrictions of liberty. Liberty is in retreat and has been for a very long time. How long will it continue? How much liberty is enough? How much is too much?
The 9th & 10th Amendments are shown below along with a link to a copy of the entire Constitution.
http://www.usconstitution.net/const.html
Amendment 9 - Construction of Constitution.
“The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.”
Amendment 10 - Powers of the States and People.
“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”
The Confederate States, in defense of slavery, asserted their right to secede or withdraw from the United States of America and form a new country with laws more to their liking.
The United States invaded the Confederate States and the eventual success of the Northern invasion ended slavery – clearly a good thing. But it also ended the then universal assumption that the power of the Federal government was limited by the 9th and 10th Amendments to the US Constitution. And, that the states had the right to secede from the union they had voluntarily joined.
The balance of US history from 1865 to this day reveals a continuous growth in the powers of the Federal government and ever tightening constraints on the rights of States and of individuals.
If you don’t believe me try any one of these tests:
Carry a belt knife into the security zone of an airport.
Protest in front of an abortion clinic.
Upgrade the windows of a house in a designated “historic district”.
Drain a swamp and prepare to build a house on the land.
Refuse to rent an apartment to a homosexual couple
Though you may agree with these restrictions they are, nevertheless, restrictions of liberty. Liberty is in retreat and has been for a very long time. How long will it continue? How much liberty is enough? How much is too much?
Friday, May 8, 2009
I Love My Wife
I am in love with my wife; insanely, outrageously, totally, completely, wonderfully in love with my Linda. We’ve been an “item” for ten years and married for most of nine.
We’ve had good times and bad times but I’ve been blessed through all the times.
It is wisely said that the most important decision you’ll ever make is your choice of a spouse. I affirm that wisdom. Your choice of a woman to wed will make the difference between bankruptcy and plenty; between a clean orderly home in the mountains and an insect infested fire trap; between companionship and loneliness; zest for life and thoughts of suicide; between peace and chaos; between heaven on Earth and Hell.
Linda is not perfect – nor would she claim it. I, however, am far less perfect than she but she stayed with me nevertheless. She was my partner in recovering from bankruptcy. We fought for a year over the design of our new house and in the end; the design was perfect for what we could afford.
Does she nag me?
Of course.
Does she support me?
Of course!
Does she love me?
Yes.
Do I love Linda?
Intensely.
Link to Featured Posts
We’ve had good times and bad times but I’ve been blessed through all the times.
It is wisely said that the most important decision you’ll ever make is your choice of a spouse. I affirm that wisdom. Your choice of a woman to wed will make the difference between bankruptcy and plenty; between a clean orderly home in the mountains and an insect infested fire trap; between companionship and loneliness; zest for life and thoughts of suicide; between peace and chaos; between heaven on Earth and Hell.
Linda is not perfect – nor would she claim it. I, however, am far less perfect than she but she stayed with me nevertheless. She was my partner in recovering from bankruptcy. We fought for a year over the design of our new house and in the end; the design was perfect for what we could afford.
Does she nag me?
Of course.
Does she support me?
Of course!
Does she love me?
Yes.
Do I love Linda?
Intensely.
Link to Featured Posts
Monday, May 4, 2009
Torturous Caterpillars
Memos were recently released by the Obama administration detailing the interrogation methods used on some captured terrorists during the Bush administration. Among the techniques described were “waterboarding”, “walling”, and confining the terrorist in a closed space with a caterpillar.
Walling seems to consist of pushing the terrorist up against a soft wall while the terrorist is wearing a neck brace to prevent injury. As a 1973 West Point graduate walling sounds like an extremely mild form of “bracing” a plebe. My class was officially the last class to experience bracing, but it used to be that freshmen West Point cadets were regularly braced against walls by upperclassmen. The plebe was required to push his neck back against the wall without the use of a neck brace and hold it there by his own strength for extended periods of time.
Confining a terrorist in a close space with a caterpillar, even if the subject thought the caterpillar was a “stinging insect”, hardly qualifies as torture. Waterboarding is a bit more strenuous but this, the most extreme of the interrogation techniques used, is just not in the same league with cigarette butts on the skin or electrodes on the testicles.
In fact the most amazing thing about these interrogation techniques is that they worked! If I were a Muslim or an Arab I would be ashamed that those who pretend to represent me are such cowards that they spill their guts in fear of a caterpillar.
Just what kinds of “warriors” are bred over there? Cowardice doesn’t begin to describe their capitulation; when they see a caterpillar, when they are braced against a wall, or when water is poured on the faces.
It is just astounding.
Link to Featured Posts
Walling seems to consist of pushing the terrorist up against a soft wall while the terrorist is wearing a neck brace to prevent injury. As a 1973 West Point graduate walling sounds like an extremely mild form of “bracing” a plebe. My class was officially the last class to experience bracing, but it used to be that freshmen West Point cadets were regularly braced against walls by upperclassmen. The plebe was required to push his neck back against the wall without the use of a neck brace and hold it there by his own strength for extended periods of time.
Confining a terrorist in a close space with a caterpillar, even if the subject thought the caterpillar was a “stinging insect”, hardly qualifies as torture. Waterboarding is a bit more strenuous but this, the most extreme of the interrogation techniques used, is just not in the same league with cigarette butts on the skin or electrodes on the testicles.
In fact the most amazing thing about these interrogation techniques is that they worked! If I were a Muslim or an Arab I would be ashamed that those who pretend to represent me are such cowards that they spill their guts in fear of a caterpillar.
Just what kinds of “warriors” are bred over there? Cowardice doesn’t begin to describe their capitulation; when they see a caterpillar, when they are braced against a wall, or when water is poured on the faces.
It is just astounding.
Link to Featured Posts
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