President Obama, in his budget proposal, aims to raise income taxes in 2011. Leaving aside all issues of whether taxes are a productive use of the people's money, there is the question of the consequence of raising taxes in a Depression.
In the US, the last time this was tried was 1931. The federal government at the time was running a huge deficit due to collapsing tax revenue, and there was a universal political consensus at the time, that budgets must be balanced. Spending was cut in some areas. The States, however, were desperately short of funds and received expensive bailouts from the federal government that caused overall expenditures to rise. The solution seen at the time was to raise taxes.
The consequences of that, as every student of history knows, were devastating. Mr. Hoover, the president at the time, became so unpopular that shanty towns springing up were named "Hoovervilles," and newspapers were called "Hoover blankets."
We are not fond of government deficit spending, and would prefer to see fewer bailouts. However, to raise taxes to fund bailouts - taking dwindling funds from the productive population and giving it to the spendthrift elements, is just about the worst thing that could be done in this environment. We are not optimistic about the wisdom of the Congress, and it seems history is doomed to repeat.
Saturday, February 28, 2009
Friday, February 27, 2009
Fire Up the Presses!
The Year of our Depression 2009 hasn't yet ended its second month, yet already a great sea of red ink is bathing the bailout-happy nations of the world. Japan's exports tanked 46% year-over-year in January; the Royal Bank of Scotland is haemorrhaging pounds like nothing else in British banking history; Fannie Mae put her lil' ol' hand out for more money after losing another $25.2 billion in fourth quarter of 2008.
Perhaps to top it all off, yesterday President Obama unveiled his $3.5 trillion budget, featuring $989 billion in new taxes. Oh, all these numbers are making our eyes bleed, dear Reader! We see a great tsunami of red ink barrelling down upon the economic landscape, and we hope to keep our head above all the mess.
Imagery aside, the implications of all these massive problems is severe: a great deal of pain and misery is required, if a society wants to honestly work its way back to fiscal health. That, however, isn't very popular with the average American, or Briton, for example. It's also political suicide to suggest such a thing: people do not want to work hard, to pay off the national bar tab, or all the gambling debts.
No, the only expedient way out of this mess, the one that is relied upon time and time again, is inflation. These debts will be inflated away into nothingness; President Obama's bloated budget makes this clear. He is only getting started with his spending spree, since he has to make up for the Baby Boomers and their underwater finances.
In summation, we turn to no less a sage that Ernest Hemingway:
Perhaps to top it all off, yesterday President Obama unveiled his $3.5 trillion budget, featuring $989 billion in new taxes. Oh, all these numbers are making our eyes bleed, dear Reader! We see a great tsunami of red ink barrelling down upon the economic landscape, and we hope to keep our head above all the mess.
Imagery aside, the implications of all these massive problems is severe: a great deal of pain and misery is required, if a society wants to honestly work its way back to fiscal health. That, however, isn't very popular with the average American, or Briton, for example. It's also political suicide to suggest such a thing: people do not want to work hard, to pay off the national bar tab, or all the gambling debts.
No, the only expedient way out of this mess, the one that is relied upon time and time again, is inflation. These debts will be inflated away into nothingness; President Obama's bloated budget makes this clear. He is only getting started with his spending spree, since he has to make up for the Baby Boomers and their underwater finances.
In summation, we turn to no less a sage that Ernest Hemingway:
The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.
Thursday, February 26, 2009
Health Care Catastrophe
Mr. Obama wants to "reform" health care spending in the USA. It looks like that means spending more money. Apparently the USA already spends over $8,000 per person on all things medical (nearly 1/5th of GDP). We believe that long-term, USA GDP will fall much closer to the world mean, about $10,000 per year. Obviously the USA cannot spend 4/5ths of its income on medicine.
This is not good news for the U.S. medical complex. Given that the USA spends about twice as much per capita on medicine as other developed countries, there is plenty of fat to be cut. Some countries go further such as Singapore or Cuba, for example, which have adequate health care systems (certain measures of public health are higher than for the USA), at a small or tiny fraction of the cost per capita (1/5th and 1/25th respectively).
It is apparent that a vast reduction in medical spending need not necessarily yield a vast reduction in medical care. Though, considering the disarray in the U.S. system, a decline of quality is likely. What is certain is that incomes for those who make their living in the industry are bound to fall dramatically or just go away.
Among the many super-sized industries in the USA, medicine is among the most bloated. We expect the Depression will cut it down to a sustainable level dramatically smaller than its current size.
This is not good news for the U.S. medical complex. Given that the USA spends about twice as much per capita on medicine as other developed countries, there is plenty of fat to be cut. Some countries go further such as Singapore or Cuba, for example, which have adequate health care systems (certain measures of public health are higher than for the USA), at a small or tiny fraction of the cost per capita (1/5th and 1/25th respectively).
It is apparent that a vast reduction in medical spending need not necessarily yield a vast reduction in medical care. Though, considering the disarray in the U.S. system, a decline of quality is likely. What is certain is that incomes for those who make their living in the industry are bound to fall dramatically or just go away.
Among the many super-sized industries in the USA, medicine is among the most bloated. We expect the Depression will cut it down to a sustainable level dramatically smaller than its current size.
Wednesday, February 25, 2009
Another Sign for the Bottom
We like to keep ahead of popular trends in society. For instance, a few years ago the typical American citizen was a debt-addicted consumer: they borrowed, borrowed, borrowed, so he or she could spend, spend, spend. We saw that, and tried to go the other direction: keep debt within easily-manageable amounts.
Fast forwards to today, and people are fretting about their McMansion, their big-screen plasma TV, and their automobiles; all were bought with credit, and all are pretty expensive when one doesn't have a job. The average 'consumers' are only just beginning to realise just how unsustainable their lifestyle once was.
However, it's going to take a quite awhile to obliterate unsustainable 'common knowledge.' 'Common knowledge' holds that everyone can own their own home, their own car, and live in the suburban paradise. 'Everyone' knows that one should pay for as much as possible with credit; it's so much more convenient that way.
We are on the fringe when we write this, but we feel it is true: consumerism is dead; the 'every family in their own home' fantasy is dead; there will be no chicken in every pot and car in every garage. Buying a house with no-or-little money down is a bygone memory, no matter what any bank may say or advertise.
Frankly, we know we're a Cassandra, screaming the bleak truth toward disbelieving ears. However, if one day, you should read on the front page of USA Today that, not only is buying a home with credit is a terrible idea, owning a home is a terrible idea, the worst is over. Simply put, when what we write today becomes the mainstream knowledge of the future, the bottom of the 2007 Depression has been found. When that happens... buy stocks! Buy apartment buildings! Buy everything that can generate a profit! Buy, buy, buy!
Fast forwards to today, and people are fretting about their McMansion, their big-screen plasma TV, and their automobiles; all were bought with credit, and all are pretty expensive when one doesn't have a job. The average 'consumers' are only just beginning to realise just how unsustainable their lifestyle once was.
However, it's going to take a quite awhile to obliterate unsustainable 'common knowledge.' 'Common knowledge' holds that everyone can own their own home, their own car, and live in the suburban paradise. 'Everyone' knows that one should pay for as much as possible with credit; it's so much more convenient that way.
We are on the fringe when we write this, but we feel it is true: consumerism is dead; the 'every family in their own home' fantasy is dead; there will be no chicken in every pot and car in every garage. Buying a house with no-or-little money down is a bygone memory, no matter what any bank may say or advertise.
Frankly, we know we're a Cassandra, screaming the bleak truth toward disbelieving ears. However, if one day, you should read on the front page of USA Today that, not only is buying a home with credit is a terrible idea, owning a home is a terrible idea, the worst is over. Simply put, when what we write today becomes the mainstream knowledge of the future, the bottom of the 2007 Depression has been found. When that happens... buy stocks! Buy apartment buildings! Buy everything that can generate a profit! Buy, buy, buy!
Tuesday, February 24, 2009
Slow Versus Fast Collapse
In the information economy, knowledge is valuable. If one can fine tune one's production to match market demands, one's operation will be more efficient and profitable. But now, across the world, management information systems are flashing "negative growth, liquidate, liquidate!" and managers are responding appropriately. This, in brief, explains the crash-like environment the world's economy is experiencing. One might call it "panic at light speed."
In the coming years as economic decline is compounded with various stresses (such as peak oil, overpopulation, pollution) piling up, does the world risk a fast crash back to the Stone Age? We think not.
All the crashing going on is also opening up opportunities. Necessary investments are being deferred, and at some point in time not too distant, it will become glaringly obvious to make them - at least to some. New technologies, and just plain changes of taste will also open up all sorts of new opportunities. Investment goes on, and economies will hobble along.
We are not saying that the economy as a whole will necessarily be able to grow. Just that enough opportunities for profit will exist to keep the civilisation more or less intact.
In the coming years as economic decline is compounded with various stresses (such as peak oil, overpopulation, pollution) piling up, does the world risk a fast crash back to the Stone Age? We think not.
All the crashing going on is also opening up opportunities. Necessary investments are being deferred, and at some point in time not too distant, it will become glaringly obvious to make them - at least to some. New technologies, and just plain changes of taste will also open up all sorts of new opportunities. Investment goes on, and economies will hobble along.
We are not saying that the economy as a whole will necessarily be able to grow. Just that enough opportunities for profit will exist to keep the civilisation more or less intact.
Monday, February 23, 2009
U.S. in Recession Since 1999
Thanks to the Canadian penchant for accurate, undoctored statistics, we've been able to find some pretty persuasive evidence that the United States entered into a recession in 1999 or 2000. This article from The Vancouver Sun spells it out very clearly, based on tourism from the U.S. to Canada.
First, a little analysis: Canada represents the cheapest, most convenient foreign tourism destination for the vast majority of American citizens. It is also the only 'safe' (i.e. family friendly) foreign nation one can drive to. The historically favourable strength that the U.S. Dollar has enjoyed against the Canadian Dollar also made tourism attractively affordable.
Considering all that, let's look at what The Sun has to say. In 1999, the number of same-day car volume between the U.S. and Canada was about 27.3 million cars. This presumably represents both day trips to Canada, and Americans cutting through Canada to get to other parts of the U.S. Now, fast forward to 2008: same-day car volume is down to 9.1 million cars, the lowest number on record since Statistics Canada began counting cars in 1972.
It gets even more impressive: Indian visitors to Canada has risen about 6.9% a year since 1995. Indian visitors to British Columbia went up 11.4% (to 35,000 visitors) last year alone, and December -- that cold, bleak month -- saw a 41.6% rise in Indian tourists over last year. 2008 saw American visitors (both same-day and overnight) drop 11.6% (to 4.4 million).
Although the sheer number of American tourists is impressive, the fact that a massive collapse of ~66% over ten years is a bad sign. Indians have much further to go than Americans, but yet their numbers are becoming greater every year for over a decade. This is very, very bad news for the financial position of a vast number of American citizens: if they have been increasingly unable to afford a trip to Canada over the past decade, then this economy is in significantly worse shape than is generally recognised.
First, a little analysis: Canada represents the cheapest, most convenient foreign tourism destination for the vast majority of American citizens. It is also the only 'safe' (i.e. family friendly) foreign nation one can drive to. The historically favourable strength that the U.S. Dollar has enjoyed against the Canadian Dollar also made tourism attractively affordable.
Considering all that, let's look at what The Sun has to say. In 1999, the number of same-day car volume between the U.S. and Canada was about 27.3 million cars. This presumably represents both day trips to Canada, and Americans cutting through Canada to get to other parts of the U.S. Now, fast forward to 2008: same-day car volume is down to 9.1 million cars, the lowest number on record since Statistics Canada began counting cars in 1972.
It gets even more impressive: Indian visitors to Canada has risen about 6.9% a year since 1995. Indian visitors to British Columbia went up 11.4% (to 35,000 visitors) last year alone, and December -- that cold, bleak month -- saw a 41.6% rise in Indian tourists over last year. 2008 saw American visitors (both same-day and overnight) drop 11.6% (to 4.4 million).
Although the sheer number of American tourists is impressive, the fact that a massive collapse of ~66% over ten years is a bad sign. Indians have much further to go than Americans, but yet their numbers are becoming greater every year for over a decade. This is very, very bad news for the financial position of a vast number of American citizens: if they have been increasingly unable to afford a trip to Canada over the past decade, then this economy is in significantly worse shape than is generally recognised.
Sunday, February 22, 2009
End of the Workers' Paradise
During the 20th Century, the world stage was dominated by a contest between two great economic and political ideologies. One the hand was Communism, state ownership of large-scale capital, and central planning, on the other was Liberal Democracy. In the non-Communist developed nations, some concessions towards central planning and income redistribution were made. The legacy of these concessions include the Income Tax, Minimum Wage, and the Welfare State.
As everyone knows, Communism failed and Liberal Democracy in its modified form survived. Unfortunately, in its efforts to win the people over, Liberal Democracy encouraged the notion that economic security was an entitlement. People imagined that making lots of money was as simple as following a formula: getting a college degree and a career-for-life would fall in their laps; buying a house and watching its value ascend skyward; or investing in the stock market and get reliable dividends and capital gains.
We opine this desire for stable and predictable economic returns is a vestige of agricultural civilisation. Note that the most important and durable Communist Powers, Russia and China, were still agricultural when they went Red. Industrial civilisation works on a less steady basis. If humanity is to embrace the full benefit of industrialisation, it must acknowledge that it not an especially stable system.
The current Depression is partly a result of attempting to force the industrial system to do something it cannot: supply steady, generous paychecks to the entire population. The Depression will be prolonged by governmental efforts to sustain the unstainable with bailouts, and expansions of both the public payroll and the dole. In a bizarre effort to "save capitalism," a grotesque is being created. This state will not last long, and eventually be seen as a tragic waste of resources.
As everyone knows, Communism failed and Liberal Democracy in its modified form survived. Unfortunately, in its efforts to win the people over, Liberal Democracy encouraged the notion that economic security was an entitlement. People imagined that making lots of money was as simple as following a formula: getting a college degree and a career-for-life would fall in their laps; buying a house and watching its value ascend skyward; or investing in the stock market and get reliable dividends and capital gains.
We opine this desire for stable and predictable economic returns is a vestige of agricultural civilisation. Note that the most important and durable Communist Powers, Russia and China, were still agricultural when they went Red. Industrial civilisation works on a less steady basis. If humanity is to embrace the full benefit of industrialisation, it must acknowledge that it not an especially stable system.
The current Depression is partly a result of attempting to force the industrial system to do something it cannot: supply steady, generous paychecks to the entire population. The Depression will be prolonged by governmental efforts to sustain the unstainable with bailouts, and expansions of both the public payroll and the dole. In a bizarre effort to "save capitalism," a grotesque is being created. This state will not last long, and eventually be seen as a tragic waste of resources.
Saturday, February 21, 2009
Rhetoric and Logic
During the election process, President Obama established a reputation as a rhetorician. The strength of his words and convictions were considered his strengths; such attributes appeared attractive as a President. However, it seems that the quality of his so-called rhetoric is not as clear-cut as previously believed: the "pick yourself up, dust yourself off" part of President Obama's inauguration speech did not scale to new rhetorical heights.
But there is more bothering us than simply a pop-culture reference to a film from the 1929 Depression. This is an Administration which claimed to be based on hope and clarity; President Obama was taken by the majority of citizens to be a clear-headed, forthright man. At the same time, he represented a visible minority taking a high elected office for the first time.
President Obama was, and apparently still is, on the golden pedestal. Even political cartoonists, ever the vicious bunch, are feeling squeamish about their caricatures of the new President. If this Administration is intent on bringing 'change' to the Government, the President leading this change should not be beyond reproach.
Our thoughts came to a head with this article from the Asssociated Press. Mr. Rick Santelli, CNBC, called President Obama's mortgage bailout onto the carpet. He said, and we fully agree, that the bailout will "promote bad behavior." Forcing responsible citizens to pay for the excesses of the irresponsible is madness, to say the least.
The response from the White House was certainly not the best: Mr. Robert Gibbs, press secretary, said "...People [ranting] on cable television [should] be responsible and understand what it is they’re talking about [I]... feel assured that Mr. Santelli doesn't know what he's talking about."
That, Mr. Gibbs, is argumentum ad hominem, a logical fallacy, and not a counter to the very valid point of the recklessness of the mortgage bailout. To have such horrible rhetoric used in the defence of President Obama -- a man who prides himself on his rhetoric -- is not the high road, to say the least.
But there is more bothering us than simply a pop-culture reference to a film from the 1929 Depression. This is an Administration which claimed to be based on hope and clarity; President Obama was taken by the majority of citizens to be a clear-headed, forthright man. At the same time, he represented a visible minority taking a high elected office for the first time.
President Obama was, and apparently still is, on the golden pedestal. Even political cartoonists, ever the vicious bunch, are feeling squeamish about their caricatures of the new President. If this Administration is intent on bringing 'change' to the Government, the President leading this change should not be beyond reproach.
Our thoughts came to a head with this article from the Asssociated Press. Mr. Rick Santelli, CNBC, called President Obama's mortgage bailout onto the carpet. He said, and we fully agree, that the bailout will "promote bad behavior." Forcing responsible citizens to pay for the excesses of the irresponsible is madness, to say the least.
The response from the White House was certainly not the best: Mr. Robert Gibbs, press secretary, said "...People [ranting] on cable television [should] be responsible and understand what it is they’re talking about [I]... feel assured that Mr. Santelli doesn't know what he's talking about."
That, Mr. Gibbs, is argumentum ad hominem, a logical fallacy, and not a counter to the very valid point of the recklessness of the mortgage bailout. To have such horrible rhetoric used in the defence of President Obama -- a man who prides himself on his rhetoric -- is not the high road, to say the least.
Friday, February 20, 2009
Safety First
It's cliché , but the US Economy is the Titanic, and it's hit the iceberg. We wouldn't be so alarmed, except that the captain is trying to fix the tear, when attention should be given to the lifeboats (and to improvise some flotation devices because there aren't enough lifeboats).
It's time to give up on Fannie, Freddie, GM, Chrysler, Citibank, and so on. Of course the government won't give up and precious time and resources are being wasted.
The sad reality is that most Americans couldn't conceive that the system wouldn't keep delivering the good life, and thus they were over-extended and without savings. It's too late to bemoan the fact that the USA doesn't have a proper social safety net, or decent public housing or public transportation. It's sink or swim time.
We advocate swimming of course, but you are going to soon find yourself on your own. To survive, you must sharpen your skills of observation and exploiting discovered opportunities. Amid all the disruption, life will go on. People need things and you can supply some of them, and for that be compensated. It is very simple, really. Just stay sharp and learn to make do.
Good luck!
It's time to give up on Fannie, Freddie, GM, Chrysler, Citibank, and so on. Of course the government won't give up and precious time and resources are being wasted.
The sad reality is that most Americans couldn't conceive that the system wouldn't keep delivering the good life, and thus they were over-extended and without savings. It's too late to bemoan the fact that the USA doesn't have a proper social safety net, or decent public housing or public transportation. It's sink or swim time.
We advocate swimming of course, but you are going to soon find yourself on your own. To survive, you must sharpen your skills of observation and exploiting discovered opportunities. Amid all the disruption, life will go on. People need things and you can supply some of them, and for that be compensated. It is very simple, really. Just stay sharp and learn to make do.
Good luck!
Thursday, February 19, 2009
The Era of Peak Scam
It seems that not a day goes by we don't read about some juicy new financial scandal. The latest is the embezzlement of billions from funds earmarked to help 'rebuild' Iraq. The total cost to the American Citizenry may never be known, but as the article from The Independent notes, it's probably bigger than Bernard Madoff's $50 billion Ponzi scheme.
As we've remarked before, the 2007 Depression is an out-of-control freight train, hellbent on crushing anything and everything that doesn't get out of its way. At the same time, the still-present squeeze of Peak Oil (indeed, Peak Just-About-Everything) is working its own magic on the world economy. Together, these trends are forcing the world economy to continually shrink; one can see the effects of this shrinking in the entire world, from China to Canada.
With this world-wide crush ongoing, it will be very difficult for viable, legitimate businesses to survive. However, the crush will be even harder on the many, many scams of the world. Bernard Madoff was a smooth operator... but he was only the weakest hand in a whole world filled with smarter, bigger operators. The Galbraith Financial Principle comes into play at this point: the biggest and smartest fall last.
Scams, by their very nature, are unproductive and wasteful, and exist by leaching off of productive, honest endeavours. Time will tell if we are correct, but we suspect that the world has seen Peak Scam. Never again will the world enjoy such a perfect collaboration of cheap, widely available energy, and the impossibly loose financial environment of the past eighty years or so. There's a tonne of fat in the world economy, but that fat is being worked out... viciously.
As we've remarked before, the 2007 Depression is an out-of-control freight train, hellbent on crushing anything and everything that doesn't get out of its way. At the same time, the still-present squeeze of Peak Oil (indeed, Peak Just-About-Everything) is working its own magic on the world economy. Together, these trends are forcing the world economy to continually shrink; one can see the effects of this shrinking in the entire world, from China to Canada.
With this world-wide crush ongoing, it will be very difficult for viable, legitimate businesses to survive. However, the crush will be even harder on the many, many scams of the world. Bernard Madoff was a smooth operator... but he was only the weakest hand in a whole world filled with smarter, bigger operators. The Galbraith Financial Principle comes into play at this point: the biggest and smartest fall last.
Scams, by their very nature, are unproductive and wasteful, and exist by leaching off of productive, honest endeavours. Time will tell if we are correct, but we suspect that the world has seen Peak Scam. Never again will the world enjoy such a perfect collaboration of cheap, widely available energy, and the impossibly loose financial environment of the past eighty years or so. There's a tonne of fat in the world economy, but that fat is being worked out... viciously.
Wednesday, February 18, 2009
Minimising the Risk of Personal Financial Catastrophe
We were having a conversation with a friend recently about the steps one can take to avoid becoming destitute in one's old age. It occurred to us that these same steps apply to everyone at all ages and are generally good advice.
#1 Keep your income sources diversified. No matter how good it seems to be, no basket should ever hold all your eggs. Consider the people who put their entire life savings with Madoff. This applies to jobs as well. Don't count on your career choice necessarily being there for you. If your full-time job leaves you no time for developing other income sources, at least have a back up plan.
#2 Live within your means. Aim to live on less than 75% of your income. This may seem daunting, but it is always do-able. The less you save, the more at risk you are.
#3 Live in a small, paid-for house, in an OK neighbourhood. If the neighbourhood deteriorates, move. If the neighborhood gentrifies, move (and reinvest the profit) - though this isn't too likely to happen for a while. If you can't afford to move, you have violated rules 1 & 2.
Some years ago, we were living in Duluth, Minnesota when the city went on a demolition spree. They started tearing down perfectly good houses. We were very perplexed until we discovered they were enforcing a minimum square footage zoning ordinance throughout the city - and there was no grandfathering! Long-term residents were being forced out of their homes for no other reason than the houses were 'too small'! In light of current developments, this policy was completely insane. People need to have the option of living in small houses, when they cannot afford big ones. If cities only allow big houses to be built, as people become poorer, fewer and fewer people will be able to live in their own private houses.
#4 Be physically active. It keeps you healthier and stronger. It sharpens your mind and increases your stamina for work.
#5 Learn new skills. It keeps your mind sharp.
#6 Maintain a social network. If you lack social skills, develop them.
#7 Don't opt for elective medical procedures. They are budget busters, and often do more harm than good. Learn self-care, and low cost management of conditions that require attention.
#1 Keep your income sources diversified. No matter how good it seems to be, no basket should ever hold all your eggs. Consider the people who put their entire life savings with Madoff. This applies to jobs as well. Don't count on your career choice necessarily being there for you. If your full-time job leaves you no time for developing other income sources, at least have a back up plan.
#2 Live within your means. Aim to live on less than 75% of your income. This may seem daunting, but it is always do-able. The less you save, the more at risk you are.
#3 Live in a small, paid-for house, in an OK neighbourhood. If the neighbourhood deteriorates, move. If the neighborhood gentrifies, move (and reinvest the profit) - though this isn't too likely to happen for a while. If you can't afford to move, you have violated rules 1 & 2.
Some years ago, we were living in Duluth, Minnesota when the city went on a demolition spree. They started tearing down perfectly good houses. We were very perplexed until we discovered they were enforcing a minimum square footage zoning ordinance throughout the city - and there was no grandfathering! Long-term residents were being forced out of their homes for no other reason than the houses were 'too small'! In light of current developments, this policy was completely insane. People need to have the option of living in small houses, when they cannot afford big ones. If cities only allow big houses to be built, as people become poorer, fewer and fewer people will be able to live in their own private houses.
#4 Be physically active. It keeps you healthier and stronger. It sharpens your mind and increases your stamina for work.
#5 Learn new skills. It keeps your mind sharp.
#6 Maintain a social network. If you lack social skills, develop them.
#7 Don't opt for elective medical procedures. They are budget busters, and often do more harm than good. Learn self-care, and low cost management of conditions that require attention.
Tuesday, February 17, 2009
Trillion Dollar Welfare
We're certain that you have seen the recent flap about Ms. Nadya Suleman, from whose loins recently sprung a brood of eight premature babies. We extend our condolences to the people of California, whose tax-dollars will go toward the bill Ms. Suleman's fourteen children are piling up.
Honestly, we have to agree with the more negative views of Ms. Suleman's irresistable urge to breed: she is patently unable to feed and care for her previous six children, much less the additional eight. She should never have had any children, since she is unwilling or unable to work. If we were more impolitic, the term 'welfare queen' would come to mind. Thomas Malthus never seems quite so right...
But, we really must protest about Ms. Suleman's unfair treatment. Or rather, the unfair treatment of the bankers, the car companies, and the United States Government. Ms. Suleman's spawn will cost California tens of millions of dollars... but the unspeakable excesses of Wall Street and other scams are costing trillions, not to mention the integrity of the entire world banking system.
Let us be perfectly honest: Ms. Suleman is a leach, sucking money from productive people so that she can breed; Mr. Ben Bernanke, Mr. Bernard Madoff, Messrs. Timothy Geithner and Hank Paulson, Jr., and the rest of that lot... they are worse that leaches. They -- the Investorati -- are internal parasites, consuming everything of value from within, leaving only a dead husk behind.
Ms. Suleman rightly deserves the scorn she is receiving. But the Investorati deserve far, far worse than what she is getting. A sense of proportion must be kept in matters of welfare and bailouts; TARP and the $787 billion stimulus package is welfare of a grander scale than anything Ms. Suleman could ever absorb. American citizens should be rightly offended by Ms. Suleman, and frothing with pure rage at the bailouts.
Honestly, we have to agree with the more negative views of Ms. Suleman's irresistable urge to breed: she is patently unable to feed and care for her previous six children, much less the additional eight. She should never have had any children, since she is unwilling or unable to work. If we were more impolitic, the term 'welfare queen' would come to mind. Thomas Malthus never seems quite so right...
But, we really must protest about Ms. Suleman's unfair treatment. Or rather, the unfair treatment of the bankers, the car companies, and the United States Government. Ms. Suleman's spawn will cost California tens of millions of dollars... but the unspeakable excesses of Wall Street and other scams are costing trillions, not to mention the integrity of the entire world banking system.
Let us be perfectly honest: Ms. Suleman is a leach, sucking money from productive people so that she can breed; Mr. Ben Bernanke, Mr. Bernard Madoff, Messrs. Timothy Geithner and Hank Paulson, Jr., and the rest of that lot... they are worse that leaches. They -- the Investorati -- are internal parasites, consuming everything of value from within, leaving only a dead husk behind.
Ms. Suleman rightly deserves the scorn she is receiving. But the Investorati deserve far, far worse than what she is getting. A sense of proportion must be kept in matters of welfare and bailouts; TARP and the $787 billion stimulus package is welfare of a grander scale than anything Ms. Suleman could ever absorb. American citizens should be rightly offended by Ms. Suleman, and frothing with pure rage at the bailouts.
Monday, February 16, 2009
The Depression and Organised Crime
Organised Crime works in essentially three ways: it runs illegal businesses; it runs legal businesses illegally; and it skims profits off of legitimate enterprises, both private and governmental. Is the Depression hurting organised crime through a drop in revenues? Or are criminals use more 'muscle' to maintain or even increase their cash flows?
Sadly, the answer seems to be the latter. Bloomberg has recently reported Italy's organised crime revenues surged 40% last year.
What effect will this have on the economy at large? If organised crime is increasing its share, and government (thanks to Keynesianism) is also expanding through make work projects, how much can be left for the honest enterprise actually delivering the people what they actually want at a reasonable cost?
The prognosis is not good. The natural course the Depression is to squeeze the economy down to a basic core of efficient enterprises. The more the economy is burdened by crime among other inefficiencies (the aforementioned luggage inspectors come to mind), the more the end state of the economy at the bottom of the cycle will resemble mere survival.
Sadly, the answer seems to be the latter. Bloomberg has recently reported Italy's organised crime revenues surged 40% last year.
What effect will this have on the economy at large? If organised crime is increasing its share, and government (thanks to Keynesianism) is also expanding through make work projects, how much can be left for the honest enterprise actually delivering the people what they actually want at a reasonable cost?
The prognosis is not good. The natural course the Depression is to squeeze the economy down to a basic core of efficient enterprises. The more the economy is burdened by crime among other inefficiencies (the aforementioned luggage inspectors come to mind), the more the end state of the economy at the bottom of the cycle will resemble mere survival.
Sunday, February 15, 2009
Obama Speaks Togetherness, Means Sovietism
"Such knee-jerk disdain for government - this constant rejection of any common endeavor - cannot rebuild our levees or our roads or our bridges... It cannot refurbish our schools or modernize our health care system; lead to the next medical discovery or yield the research and technology that will spark a clean energy economy." [source]So said President Obama in his recent address in Springfield, Illinois. We feel unsettled about his choice -- or rather, his speechwriter's choice -- of words, equating "common endeavor" with "government." In our reading of this phrase, we take it to mean that the Federal Government will take direct control over... well, anything it wants, really.
This implies the Federal Government will be vastly increasing its presence in the economy of the United States. This is nothing new per se, of course; the growth of Government spending has been baked into the cake for the past eighty years or so. However, President Obama is a man of change; we really do believe him on that point. Unlike others, though, we do not feel his brand of change will be what the common citizen may expect.
The "change" President Obama claims to be bringing seems to not be systemic change. His "common endeavor," we feel, will probably be closer to the harsh Soviet reality than the fairytale democratic ideal. Prepare for a 'Chicago-isation' of the United States: things will be gritty, cold, and impersonal.
Saturday, February 14, 2009
Don't Take the Bait
The bait we are referring to is the 'improved' tax credit for house buyers that was included as part of the USA stimulus program. Look at it like a different shade of lipstick on a pig. Almost everyone who used previous versions of this credit is underwater on their mortgages, or at least looking at some pretty serious depreciation on their house value - much greater than the value of the tax credit. As a rule, taxpayers who attempt to take advantage of this credit will suffer the same fate.
Apparently a lot of people are buying houses - though not nearly so many as a couple years ago. They must think they are getting a good price. While a few of them may be, most are not. Housing prices in general have a long way to fall yet. The only thing that will arrest the decline will be runaway inflation.
Even after the inflation hits, house prices will probably not rise as fast as most goods and services. If you can find a house you like that is priced to be cheaper than renting after you factor in all the costs, then go for it, if you can pay cash or lock in a long-term fixed rate mortgage. That should be your only criteria, tax credits notwithstanding.
Apparently a lot of people are buying houses - though not nearly so many as a couple years ago. They must think they are getting a good price. While a few of them may be, most are not. Housing prices in general have a long way to fall yet. The only thing that will arrest the decline will be runaway inflation.
Even after the inflation hits, house prices will probably not rise as fast as most goods and services. If you can find a house you like that is priced to be cheaper than renting after you factor in all the costs, then go for it, if you can pay cash or lock in a long-term fixed rate mortgage. That should be your only criteria, tax credits notwithstanding.
Friday, February 13, 2009
What Would Lincoln Do?
Yesterday the United States Mint released the first of four Abraham Lincoln commemorative pennies, on the bicentennial anniversary of his birth. This latest sliver of copper-coated zinc is dreary as anything we've yet seen from the U.S. Mint. In all honesty, we really do wish the U.S. would just have its coins minted by the Royal Canadian Mint. At least R.C.M. coins are interesting to look at.
But seriously, this new penny is just a portion of renewed Lincoln-interest in the United States: President Barack Obama is making waves as the proverbial 'next Lincoln.' This goes beyond President Obama as a visible minority: he is a rhetorician from Illinois, and he is President at a critical juncture. The question that some are asking is the same as this post's title: What Would Lincoln Do?
According to TIME Magazine, Lincoln would spend, spend, spend. Well, our honest opinion is that President Lincoln would spend, spend, spend... and start a war. A really big war. It is conventional wisdom that war strengthens an economy; President Franklin Roosevelt found that to be true during the 1929 Depression. The War Between the States (a.k.a. 'Civil' War) helped vastly to increase the industrial base of the United States at the expense of the Confederate States. World War II did much the same for the U.S. at the expense of Europe.
We're not saying that President Obama is necessarily a war-monger. However, if he is indeed the next Lincoln, or the next Franklin Roosevelt, then there are certain unspoken policies that we expect will come into play. Those policies are ones of war; not small, overnight invasions like Iraq or Afghanistan, but major engagements the world hasn't seen since World War II.
But seriously, this new penny is just a portion of renewed Lincoln-interest in the United States: President Barack Obama is making waves as the proverbial 'next Lincoln.' This goes beyond President Obama as a visible minority: he is a rhetorician from Illinois, and he is President at a critical juncture. The question that some are asking is the same as this post's title: What Would Lincoln Do?
According to TIME Magazine, Lincoln would spend, spend, spend. Well, our honest opinion is that President Lincoln would spend, spend, spend... and start a war. A really big war. It is conventional wisdom that war strengthens an economy; President Franklin Roosevelt found that to be true during the 1929 Depression. The War Between the States (a.k.a. 'Civil' War) helped vastly to increase the industrial base of the United States at the expense of the Confederate States. World War II did much the same for the U.S. at the expense of Europe.
We're not saying that President Obama is necessarily a war-monger. However, if he is indeed the next Lincoln, or the next Franklin Roosevelt, then there are certain unspoken policies that we expect will come into play. Those policies are ones of war; not small, overnight invasions like Iraq or Afghanistan, but major engagements the world hasn't seen since World War II.
Thursday, February 12, 2009
Pick Yourself Up, Dust Yourself Off - yeah, yeah
It is becoming quite clear to the less ignorant elements that some major restructuring of the economic sphere is in order. A host of economists without egg on their faces (Roubini and Taleb, among others) are calling for wholesale nationalisation of the banking industry. While we don't agree with them, we find the scale of that particular solution appropriate, and preferable to attempts to return to 'business as usual.'
Aside from our preferred solution of returning to bona fide money, any solution which at a minimum gets the world's circulating money out of the hands of the people who squandered so much of it is a step in the right direction. Stricter limits on what the banks may invest the circulating money in would also be an improvement.
Moving on from the financial troubles, it is obvious that neither the faux free-market system of the English-speaking world, nor the faux socialism of the EU can reliably deliver a modicum of prosperity to the masses. Major reform is in order.
One example of the sort of appropriately-scaled reform that ought to be on the table would be a negative income tax as the only form of national income support replacing social security, food stamps, and housing assistance (among other things). The idea has been lurking for quite a while, and supported by both liberals and conservatives, but has never been implemented. In our opinion the reason is that too many people make their living as welfare system bureaucrats.
This leads to the question, is major reform even possible? Has the political system become as dysfunctional as the grotesque that is the economic system? As the Depression grinds along, the presence or absence of political leadership will separate the societies that recover from the ones that don't.
Aside from our preferred solution of returning to bona fide money, any solution which at a minimum gets the world's circulating money out of the hands of the people who squandered so much of it is a step in the right direction. Stricter limits on what the banks may invest the circulating money in would also be an improvement.
Moving on from the financial troubles, it is obvious that neither the faux free-market system of the English-speaking world, nor the faux socialism of the EU can reliably deliver a modicum of prosperity to the masses. Major reform is in order.
One example of the sort of appropriately-scaled reform that ought to be on the table would be a negative income tax as the only form of national income support replacing social security, food stamps, and housing assistance (among other things). The idea has been lurking for quite a while, and supported by both liberals and conservatives, but has never been implemented. In our opinion the reason is that too many people make their living as welfare system bureaucrats.
This leads to the question, is major reform even possible? Has the political system become as dysfunctional as the grotesque that is the economic system? As the Depression grinds along, the presence or absence of political leadership will separate the societies that recover from the ones that don't.
Wednesday, February 11, 2009
Think the Fed is Out of Ammo? Think Again
The Federal Reserve has been publicly clamouring about how they've used up their "conventional monetary firepower." It seems that the media is rather confused about the situation: they apparently think that interest rates, quantitative easing, and balance sheet debauchery are the only tricks that the Fed has to play with. Oh, how wrong they are. There are "still arrows left in the quiver."
At this point, we'd like to assure you, dear Reader, that if what we write about seems familiar, it is. Mr. Gideon Gono of the Reserve Bank of Zimbabwe has played with most of them... but not all. He didn't use every little trick, because he was trying to contain inflation. The Federal Reserve, on the other hand, is desperate to stoke the flames of buying power destruction.
In May 2003, Federal Reserve Bank of Dallas Vice President Evan Koenig and Senior Economist Jim Dolmas wrote a piece titled Monetary Policy in a Zero-Interest-Rate Economy. Read it, and read it well, dear Reader. This will be the game plan of the Federal Reserve in the future... perhaps even the near future.
We will glide over the more pedestrian methods that Messrs. Koenig and Dolmas list, and instead focus on two of the most powerful tools they discuss: taxing bank deposits, and making currency have an expiry date. If and when the occasion arises, we posit that the two tools will be applied simultaneously. The why is easily demonstrated:
Would you, dear Reader, keep your money in a bank account if your savings and chequing accounts suffer a -1% or -2% monthly tax? No, you'd pull your money right out of those accounts and stuff them in a mattress, the same as every other citizen or business. However, the physical money you get from the bank will have a little stamp on it, saying something like 'legal tender until July 1st, 2011.' You're damned if you keep your money on account at a bank, and you're damned if you sleep on $100 bills at night.
So... the only thing you can do is spend, spend, spend. The Fed will see the velocity of money shoot to the moon, and everything will seem better - for a while. But these policies -- along with all the other ones the piece listed -- are ultimately destructive beyond belief. The economy would be gutted, the U.S. Dollar would become worth more as a heat source than as a currency.
But hey! At least Mr. Ben Bernanke can get his inflation. Unfortunately, he will get far more than he bargained for.
At this point, we'd like to assure you, dear Reader, that if what we write about seems familiar, it is. Mr. Gideon Gono of the Reserve Bank of Zimbabwe has played with most of them... but not all. He didn't use every little trick, because he was trying to contain inflation. The Federal Reserve, on the other hand, is desperate to stoke the flames of buying power destruction.
In May 2003, Federal Reserve Bank of Dallas Vice President Evan Koenig and Senior Economist Jim Dolmas wrote a piece titled Monetary Policy in a Zero-Interest-Rate Economy. Read it, and read it well, dear Reader. This will be the game plan of the Federal Reserve in the future... perhaps even the near future.
We will glide over the more pedestrian methods that Messrs. Koenig and Dolmas list, and instead focus on two of the most powerful tools they discuss: taxing bank deposits, and making currency have an expiry date. If and when the occasion arises, we posit that the two tools will be applied simultaneously. The why is easily demonstrated:
Would you, dear Reader, keep your money in a bank account if your savings and chequing accounts suffer a -1% or -2% monthly tax? No, you'd pull your money right out of those accounts and stuff them in a mattress, the same as every other citizen or business. However, the physical money you get from the bank will have a little stamp on it, saying something like 'legal tender until July 1st, 2011.' You're damned if you keep your money on account at a bank, and you're damned if you sleep on $100 bills at night.
So... the only thing you can do is spend, spend, spend. The Fed will see the velocity of money shoot to the moon, and everything will seem better - for a while. But these policies -- along with all the other ones the piece listed -- are ultimately destructive beyond belief. The economy would be gutted, the U.S. Dollar would become worth more as a heat source than as a currency.
But hey! At least Mr. Ben Bernanke can get his inflation. Unfortunately, he will get far more than he bargained for.
Tuesday, February 10, 2009
Sovietisation Revisited
A recent article in The Sunday Times (UK) discusses creeping dependency on the public sector. In previous posts we have discussed the problem of government spending in a declining economy, and the concern that government's share of the economy may go past the optimum.
It is clear that, at least in large parts of the U.K., things have probably gone well past the optimum. In Northern Ireland, for example, the state controls 77.6% of spending. We are reluctant to 'push the red', but it is looking like the U.K. is heading for economic collapse along the lines of the Soviet Bloc in the late 1980s and early 1990s.
Economies can only function properly if there are many decision makers. If economic decisions are concentrated in the hands of the state, inefficiencies are too great for the system to gainfully employ the population. One need only to look at the history of the Soviet Union to see the failure of that direction.
If these were saner and more rational times, perhaps Britain's demise could serve as a warning beacon to nations contemplating expanding their public sectors. Unfortunately, the siren song of 'stimulus, stimulus, stimulus' sounds too loudly in the ears of the citizenry.
It is clear that, at least in large parts of the U.K., things have probably gone well past the optimum. In Northern Ireland, for example, the state controls 77.6% of spending. We are reluctant to 'push the red', but it is looking like the U.K. is heading for economic collapse along the lines of the Soviet Bloc in the late 1980s and early 1990s.
Economies can only function properly if there are many decision makers. If economic decisions are concentrated in the hands of the state, inefficiencies are too great for the system to gainfully employ the population. One need only to look at the history of the Soviet Union to see the failure of that direction.
If these were saner and more rational times, perhaps Britain's demise could serve as a warning beacon to nations contemplating expanding their public sectors. Unfortunately, the siren song of 'stimulus, stimulus, stimulus' sounds too loudly in the ears of the citizenry.
Monday, February 9, 2009
Disaster Economics
We remember the flap surrounding the origins of the TARP, when former Treasury Secretary Hank Paulson, Jr., told Congresspersons that martial law would have to be declared if the bailout were not quickly passed. If memory serves, words like 'catastrophe' and 'crisis' were bandied about. A dystopian landscape was painted for the poor elected officials, who apparently weren't intelligent enough to seek a second opinion.
Fast forward to today... and we find President Obama making more-or-less the same comments, albeit without the martial law part. Still, suddenly it's just fine to be using the very same phrases that netted Bush flak. The economy is in "a crisis," so the money's got to flow fast and furious to prevent "a catastrophe," says the new President.
"This economy needs support," whines Mr. Bill Gross, or else the United States will enter a "mini depression." By "this economy," we assume that Mr. Gross means his mutual fund portfolio, but we could just be cynical.
All this rhetoric is at once silly, and disturbing. If the Government and big-shot Investorati types manage to keep the citizenry of the United States in a state of reactive fear, any amount of deplorable -- if not downright illegal -- actions will likely be taken. Fear, above all, makes the average person less able to read the fine print... and there will be a lot of fine print in the months ahead.
Fast forward to today... and we find President Obama making more-or-less the same comments, albeit without the martial law part. Still, suddenly it's just fine to be using the very same phrases that netted Bush flak. The economy is in "a crisis," so the money's got to flow fast and furious to prevent "a catastrophe," says the new President.
"This economy needs support," whines Mr. Bill Gross, or else the United States will enter a "mini depression." By "this economy," we assume that Mr. Gross means his mutual fund portfolio, but we could just be cynical.
All this rhetoric is at once silly, and disturbing. If the Government and big-shot Investorati types manage to keep the citizenry of the United States in a state of reactive fear, any amount of deplorable -- if not downright illegal -- actions will likely be taken. Fear, above all, makes the average person less able to read the fine print... and there will be a lot of fine print in the months ahead.
Sunday, February 8, 2009
Anger
It would appear that denial stage of the 2007 Depression's actually being a depression is gradually coming to an end. Gordon Brown, the U.K. P.M., is on record using the "D" word, albeit as a supposed 'slip of the tongue.' The more credible and honest Dominique Strauss-Kahn, managing director of the International Monetary Fund, calls it like he sees it.
As every student of Elisabeth Kubler-Ross knows, after Denial comes Anger. The ongoing spate of economically-related suicides, and murder-suicides shows that often anger is inwardly directed. Others will be looking for someone to blame. Some are actually blameworthy (corrupt mortgage brokers and regulators who looked the other way come to mind), but undoubtedly as is typical in human affairs, vengeance will be meted out upon the deserving and innocent alike.
Failure to prosecute criminal behaviour is always disruptive to social order, and reflects poorly on governmental legitimacy. At present there seems hardly any movement afoot to actually bring any but the worst of the criminally negligent to task. This will prove a terrible precedent as the social mood turns uglier in the coming months.
As every student of Elisabeth Kubler-Ross knows, after Denial comes Anger. The ongoing spate of economically-related suicides, and murder-suicides shows that often anger is inwardly directed. Others will be looking for someone to blame. Some are actually blameworthy (corrupt mortgage brokers and regulators who looked the other way come to mind), but undoubtedly as is typical in human affairs, vengeance will be meted out upon the deserving and innocent alike.
Failure to prosecute criminal behaviour is always disruptive to social order, and reflects poorly on governmental legitimacy. At present there seems hardly any movement afoot to actually bring any but the worst of the criminally negligent to task. This will prove a terrible precedent as the social mood turns uglier in the coming months.
Saturday, February 7, 2009
The Gold Jewellery Myth
Just the other day we were handed a piece from the Wall Street Journal, which you can read here. This piece brings to mind an issue we've been wondering about over the last several months: why is there such a fixation on gold-as-jewellery being the prime mover in gold's price?
The graph that the Journal provides is courtesy of HSBC -- more on that bank shortly. It seems to suggest that demand for physical gold for 2008 (estimated around 3,500 metric tonnes) breaks down roughly into 10% "other," 30% investment, and 60% jewellery. Generally, we don't dispute that the demand for physical gold is indeed mostly jewellery related; it's the most popular and easily-discovered form which the common schmoe can expect to see.
Another pundit who also espouses the 'gold is driven by jewellery' line is Jon Nadler of KITCO. His angle is more specific: he points to India. India is the largest importer and consumer of gold and gold jewellery, and in Mr. Nadler's world, that means India drives the price of gold. Hmmm...
Let's say that gold-as-jewellery was 2,000 metric tonnes in 2008, which is worth around $58,000,000,000 at $900 per troy ounce. Big number, quite intimidating.. but now let's look at the volume of 100 troy ounce contracts traded on the NYMEX on February 5th only. Crunching the numbers, there are 107,136 contracts, which equals 10,713,600 troy ounces, which represents $9,642,240,000 at $900 per ounce. In one day. This is approximately forty times one day's jewellery buying.
Looking at the actual dollar values of these two markets, we feel it is pretty self evident which is the prime mover in the price of gold. At this point -- and we're looking at you, Mr. Nadler -- we would very much like to not hear anymore twaddle about Diwali gold-buying causing the price of gold to do anything at all.
Finally, HSBC is the banker and financier for KITCO. KITCO is rumoured to have a huge naked short position in gold, and HSBC undoubtedly financed that operation. Both these organisations want to keep themselves in business... Mr. Nadler often sounds like he speaks for a company -- or companies -- on the wrong side of a losing bet.
The graph that the Journal provides is courtesy of HSBC -- more on that bank shortly. It seems to suggest that demand for physical gold for 2008 (estimated around 3,500 metric tonnes) breaks down roughly into 10% "other," 30% investment, and 60% jewellery. Generally, we don't dispute that the demand for physical gold is indeed mostly jewellery related; it's the most popular and easily-discovered form which the common schmoe can expect to see.
Another pundit who also espouses the 'gold is driven by jewellery' line is Jon Nadler of KITCO. His angle is more specific: he points to India. India is the largest importer and consumer of gold and gold jewellery, and in Mr. Nadler's world, that means India drives the price of gold. Hmmm...
Let's say that gold-as-jewellery was 2,000 metric tonnes in 2008, which is worth around $58,000,000,000 at $900 per troy ounce. Big number, quite intimidating.. but now let's look at the volume of 100 troy ounce contracts traded on the NYMEX on February 5th only. Crunching the numbers, there are 107,136 contracts, which equals 10,713,600 troy ounces, which represents $9,642,240,000 at $900 per ounce. In one day. This is approximately forty times one day's jewellery buying.
Looking at the actual dollar values of these two markets, we feel it is pretty self evident which is the prime mover in the price of gold. At this point -- and we're looking at you, Mr. Nadler -- we would very much like to not hear anymore twaddle about Diwali gold-buying causing the price of gold to do anything at all.
Finally, HSBC is the banker and financier for KITCO. KITCO is rumoured to have a huge naked short position in gold, and HSBC undoubtedly financed that operation. Both these organisations want to keep themselves in business... Mr. Nadler often sounds like he speaks for a company -- or companies -- on the wrong side of a losing bet.
Friday, February 6, 2009
Will the Depression Make Everyone Poor?
If the World finds itself a good deal poorer in the coming years it will not be because the Depression made it thus. The Depression is only revealing the fact that everyone is poorer than they thought they were.
This is an important distinction that is lost on almost everyone. The Depression is happening because incomes are declining. Incomes are declining because the productive capacity of society is not as large as people imagined it to be.
Allow us to present a simple metaphor: Suppose you owned an apartment building. Suppose further you had two tenants: your hairdresser, and your stockbroker. Now suppose that instead of fixing the soft spot in the roof and the crack in the foundation, you took the rent and spent half of it on expensive haircuts and the other half on penny stocks. Then comes the day that the rain came in through the roof and through the foundation.
No problem, you say, as you've been creating a rainy day fund with your stockbroker by investing in penny stocks. Oops! The stock market crashed. Uh oh. Well, you'll just have to do all the work yourself, and get money for supplies by using the rent money, skipping the haircuts and further stock purchases.
Now the bad situation gets worse: because your stockbroker isn't making the commissions (largely on account of you) she once was, she is getting behind on the rent. So too your hairdresser - you were his best client - is also getting behind. This means you can't buy the supplies... so the rain will just keep pouring in.
We hope this metaphor isn't too obscure. It really does describe to an extent the pickle the world's economy is in. There are a complexity of reasons why capital and spending has gotten grossly misallocated for a long time before the consequences were revealed. It is well past the scope of this little post, but we plan to touch on some of it in the coming months.
This is an important distinction that is lost on almost everyone. The Depression is happening because incomes are declining. Incomes are declining because the productive capacity of society is not as large as people imagined it to be.
Allow us to present a simple metaphor: Suppose you owned an apartment building. Suppose further you had two tenants: your hairdresser, and your stockbroker. Now suppose that instead of fixing the soft spot in the roof and the crack in the foundation, you took the rent and spent half of it on expensive haircuts and the other half on penny stocks. Then comes the day that the rain came in through the roof and through the foundation.
No problem, you say, as you've been creating a rainy day fund with your stockbroker by investing in penny stocks. Oops! The stock market crashed. Uh oh. Well, you'll just have to do all the work yourself, and get money for supplies by using the rent money, skipping the haircuts and further stock purchases.
Now the bad situation gets worse: because your stockbroker isn't making the commissions (largely on account of you) she once was, she is getting behind on the rent. So too your hairdresser - you were his best client - is also getting behind. This means you can't buy the supplies... so the rain will just keep pouring in.
We hope this metaphor isn't too obscure. It really does describe to an extent the pickle the world's economy is in. There are a complexity of reasons why capital and spending has gotten grossly misallocated for a long time before the consequences were revealed. It is well past the scope of this little post, but we plan to touch on some of it in the coming months.
Thursday, February 5, 2009
Loony Tunes meets Economics
If you, dear Reader, should have an account at Wells Fargo, you might have noticed January's edition of "Economic Indicators." Upon reading this drivel, we reached the conclusion that it was written by the horses. The writer, a Dr. Scott Anderson, vice president and senior economist of Wells Fargo, really should have both his grammar and his head checked.
One part right at the beginning got us thinking:
Seriously, though... despite 'Dr.' Anderson's wishes to the contrary, the economy will not stop crashing when people stop reading bad news. Wells Fargo seems to implicitly understand this, given their disclaimer at the bottom of the first page. Nonetheless, it is a huge disservice to the bank's customers to pass off this sort of trash.
Big banks like Wells Fargo have portrayed themselves as the safest place for the lumpeninvestors to park their savings. With all the recent 'office redecoration,' banks like Wells Fargo should bend over backwards to prove to their customers that they are more responsible than their competitors.
We are absolutely certain that this sort of disinformation will continue into the future. It will only make the eventual fallout from the collapse of such big banks all the more damaging... and well-deserved.
One part right at the beginning got us thinking:
"There is very little in the economic tea leaves to give economists hope that a recovery is nigh. I am not one to dwell on doom and gloom. Honestly, I'm not sure how much more bad news readers can take."Oh, really? Then step aside, Scott. We here at the Depression Gazette know all about bad news. That's why Google generates so many adds about psychological depression: they know we're up to no good.
Seriously, though... despite 'Dr.' Anderson's wishes to the contrary, the economy will not stop crashing when people stop reading bad news. Wells Fargo seems to implicitly understand this, given their disclaimer at the bottom of the first page. Nonetheless, it is a huge disservice to the bank's customers to pass off this sort of trash.
Big banks like Wells Fargo have portrayed themselves as the safest place for the lumpeninvestors to park their savings. With all the recent 'office redecoration,' banks like Wells Fargo should bend over backwards to prove to their customers that they are more responsible than their competitors.
We are absolutely certain that this sort of disinformation will continue into the future. It will only make the eventual fallout from the collapse of such big banks all the more damaging... and well-deserved.
Wednesday, February 4, 2009
Increase in Savings Rate Explained
Fortune Magazine just published an article bemoaning the lack of consumer spending and (what is to the author) a paradox of increasing savings rates. Mr. Colvin, the author, apparently does not get out much, because anyone with eyes to see can tell you why savings rates are increasing.
People are 'saving' only because they are paying off their debts. They are not paying off their debts because they want to, but because they can no longer refinance their debts with home equity loans, low-rate promotional cash advances, or even just plain juggling their balances between credit lines. Banks are relentlessly cutting lending. Credit lines are cut and new loans are harder to get. In order to pay off their debts, people must cut their spending on whatever they would have bought if they didn't have to pay off their debts. Consumption declines, 'savings' increases, end of story.
The dimness represented here by Mr. Colvin and other writers in the leading financial publications is disconcerting. If the investing class continues to be as misinformed in the Depression as it was during the Mania beforehand, recovery will be very far off indeed.
People are 'saving' only because they are paying off their debts. They are not paying off their debts because they want to, but because they can no longer refinance their debts with home equity loans, low-rate promotional cash advances, or even just plain juggling their balances between credit lines. Banks are relentlessly cutting lending. Credit lines are cut and new loans are harder to get. In order to pay off their debts, people must cut their spending on whatever they would have bought if they didn't have to pay off their debts. Consumption declines, 'savings' increases, end of story.
The dimness represented here by Mr. Colvin and other writers in the leading financial publications is disconcerting. If the investing class continues to be as misinformed in the Depression as it was during the Mania beforehand, recovery will be very far off indeed.
Tuesday, February 3, 2009
Social Progress Amidst Ruination
After the titanic financial and governmental blow-out, Iceland seems to have found new footing. A caretaker coalition government has been formed, to manage the nation until elections in April. Heading the coalition is Prime Minister Jóhanna Sigurðardóttir, the first openly sexual minority national leader in modern history.
Such firsts seem to be coming faster as the Depression deepens: the United States has recently elected Barack Obama as President. Perhaps such changes will become ever more commonplace in the world, as growing financial concerns override bigotry and social divisiveness. It's a sad commentary that it took a depression to help forge these social changes...
Nevertheless, we feel Ms. Jóhanna seems to be a strong and capable leader. We look forwards to seeing what the Jóhanna Government will do for Iceland in the coming months. We also look forward to the Obama Administration over the next four years; we aren't holding our breath about his policies, but we might be wrong in our estimation of him.
Such firsts seem to be coming faster as the Depression deepens: the United States has recently elected Barack Obama as President. Perhaps such changes will become ever more commonplace in the world, as growing financial concerns override bigotry and social divisiveness. It's a sad commentary that it took a depression to help forge these social changes...
Nevertheless, we feel Ms. Jóhanna seems to be a strong and capable leader. We look forwards to seeing what the Jóhanna Government will do for Iceland in the coming months. We also look forward to the Obama Administration over the next four years; we aren't holding our breath about his policies, but we might be wrong in our estimation of him.
Monday, February 2, 2009
The Shame of Downward Mobility
We're pleased to announce we've started posting on Stylishly Cheap Living. On this blog, we will write about how we try to make our living costs go down, and living quality go up! We hope you'll find something of interest.
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A spectre is haunting the USA: Ruin and homelessness for hundreds of thousands of formerly hard-working, decent, law-abiding citizens. In spite of the import of the subject, this is not a story you will read much about in the mainstream media, or even in the blogosphere. It seems bank bailouts are infinitely more newsworthy, somehow.
Our efforts to find coverage on mushrooming homelessness have yielded only a few stories gleaned typically from local news such as this report , and this one.
We suspect the news blackout comes from a simple psychological bias. Downward mobility is just not part of the script that Americans have for themselves either individually or collectively. The 'American Dream', the 'American Way of Life', and the American 'Free-Enterprise System' are all about making it, if not making it big. There is no reverse gear.
Aside from the copious shame newly homeless individuals heap upon themselves as they see their lives dissolve, there is more broadly in the public consciousness "no place at the table" for them. They must be invisibilised, if you will.
Out of the public eye, they are also out of the public policy arena. Where in Mr. Obama's recession-cure are additional funds for soup kitchens and shelters? Religious, non-profit, and local governmental agencies serving the destitute are being stretched to near the breaking point. This situation will be worsening in the coming months and, because no one is really paying any attention, will create a stealth crisis of gigantic proportions.
*************************************************************************************
A spectre is haunting the USA: Ruin and homelessness for hundreds of thousands of formerly hard-working, decent, law-abiding citizens. In spite of the import of the subject, this is not a story you will read much about in the mainstream media, or even in the blogosphere. It seems bank bailouts are infinitely more newsworthy, somehow.
Our efforts to find coverage on mushrooming homelessness have yielded only a few stories gleaned typically from local news such as this report , and this one.
We suspect the news blackout comes from a simple psychological bias. Downward mobility is just not part of the script that Americans have for themselves either individually or collectively. The 'American Dream', the 'American Way of Life', and the American 'Free-Enterprise System' are all about making it, if not making it big. There is no reverse gear.
Aside from the copious shame newly homeless individuals heap upon themselves as they see their lives dissolve, there is more broadly in the public consciousness "no place at the table" for them. They must be invisibilised, if you will.
Out of the public eye, they are also out of the public policy arena. Where in Mr. Obama's recession-cure are additional funds for soup kitchens and shelters? Religious, non-profit, and local governmental agencies serving the destitute are being stretched to near the breaking point. This situation will be worsening in the coming months and, because no one is really paying any attention, will create a stealth crisis of gigantic proportions.
Sunday, February 1, 2009
When Disaster Meets Depression
The recent ice storms have left about 600,000 Kentucky customers without electricity, and the Governor has recently deployed every last National Guardperson. Frankly, we can't help but to think this is another train-wreck-in-slow-motion, and almost certainly a taste of the things to come. We have the feeling that this ice storm will be yet another disaster in a recent long string of mismanaged disasters.
At the same time, Mount Redoubt in the State of Alaska will apparently soon explode. Apparently, Alaska hasn't given us enough entertainment recently, so this will be the latest export of the great north. Pardon our sarcasm, dear Reader; we see only bad things coming from these twin disasters.
These disasters are of a serious nature, as we are sure you realise. However, we seriously question the ability of the States, the Federal government, and the Citizenry to be capable of coping with these, and future, disasters. The 2007 Depression has put the screws onto the financial position of the United States... and disasters are very expensive indeed.
To see how badly disaster areas will be in the future, one need only look at the still-blasted landscape of New Orleans. That city 'enjoyed' the tender mercies of the Army Corps of Engineers... as The New Orleans Levee once sagely noted, the Corps is destroying America, one failed engineering project at a time. This will be the rule, not the exception.
At the same time, Mount Redoubt in the State of Alaska will apparently soon explode. Apparently, Alaska hasn't given us enough entertainment recently, so this will be the latest export of the great north. Pardon our sarcasm, dear Reader; we see only bad things coming from these twin disasters.
These disasters are of a serious nature, as we are sure you realise. However, we seriously question the ability of the States, the Federal government, and the Citizenry to be capable of coping with these, and future, disasters. The 2007 Depression has put the screws onto the financial position of the United States... and disasters are very expensive indeed.
To see how badly disaster areas will be in the future, one need only look at the still-blasted landscape of New Orleans. That city 'enjoyed' the tender mercies of the Army Corps of Engineers... as The New Orleans Levee once sagely noted, the Corps is destroying America, one failed engineering project at a time. This will be the rule, not the exception.
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