This came to my attention through Zero Hedge (On a Long Enough Timeline, the Survival Rate for Everyone Drops to Zero) a blog I’ve mentioned before, one that has become a first source for a skeptical view of our political and economic world. When reading Zero Hedge I think of the American Revolutionary War pamphleteers; Thomas Paine would be proud of this independent, pseudonymous voice and its mission statement. No wonder traditional media are concerned about the power of the new press.
Zero Hedge pointed to a fascinating interview between Nassim Taleb, the mathematician, hedge fund manager, philosopher, and writer, author of The Black Swan, and Rolf Dobelli “a Swiss novelist and entrepreneur." I read Taleb’s book earlier this year and while I had my own skeptical view of applying his philosophy to the investment world, I was impressed by his intellect and in particular his theory of “naïve empiricism,” a “natural tendency to look for instances that confirm our story or our vision of the world.”
So it is not surprising that I was immediately swept into this interview with Taleb’s statement “Newspapers have officially the right facts, but their interpretations are imaginary –and their choice of facts are arbitrary. They lie with right facts; a novelist says the truth with wrong facts.” In effect, fiction is a notch above “truth.” How often have I thought that while reading the novelists I’ve mention in this blog? How often have I felt that a novel was portraying the real world, the one I know and understand? As Taleb says, “Literature belongs to the holy. You can do fiction, nonfiction, a mixture, who cares. Literature is above the distinction. It is sacred.”
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Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Tuesday, July 14, 2009
Monday, June 1, 2009
Krugman Vs. Hussman
John Hussman, the erudite economist who runs his own mutual funds, and Paul Krugman, the Nobel Memorial Prize winner in Economics have a bone to pick over inflation. Essentially, Krugman thinks such an outcome from the current economic turbulence is a non sequitur as the funds being created with all this debt is essentially not being lent out – they are going back into Treasuries. Therefore, he concludes, “when it comes to inflation, the only thing we have to fear is inflation fear itself.”
Hussman has some pointed rejoinders to this view. The lack of money velocity will have to be indefinite for inflation to remain tame. Eventually this debt will have to be addressed via inflation or through a dramatic expansion of economic activity. He expects a doubling of the U.S. price level over the next decade.
Their discussion takes me back me to the 1970s when the fear of inflation led Paul Volcker to raise short-term rates to unheard of levels, with ultimate success but not before the inflationary genie escaped the bottle. Certainly, recent gyrations in the Treasury market as well as the resurgence of commodity prices show this debate is now being waged in the marketplace as well.
Hussman has some pointed rejoinders to this view. The lack of money velocity will have to be indefinite for inflation to remain tame. Eventually this debt will have to be addressed via inflation or through a dramatic expansion of economic activity. He expects a doubling of the U.S. price level over the next decade.
Their discussion takes me back me to the 1970s when the fear of inflation led Paul Volcker to raise short-term rates to unheard of levels, with ultimate success but not before the inflationary genie escaped the bottle. Certainly, recent gyrations in the Treasury market as well as the resurgence of commodity prices show this debate is now being waged in the marketplace as well.
Thursday, May 7, 2009
How’s My Driving?
When I posted my penultimate entry, the blogger “dashboard” indicated that it was my one-hundredth one. This made me ask: where had my blogger journey taken me? So, I did a cursory review of the entries, beginning with the first posted on Wednesday, November 14, 2007. Little did I know at the time we were only at the beginning of an historic political and economic era.
The latter was showing only the tip of a sub-prime mortgage iceberg. In fact, the market report for that day was as follows: “Stocks soared on Wall Street last night as investors returned to the bombed-out financial sector following positive comments from investment banks Goldman Sachs and JP Morgan about the impact of the ongoing sub-prime mortgage crisis. The Nasdaq tech stock index, meanwhile, recorded its biggest gain in more than four years closing up 89.52 points or 3.46% at 2,673.65, while the Dow Jones closed up 319.54 points or 2.46% at 13,307.09.” These now seem like Halcyon levels for both indices.
The ensuing “Great Recession” as it has euphemistically been called, along with Obama’s historic rise to the Presidency, have been the two most significant events of this period. As one of my intensions has been to give a personalized view and account of my times, a fair number of my blog entries during the last 535 days relate to these topics, perhaps more than I had originally envisioned.
No doubt there will be more as momentous political and economic winds continue to blow. Government had to step in to become the “spender of last resort” in this perfect economic storm, but we will inevitably face the unintended consequences of fighting a credit bubble with a new credit bubble. President Obama’s choices (who I supported in these pages from his primary battles to his election campaign) were between worse or worst and I get the sense we are winging it on a daily basis, hoping the economic implosion can be morphed to an explosion as the latter will be necessary to raise the revenue to retire the debt being created. A society cannot borrow itself into prosperity and a common thread in my postings has been the observation that borrowers and lenders, Ponzi schemers and investors in those schemes, are all complicit in this crisis. Government cannot protect people from themselves but we need regulations that make predatory lending and investing practices more difficult, all fodder for future postings.
I have been asked what I meant by the title of the blog. In my first entry, I credited a publisher I admired at McGraw Hill, Curtis Benjamin. To quote from that entry, “Benjamin labeled increasing specialization ‘the twigging phenomenon’ – the tree of knowledge constantly developing new limbs as scholarship and scientific discoveries blaze forward. I wonder how Curtis Benjamin would see the Internet world, the ultimate in customized, personalized, specialized publishing. No doubt he would see it as an opportunity. Hence, an opportunity for me to use the medium to muse about my life, interests and experiences over time.”
So, the blog was intended as musings about la·cu·nae (-n) or la·cu·nas: An empty space or a missing part; a gap. And they are solitary musings of a microscopic nature. I like to think of it as dealing with the irregular numbers between zero and one, of which there are more than whole numbers. The whole numbers from one to infinity are left to mass media and those blogs and web sites positioned for large readership.
Consequently, it also leaves me free to address my own personal interests so other entries have dealt with my life as a publisher, friends and family history, travels and boating, photography, and my interest in music and literature. To some extent I feel the gravitas of the economy and politics have encroached upon writing more on those other topics.
As I said to I said to a blogger friend, Emily, “I’ve always thought of myself as a jack-of-all-trades, master of none…. My on-and-off-again blog reflects my disparate interests and …so, I’m afraid your readers may be disappointed by the content. You have a central passion and your blog reflects that focus so well.”
I make that observation as my blog has been “picked up” by some others, all with a “central passion.” So, if you arrive here through another blog site, I might be dealing with an altogether different subject at the time. I’ve also been asked why I haven’t activated the “comments” feature. Perhaps I haven’t wanted to get into a public debate on my views. They are what they are. But, in the profile part of the blog I have provided an email contact for those who want to communicate.
I’ve averaged a posting almost every five days for one and one half years. Sometimes it feels more like a responsibility than fun and that’s when I back off and post laconic entries, maybe more suitable for Twitterdom than a blog. But I never intend to Twitter as can’t imagine anyone wanting to follow my daily minutiae.
Concluding this summary of my “first hundred entries,” I reiterate an inspirational passage that cuts to the heart of the matter. Just reading the words again makes me more sanguine about the next hundred. This is from the 70-year old classic by Brenda Ueland, If You Want to Write; A Book about Art, Independence and Spirit: “At last I understood that writing was about this: an impulse to share with other people a feeling of truth that I myself had. Not to preach to them, but to give it to them if they cared to hear it. If they did not – fine. They did not need to listen. That was all right too…. You should work from now on until you die, with real love and imagination and intelligence, at your writing or whatever work it is that you care about. If you do that, out of the mountains that you write some mole hills will be published…. But if nothing is ever published at all and you never make a cent, just the same it will be good that you have worked.”
.
The latter was showing only the tip of a sub-prime mortgage iceberg. In fact, the market report for that day was as follows: “Stocks soared on Wall Street last night as investors returned to the bombed-out financial sector following positive comments from investment banks Goldman Sachs and JP Morgan about the impact of the ongoing sub-prime mortgage crisis. The Nasdaq tech stock index, meanwhile, recorded its biggest gain in more than four years closing up 89.52 points or 3.46% at 2,673.65, while the Dow Jones closed up 319.54 points or 2.46% at 13,307.09.” These now seem like Halcyon levels for both indices.
The ensuing “Great Recession” as it has euphemistically been called, along with Obama’s historic rise to the Presidency, have been the two most significant events of this period. As one of my intensions has been to give a personalized view and account of my times, a fair number of my blog entries during the last 535 days relate to these topics, perhaps more than I had originally envisioned.
No doubt there will be more as momentous political and economic winds continue to blow. Government had to step in to become the “spender of last resort” in this perfect economic storm, but we will inevitably face the unintended consequences of fighting a credit bubble with a new credit bubble. President Obama’s choices (who I supported in these pages from his primary battles to his election campaign) were between worse or worst and I get the sense we are winging it on a daily basis, hoping the economic implosion can be morphed to an explosion as the latter will be necessary to raise the revenue to retire the debt being created. A society cannot borrow itself into prosperity and a common thread in my postings has been the observation that borrowers and lenders, Ponzi schemers and investors in those schemes, are all complicit in this crisis. Government cannot protect people from themselves but we need regulations that make predatory lending and investing practices more difficult, all fodder for future postings.
I have been asked what I meant by the title of the blog. In my first entry, I credited a publisher I admired at McGraw Hill, Curtis Benjamin. To quote from that entry, “Benjamin labeled increasing specialization ‘the twigging phenomenon’ – the tree of knowledge constantly developing new limbs as scholarship and scientific discoveries blaze forward. I wonder how Curtis Benjamin would see the Internet world, the ultimate in customized, personalized, specialized publishing. No doubt he would see it as an opportunity. Hence, an opportunity for me to use the medium to muse about my life, interests and experiences over time.”
So, the blog was intended as musings about la·cu·nae (-n) or la·cu·nas: An empty space or a missing part; a gap. And they are solitary musings of a microscopic nature. I like to think of it as dealing with the irregular numbers between zero and one, of which there are more than whole numbers. The whole numbers from one to infinity are left to mass media and those blogs and web sites positioned for large readership.
Consequently, it also leaves me free to address my own personal interests so other entries have dealt with my life as a publisher, friends and family history, travels and boating, photography, and my interest in music and literature. To some extent I feel the gravitas of the economy and politics have encroached upon writing more on those other topics.
As I said to I said to a blogger friend, Emily, “I’ve always thought of myself as a jack-of-all-trades, master of none…. My on-and-off-again blog reflects my disparate interests and …so, I’m afraid your readers may be disappointed by the content. You have a central passion and your blog reflects that focus so well.”
I make that observation as my blog has been “picked up” by some others, all with a “central passion.” So, if you arrive here through another blog site, I might be dealing with an altogether different subject at the time. I’ve also been asked why I haven’t activated the “comments” feature. Perhaps I haven’t wanted to get into a public debate on my views. They are what they are. But, in the profile part of the blog I have provided an email contact for those who want to communicate.
I’ve averaged a posting almost every five days for one and one half years. Sometimes it feels more like a responsibility than fun and that’s when I back off and post laconic entries, maybe more suitable for Twitterdom than a blog. But I never intend to Twitter as can’t imagine anyone wanting to follow my daily minutiae.
Concluding this summary of my “first hundred entries,” I reiterate an inspirational passage that cuts to the heart of the matter. Just reading the words again makes me more sanguine about the next hundred. This is from the 70-year old classic by Brenda Ueland, If You Want to Write; A Book about Art, Independence and Spirit: “At last I understood that writing was about this: an impulse to share with other people a feeling of truth that I myself had. Not to preach to them, but to give it to them if they cared to hear it. If they did not – fine. They did not need to listen. That was all right too…. You should work from now on until you die, with real love and imagination and intelligence, at your writing or whatever work it is that you care about. If you do that, out of the mountains that you write some mole hills will be published…. But if nothing is ever published at all and you never make a cent, just the same it will be good that you have worked.”
.
Sunday, November 2, 2008
Home
After a summer of living on the boat and traveling for the last couple of weeks, we finally returned home. Amazing how much can change -- even profoundly change in one’s life in just a few short weeks. For me it can be summed up in two words: the economy and Westport.
There we toured for several days and to visit my old friend, Jim, who I hadn’t seen in some 20 years. As I mentioned in my last entry, Jim and I started out our working career together. He’s become somewhat of a “mountain man” – in spite of health problems you can find him hiking the trails around Santa Fe when he’s not behind his desk, working on his two imprints, Western Edge Press and Sherman Asher Publishing http://www.shermanasher.com/newslett.html. It was fun to visit, to reminisce, to meet his friend, Judy, and to have his expertise in guiding us around the area.
In Sedona we stayed with our friends Lew and Rosemary. Their home faces the Red Rocks of Sedona and at sunset one’s focus turns to that dramatic scene. At that time of day, it became a ritual to enjoy some wine and hors d’oeuvres, silently inhaling the beauty of the moment.
From there we drove on to the Grand Canyon, staying at the famous El Tovar Hotel located on the Canyon Rim. From that location we watched both the sunset and sunrise. Words are inadequate to describe the scene.
Not that the economy was much different since my last entry, it’s just that the market is just beginning to come to grips with what Nouriel Roubini has called "stagdeflation." http://www.bloomberg.com/avp/avp.htm?N=av&T=Roubini%20Sees%20%60Significant%20Downside%20Risk%27%20for%20Equities&clipSRC=mms://media2.bloomberg.com/cache/vycr2Mqgo39U.asf
If Roubini is right, this will be unlike anything we’ve experienced in our lifetime, a severe protracted recession that is accompanied by deflationary forces -- instead of the inflationary beast with which we are at least familiar. This has taken down nearly all asset classes throughout the world. So much for the myth of diversification. In those few short weeks the changing economic winds have already impacted how we look at things as consumers and they portend a protracted period of unemployment growth. It strikes a nerve in all savers, wondering whether savings would be better off under the mattress or whether paper money might have any value at all. Personally, I worry about my sons who are navigating the prime of their working lives.
If Roubini is right, this will be unlike anything we’ve experienced in our lifetime, a severe protracted recession that is accompanied by deflationary forces -- instead of the inflationary beast with which we are at least familiar. This has taken down nearly all asset classes throughout the world. So much for the myth of diversification. In those few short weeks the changing economic winds have already impacted how we look at things as consumers and they portend a protracted period of unemployment growth. It strikes a nerve in all savers, wondering whether savings would be better off under the mattress or whether paper money might have any value at all. Personally, I worry about my sons who are navigating the prime of their working lives.
I mentioned Westport above, the town in Connecticut where I worked and lived for 30 years. While we were away this past month, two seismic changes occurred where we raised our family.
Paul Newman died. He was our neighbor at one time and I had the privilege of briefly working with his wife, Joanne Woodward, on a history of Westport. While I never had the opportunity of meeting him, I had often seen him in town, usually at local restaurants or at a farmer’s market or once when he parked his customized VW in our company parking lot to visit a building next door. The town treated him pretty much like anyone else and that is the way he wanted it. He was just there, around town, and of course larger than life on the screen, and because of his extensive charity work, even on bottles of salad dressing.
He was such a part of the fabric of all of our lives. I feel a profound sense of loss whenever I think of him, or see him on the screen or on those bottles of “Newman’s Own” which he funded to last into perpetuity for the benefit of progressive causes. He was iconic and an iconoclast at the same time, a person who I admired, a true maverick who lived his life the way he wanted, not the way Hollywood normally dictates.
The other news from my former hometown concerns the company I helped to build over nearly three decades, Greenwood Publishing Group, which was just recently sold to another company. Mergers and acquisitions are now the rule in the publishing business, so this was not surprising. I had been involved in several during my career. In fact the company had gone through a couple such changes since I left the business at the beginning of this decade. But, apparently this time, while the imprints will go on, the offices will be closed and many employees will be laid off. I feel so sad to hear this news. http://www.westportnow.com/index.php?/v2/comments/westports_greenwood_publishing_to_close_150_jobs_cut/
While these events unfolded, we were visiting friends in the southwest, flying first to Albuquerque to pick up our car rental and then making our first stop in beautiful Santa Fe, NM
There we toured for several days and to visit my old friend, Jim, who I hadn’t seen in some 20 years. As I mentioned in my last entry, Jim and I started out our working career together. He’s become somewhat of a “mountain man” – in spite of health problems you can find him hiking the trails around Santa Fe when he’s not behind his desk, working on his two imprints, Western Edge Press and Sherman Asher Publishing http://www.shermanasher.com/newslett.html. It was fun to visit, to reminisce, to meet his friend, Judy, and to have his expertise in guiding us around the area.
From there we went on to Taos mainly to see the Taos Pueblo Indian Village, and then visited the Painted Desert and the Petrified Forest on our way to Sedona. 
In Sedona we stayed with our friends Lew and Rosemary. Their home faces the Red Rocks of Sedona and at sunset one’s focus turns to that dramatic scene. At that time of day, it became a ritual to enjoy some wine and hors d’oeuvres, silently inhaling the beauty of the moment.Afterwards, Lew played the piano – he is an accomplished musician and accompanies several singers, in particular our friend Nicole Pasternak when he is in Connecticut or she visits Sedona http://www.nicolepasternak.com/. It was wonderful spending some time with them and to visit the natural wonders of Sedona.
From there we drove on to the Grand Canyon, staying at the famous El Tovar Hotel located on the Canyon Rim. From that location we watched both the sunset and sunrise. Words are inadequate to describe the scene.After leaving the Canyon, we were determined to drive along a stretch of Route 66, from Seligman AZ to Kingman AZ with long vistas paralleling the Santa Fe RR, driving alongside freight trains numbering untold cars. It was a windy day and tumbleweeds crossed the road. In other words, Route 66 was pretty much as I had hoped and here are a few of my favorite photos I took along the way.
Our plans were to drive on to Las Vegas to see an old dear friend, 
Marge, and then catch a flight back to NY to pick up our car and stuff from the boat and begin our drive back to Florida. But before Las Vegas, I wanted to visit an old mining town along the way, Chloride, AZ (right near Grasshopper Junction – no kidding). Talk about entering a time machine, as these photos attest.
Marge, and then catch a flight back to NY to pick up our car and stuff from the boat and begin our drive back to Florida. But before Las Vegas, I wanted to visit an old mining town along the way, Chloride, AZ (right near Grasshopper Junction – no kidding). Talk about entering a time machine, as these photos attest.
We arrived in Las Vegas later in the afternoon. The last time we were there was to see Marge’s husband, Peter, a close friend of mine, more than 15 years ago. He had been diagnosed with cancer and we wanted to visit him. I wrote about this wonderful man and good friend last year: http://lacunaemusing.blogspot.com/2007/12/business-relationships.html
Never my favorite city, Las Vegas has gone from excess to excess to the second power, a geometric growth of overindulgence, sort of emblematic of our country’s economic mess. Nonetheless, it was great to see Marge (who never visits the strip other than to see friends who might be passing through - such as ourselves). We did the “high life” bit in 24 hours, had an excellent dinner, enjoyed a Cirque du Soleil performance, and even committed $10 apiece to slot machines, from which I walked away $3 to the plus, after nearly losing everything. Ann, on the other hand, lost everything, period.
So after driving some 1,200 miles we boarded a Jet Blue flight for JFK wherewe picked up our car and began another 1,200 mile drive home from there.
Tuesday, June 10, 2008
We are the Enemy
On that unspeakable day of September 11, 2001 we were in Connecticut, packing for an overseas trip. While the horror unfolded we could see the smoke from the Twin Towers more than fifty miles away across the Long Island Sound against the clear blue sky. I had thought we were confronting the worst of all possible enemies, one that cared not at all about its own life – in fact reveled in martyrdom – one that shared none of our moral values and would be content to wage war guerrilla style with no time constraints.
But, since then, we seem to be waging the battle for them. They no longer have to hijack planes to fly into our buildings as we have hijacked our own economy and can now be held hostage by any dictatorship du jour.
Here’s what we’ve done since that horrific day:
■ Wage an unnecessary war in Iraq that has cost more than one half trillion dollars to date, or $341 million each day. http://www.nationalpriorities.org/costofwar_home
■ Consume more than 20 million barrels of oil each day of which we produce only about a quarter, meaning we have to send about $2 billion abroad each day a majority of which finds its way to the Middle East, Russia, and South America. http://www.gravmag.com/oil.html
■ Increase our unfunded Social Security and Medicare programs by $33 trillion (yes, trillion) since 2000 to a total of $53 trillion at the end of last year – a liability of about $455,000 for every American household http://www.gao.gov/cghome/d08371cg.pdf
There is a litany of others that could be added to this list, but suffice it to say, our national debt is increasing at $1.59 billion per day. http://www.brillig.com/debt_clock/. No wonder the dollar continues to sink which just increases the cost of our imported oil and leaves us even a greater debtor to other countries.
In other postings I’ve cited the work of Bill Gross, the talented bond manager at PIMCO, and John Hussman an economist who runs his own mutual fund. Their two most recent articles touch upon our inability to fess up to the reality, how we continue to report chimerical inflation statistics http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+June+2008.htm and focus on monetary policy when our fiscal policy is rotten to the core http://hussmanfunds.com/wmc/wmc080609.htm.
If we cannot even acknowledge these economic truths, there can be no national plan to deal with the dire consequences. Then we will not only lose the war, but also be the architect of our own defeat.
But, since then, we seem to be waging the battle for them. They no longer have to hijack planes to fly into our buildings as we have hijacked our own economy and can now be held hostage by any dictatorship du jour.
Here’s what we’ve done since that horrific day:
■ Wage an unnecessary war in Iraq that has cost more than one half trillion dollars to date, or $341 million each day. http://www.nationalpriorities.org/costofwar_home
■ Consume more than 20 million barrels of oil each day of which we produce only about a quarter, meaning we have to send about $2 billion abroad each day a majority of which finds its way to the Middle East, Russia, and South America. http://www.gravmag.com/oil.html
■ Increase our unfunded Social Security and Medicare programs by $33 trillion (yes, trillion) since 2000 to a total of $53 trillion at the end of last year – a liability of about $455,000 for every American household http://www.gao.gov/cghome/d08371cg.pdf
There is a litany of others that could be added to this list, but suffice it to say, our national debt is increasing at $1.59 billion per day. http://www.brillig.com/debt_clock/. No wonder the dollar continues to sink which just increases the cost of our imported oil and leaves us even a greater debtor to other countries.
In other postings I’ve cited the work of Bill Gross, the talented bond manager at PIMCO, and John Hussman an economist who runs his own mutual fund. Their two most recent articles touch upon our inability to fess up to the reality, how we continue to report chimerical inflation statistics http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+June+2008.htm and focus on monetary policy when our fiscal policy is rotten to the core http://hussmanfunds.com/wmc/wmc080609.htm.
If we cannot even acknowledge these economic truths, there can be no national plan to deal with the dire consequences. Then we will not only lose the war, but also be the architect of our own defeat.
Saturday, March 29, 2008
“He that goes a-borrowing goes a-sorrowing”
Here is another maligned minority ready to blame others for its own actions, and expecting the taxpayer to foot the bill: “FORECLOSURE VICTIMS INVADE BEAR STEARNS HQ, PICKET JP MORGAN.” It’s not that our hearts do not go out to those people, but why should those not in foreclosure pay for another person’s poor judgment or even avarice?
Lost in the recent high stakes financial shenanigans are the savers, people who did not avail themselves of “easy money,” to buy homes beyond their economic reach. Or those who refused to be seduced by home equity loans to buy into the American dream of vacations, new cars, the easy, beautiful life which assaults us in an continuous loop on the media. Or those in retirement who are dependent on their savings and social security to see them through. They are everything our government is not: responsible, truthful, balancing their budgets at all costs.
How can we punish savers? Let’s start by giving them investment options based on chimerical ratings that are established by rating agencies paid by the very institutions they are rating. Then let’s ratchet down their income from CDs as we try to bail out an economy of credit excesses. Let helicopter dollars rain down on all [http://lacunaemusing.blogspot.com/2008/02/tautological-economics.html] to encourage more spending! But, that’s not enough; let their government take an unprecedented $29 billion dollar risk, ultimately at the taxpayer’s expense, to bail out the bond and equity holders of Bear Stearns (an action rationalized as needed to save our entire financial system). Let’s also talk about eliminating a more progressive graduated income tax in favor of a flat tax so, when savers spend their savings, which have already been taxed once when they were first earned, let’s tax them again via a national sales tax. While we’re at it, let’s also undermine the dollar and introduce inflation so their savings buy less. Then, finally, as social security benefits are adjusted by inflation, let’s artificially understate the real inflation rate to further erode their benefits!
What would Ben Franklin say today, “he that goes a-saving goes a-slaving?”
Lost in the recent high stakes financial shenanigans are the savers, people who did not avail themselves of “easy money,” to buy homes beyond their economic reach. Or those who refused to be seduced by home equity loans to buy into the American dream of vacations, new cars, the easy, beautiful life which assaults us in an continuous loop on the media. Or those in retirement who are dependent on their savings and social security to see them through. They are everything our government is not: responsible, truthful, balancing their budgets at all costs.
How can we punish savers? Let’s start by giving them investment options based on chimerical ratings that are established by rating agencies paid by the very institutions they are rating. Then let’s ratchet down their income from CDs as we try to bail out an economy of credit excesses. Let helicopter dollars rain down on all [http://lacunaemusing.blogspot.com/2008/02/tautological-economics.html] to encourage more spending! But, that’s not enough; let their government take an unprecedented $29 billion dollar risk, ultimately at the taxpayer’s expense, to bail out the bond and equity holders of Bear Stearns (an action rationalized as needed to save our entire financial system). Let’s also talk about eliminating a more progressive graduated income tax in favor of a flat tax so, when savers spend their savings, which have already been taxed once when they were first earned, let’s tax them again via a national sales tax. While we’re at it, let’s also undermine the dollar and introduce inflation so their savings buy less. Then, finally, as social security benefits are adjusted by inflation, let’s artificially understate the real inflation rate to further erode their benefits!
What would Ben Franklin say today, “he that goes a-saving goes a-slaving?”
Friday, February 8, 2008
Tautological Economics
After the Federal Reserve successfully contributed to a real estate bubble which has yet been allowed to completely unwind, Congress could not resist scoring political points, approving a $168 billion economic “rescue” package, the majority of which will be given to taxpayers as rebate checks. The political tag team of President Bush and House Speaker Nancy Pelosi said the following:
Bush: “This plan is robust, broad based, timely, and it will be effective.”
Pelosi: “We are making history. What has passed the Congress in record time is a gift to the middle class and those who aspire to it in our country.”
While the part of the package that increases the level of expenses that businesses can immediately write off would seem to make sense, as this incentive is almost certain to guarantee investments in new capital equipment and is sure to stimulate job creation, the “gift” part is tantamount to handing a drunk a cheap bottle of wine.
True, it is in keeping with Keynesian economics, the theory being that this handout will be spent by the consumer and will reverberate throughout the economy. As noted in a footnote in a speech given by Ben Bernanke in 2002 before he was Chairman of the Federal Reserve, “Keynes once semi-seriously proposed, as an anti-deflationary measure, that the government fill bottles with currency and bury them in mine shafts to be dug up by the public.” Of course, that was before helicopters so we now have a better method of distributing money to the masses without having to haul our sorry butts off to a mine shaft.
At least Keynes might have been referring to currency already earned, but where is this $168 billion coming from? We’re going to print it or borrow it at the expense of future generations. We will simply increase the deficit. Where will the money go? Maybe we’ll buy some plasma TVs or other electronics at our local Wal-Mart, most of which is made in China, the country that will be lending us the money so we can make those purchases. This would seem to be a form of tautological economics but if it works, why not borrow $1.68 trillion instead of a mere $168 billion? We can use the larger refund as down payments on new mortgages to buy some depressed real estate. Everybody wins!
But getting back to reality, most of the money will probably go to pay off debt, but given the extent of sub prime and foreclosure issues, the rebates will only briefly push back the inevitable. In the 1980s we were able to deal with The Savings and Loan Crisis through the formation of the Resolution Trust Corporation. Shouldn’t Congress be busy addressing our fragile economic system with a more permanent solution than just throwing money at the problem, a temporary fix at best?
Bush: “This plan is robust, broad based, timely, and it will be effective.”
Pelosi: “We are making history. What has passed the Congress in record time is a gift to the middle class and those who aspire to it in our country.”
While the part of the package that increases the level of expenses that businesses can immediately write off would seem to make sense, as this incentive is almost certain to guarantee investments in new capital equipment and is sure to stimulate job creation, the “gift” part is tantamount to handing a drunk a cheap bottle of wine.
True, it is in keeping with Keynesian economics, the theory being that this handout will be spent by the consumer and will reverberate throughout the economy. As noted in a footnote in a speech given by Ben Bernanke in 2002 before he was Chairman of the Federal Reserve, “Keynes once semi-seriously proposed, as an anti-deflationary measure, that the government fill bottles with currency and bury them in mine shafts to be dug up by the public.” Of course, that was before helicopters so we now have a better method of distributing money to the masses without having to haul our sorry butts off to a mine shaft.
At least Keynes might have been referring to currency already earned, but where is this $168 billion coming from? We’re going to print it or borrow it at the expense of future generations. We will simply increase the deficit. Where will the money go? Maybe we’ll buy some plasma TVs or other electronics at our local Wal-Mart, most of which is made in China, the country that will be lending us the money so we can make those purchases. This would seem to be a form of tautological economics but if it works, why not borrow $1.68 trillion instead of a mere $168 billion? We can use the larger refund as down payments on new mortgages to buy some depressed real estate. Everybody wins!
But getting back to reality, most of the money will probably go to pay off debt, but given the extent of sub prime and foreclosure issues, the rebates will only briefly push back the inevitable. In the 1980s we were able to deal with The Savings and Loan Crisis through the formation of the Resolution Trust Corporation. Shouldn’t Congress be busy addressing our fragile economic system with a more permanent solution than just throwing money at the problem, a temporary fix at best?
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