Blackeyebart

Austrian School of Economics Is on the Rise

RR didn't say it because he believed it. -
He said it because you believed it.

Pictures of the Real Economy

"You know, we really don't need a ream of statistics and a cadre of expensive analysts to understand the real economy. Here are a few charts; they are enough."

But can't we just look at the recent stock market rise and forget the facts? That way we could put a bit of boom back in housing, solve insolvency, turn CDS into SCD and take a trip to Belgrade.

The USG clearly does not believe that the facts you quote are the important ones.

Extending Medicare: Medical and National Suicide

It is amazing how the smell of money can cause people to abandon all common sense. All over the world civilised nations assist people when they fall ill, where they can. Most of these schemes have an element of rationing in them, just as the American schemes do.
The US system is the most chaotic and counter intuitive system one could contemplate. It fails every measure of good management. It is neither effective, efficient, fair, or sensible.
Leaving millions uncovered does not reduce the cost significantly, it just makes that cost fall disproportionately on the sick, and the health providers who do not always get paid. The latter crank their fees to compensate. It works like privatised taxation except is is not nearly so efficient.
The US spends more than any other country on health and get less "health" than many poorer nations.
But don't hold your breath for reform, because many Americans like the fact that they are covered while others are not. This gives them a ego boost and entitles them speak ill of the poor or ill prepared. It might not make sense but it feels good.

The State of the Consumer

Traden4alpha says "As long as unemployment remains high, consumer spending won't recover to pre-crash levels."

This bothers me. It assumes that a recession is an aberration. A sort of collective mistake. People will get over it, and things will get back to "normal".

I view the recession as a correction. A return to fundamentals. A chance to get things right. To clear out crappy stocks and crappy thinking.

Pre crash normalcy is something we should not aspire to.

Seven Reasons the Market Has Already Bottomed

Things he didn't say:
(a) There is now a comprehensive system of regulation controlling Financial Markets. It isn't perfect but within reason we can have confidence that the regulators know what they are doing and have have the power and independence to do it. The next ponzi scheme will be found out, and found out quickly.
(b) The disastrous American health care system has been fixed. Now people can confidence that if they are need help they will get it - without bankruptcy. Businesses can get back to business with lower costs and more certainty.
(c) The illegal immigration based black economy has been brought inside the net. Now 25 million extra people are pulling their weight - well perhaps not all of them - but progress is progress.
(d) The Government's action in slicing all pork from the budget, eliminating all "incentives", and simplifying the tax code has resulted in significant tax cuts for everyone.
(e) The unexpected reallocation of capital from "incentive farming" to productive investment, following the budget and tax changes, has resulted a significant boost to the American economy.
(f) The sale of the governments holdings in Banks ( ie Citibank etc)
and Insurance companies (AIG) has spectacularly reduced the budget deficit.
(g) The recent statistics showing a 50% reduction in household debt shows that there is room for expansion.
(h) The end of wars in Iraq and Afghanistan, and the success of hard negotiation and diplomacy in preventing new wars has significantly reduced military expenditure.
(i) The recent sharp drop in unemployment, shows that the recovery is taking hold.

I do agree with the writer on one thing. The best is yet to come.

Why I Think Paul Krugman Is Wrong

"I think the private-sector players in financial markets right now are highly risk averse--hence assets are undervalued from the perspective of a society or a government that is less risk averse. "

The Government has different risks from an investor. The investor does not guarantee bank depositors, pay unemployment or pay the costs of keeping "our best and brightest" in gaol.

The risk to the Government of a Geithner failure is that things don't improve. If it suceeds a little bit - (that's my guess) it will probably have been worth doing.

The lowest risk solution is to solve the problem with a new and comprehensive regulation regime for banking and finance. Any plan that ignore the foundations will eventually be proved irrelevant.

10 Reasons Why We Still Haven't Hit Bottom

I don't know if we have hit bottom, but what surprises me is that
almost everyone appears to have forgotten the original problem.
There is no sign of a new regulation regime to control CDS, MBS, Banks or Insurance companies. A quick look on this site comes up bare, (Bear?).
The Government is pouring huge quantities of money into this damaged vessel.
Confidence is supposed to grow from a process that makes no logical sense. Yet in a mad way it seems to be working.
Everyone is looking for the bottom. No-one is looking for the hole.

This Recession Is a Reset to a New Normal

"hard to Love" says "The single greatest mistake in our history was giving the federal government the power of taxation"

Have I got a deal for you! - there are plenty of places to go where you don't have to pay taxes at all. Problem solved!

Take a gun. Good luck



On Mar 22 11:18 AM HardToLove wrote:

> Great article.
>
> Your piece, with the comments from others, prompts a question for
> me. It really wanders off topic, but I can't help myself. I see a
> fundamental weakening of the concept and application of capitalism
> as a result. I believe this leads to the shift you describe and demonstrate
> with the charts and statistics.
>
> Ignoring the "cyclical nature" of business, often attributed to the
> existence of the privately held Federal Reserve, can this new paradigm
> (whatever it ultimately becomes) be attributed to historical trends
> encompassing several fundamental shifts away from the foundations
> of our country?
>
> I think specifically of the concepts embedded in our constitution
> of "private property" - the foundation of all the capitalist tools
> that served us so well for so long.
>
> It seems to me that through the apathy of good folks, and the hubris
> of well-meaning but mis-guided social architects and/or politicians,
> we have slowly but inexorably eroded the concept of private property
> and leaned at an ever-accelerating pace towards a pure socialist
> society and government. There is really no ability to rely on the
> concept of "private property" any longer.
>
> For recent evidence of such a claim, look at the recent abuse of
> "eminent domain", serious recent attempts at abrogation of contract
> law by certain members of government (e.g. AIG bonuses), application
> of retroactive taxation to specified individuals rather than a "general"
> policy (AIG again - many thanks to the Senator that has asked for
> a more lengthy reasoned consideration of the implications of this),
> and so many other examples that others could cite from our brief
> (relatively) history as a nation.
>
> Not being a scholar about this or any other major subject, I still
> have the intellectual curiosity to posit the following.
>
> The single greatest mistake in our history was giving the federal
> government the power of taxation, ostensibly through representatives
> of the people - such no longer exist, in my opinion, as they are
> representatives of corporate bodies now.
>
> The most egregious manifestation of the results of this is the income
> tax. Why? Because it was the final step in allowing the unrestrained
> growth of the federal government, a complete contravention of the
> intentions of the founding fathers. It was also the deepest penetration
> by government into the direct confiscation of private property for
> "social purposes" - taking directly from the wages of individual
> labor before it could even be applied to second-order functions.
> Money directly taken from the citizens' labor, by coercion, is diverted
> to Washington and redistributed as Washington desires, including
> being coercively returned (after frictional losses) to the states
> - if they comply with federal mandates (think seat belts, helmet
> laws, national speed limits, etc.).
>
> No more egregious example occurs to me.
>
> In my opinion, the budget of the federal government should be cooperatively
> set *and* funded by the states themselves - the exact mechanism being
> open for discussion. Even the "fair tax" or national sales tax concepts
> fail to address the basic problem I see in the current processes.
>
>
> This "budget and fund" by states *only* achieves one important goal,
> keeping decision-making *and* concomitant results as close to "home"
> as possible. One can envision all sorts of good (and bad) results
> of this, a discussion of which certainly belongs in other fora. Of
> course this would seem to be "unworkable", but then so was our form
> of government considered prior to its successful application. "Politically
> impossible"? Yes, until it is accomplished.
>
> Well, I'm sure I've taken this further than most would desire.<br/>
>
> HardToLove

Stop the Presses Bernanke, Geithner Is Out of Control!

It is all too early to criticise Bernanke Geithner et al. We can't judge their performance until they have fixed the problem (or failed to fix it). And we won't know if it is fixed until the new regulation regime is in place and working. There is no sign of this yet.

The problem with judging them under the old regulations is that the problems all appeared under those regulations, and could do so again.

We can't tell if the recovery has started or if another shoe is about to drop.

What has changed?

The Bubble of Uncertainty Is About to Burst

You did the right thing.
You may even have done the right thing for the right reason, but that isn't important. It's the doing that matters.
I expect that when it's time to buy, you will buy.

On Mar 06 09:42 AM EdwardATeller wrote:

> The article is full of wishful thinking. Sounds like an Obama supporter
> trying to rationalize the mistake of voting for him. None of this
> market action is a surprise to me. I saw the crowds when I voted,
> correctly identified them as a sign of a large Democrat victory,
> came home and hit the SELL button on EVERY stock I own. Best move
> I ever made. SPY was about 100 at the time, and now we are down
> 32%.
>
> There was a stupid theory running around the markets that Democrats
> are good for stock prices. It had statistical 'support' in the numbers,
> and lots of people in the media wanted to believe it. I never did.
> Paying people to be failures and punishing people who succeed is
> stupid social and economic policy, and it is an exact description
> of mainstream Democrat thought. The 'numbers' backing up the theory
> had a very low p-value and ran counter to logic, but that didn't
> stop all the liberals in the press from flogging them. Luckily,
> I've been taught to think for myself.

How Will This Depression Differ from Previous Ones?

Your preffered solution is irrelevant as no Government will ever try it.
This is because as circumstances decline, people (voters) will turn to the Government for help. Government cannot ignore those calls, they have to to answer them. The answer is, presumably, "We will do nothing because that is in the best interests of everyone." This exposes them to the criticism of their opponents.

Their opponents choose, for some reason, not to advance a program based on masochistic ritual and extreme right wing theology. This makes them appear reasonable and sensible.

The Government's support starts dropping faster than the Dow and it decides that, "If people really want us to act- then we'll act. This is,after all, a democracy!"

So we will never get to see if your plan would have worked.
But never mind - you could always try it on rats.

Seeking the Fix That Will Finally Work

Getting bank loans going is not so hard but I don't see many ideas out there: Here's one:
Bank A creates an new account with Bank B. This is a special account called a "Federally Guaranteed Interbank Account". There are rules. The account can only be used to receive cash equivalent from Bank B, not Intra bank transfers or interest or charges. The Fed Guarantees the account. A certificate is issued with the loan stating the terms. The Fed gets a fee for this service.
The balance can only be paid back to Bank A.
This is cheaper for the Fed as they don't have to find the cash.
This is good for Bank B, it gets the cash to carry on.
It's good for Bank A too. Just by loaning the money they get a Federal Guarantee. But Bank A is still hanging out for the interest, so it needs to be careful who they lend to.
Surely someone can put up a better idea ...

Why The Paulson Plan Won’t Work

Paulson’s Trillion Dollar Bailout won’t work
Here’s why


1 There are mortgages some of which are failing. Above them is a huge stack of transactions called derivatives.
2 Above in this sense means later. The latest transactions are at the top of the pile.
3 Risks accumulate as the piles rise. Security is dispersed. Each new participant adds his own risk, to a greater or lesser degree. (Who would have predicted the AIG risk?) The added risk cannot be removed. The new buyer cannot obtain what the seller does not have.
4 We imagine that the reverse auction should take out the weakest transactions first. These are probably the transactions near the top of the pile that have accumulated the greatest risk.
5 But that is not what will happen. It is not the transaction that matters but the player who holds it. The auction will be “won” by the weakest player. The most desperate player. The player that can not longer continue to play the game. The same transaction is valued differently. (Metaphor: One home owner sees their negative equity and quits, another with better cash flow, hangs on.)
6 Paulson does not plan to fix the problem securities, he plans to liquidate them. This is the equivalent of a fire sale. This will not make the seller stronger just (temporarily) more liquid. In many cases not liquid enough. The seller can only pass on the cash he has to those above him in the pile.
7 The people above the auction “winner” must now accept the valuation of that “winner”. The risk/loss is passed upwards until someone with deep enough pockets is found to stop the chain. The potential risk is then exchanged for certain loss.
8 There is no way for this to flow downwards.
9 Each auction is likely to increase the need (increase the desperation) of those above them in the pile. One auction creates the need to for another auction above it. The underlying mortgage (the original problem) remains unfixed.
10 This process is built on weakness. It destroys the pile without fixing the problem. It does this by accepting the valuation of the most desperate player.
11 Forcing the weakest player’s valuation on everyone above him/her guarantees the worst possible outcome.