rosey99

A Game of Confidence

Nice post, thoughtful, thorough, and well written. Interesting, insightful, and diverse comments too. The fact that confidence rests on expectations, and that expectations in turn are a result of perception, reminds me of the great line from the (1987) film Wall Street, as the character Gordon Gecko remarks:

". . .And the perception has become real. . ."

In the film, he is (if memory serves) referring to a painting that has appreciated in value. A lot of us are realigning our expectations based on our evolving perceptions - mostly perceptions of increasing personal risks - as the data presented above suggests. I am in agreement with a number of the comments, which is to say that the lack of confidence evident in the data is based on perceptions of a genuinely dangerous situation. Add to this the lack of consensus at the top among both politicians and economists alike, and it is a wonder to me that confidence has not sunk lower. I think Niall Ferguson has aptly described this as "The Great Repression." Basically we are deeply in denial, and have been for some time:

www.niallferguson.com/...

I am also reminded of FDR's absolutely superb 1933 inaugural speech, delivered after three years of deepening economic anxiety. The following excerpt came to mind as I was reading the post, and unless I am mistaken FDR is here referring to not only the heads of banks and brokerage houses, but to central bankers and the outgoing administration:

"True, they have tried. But their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit, they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They only know the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish."

For me, the long and the short of it is that we have yet to embrace any notion of just how serious the real political and economic problems are, and that confidence will not return until we banish the idea that this is all in our heads - that it is a mere crisis of confidence. Interestingly, people gained confidence more or less immediately following the inauguration of FDR in 1933 even as conditions continued to worsen. It suggests to me that until we begin a frank evaluation of just how bad things are, we will not change course, and we will not see a return of confidence as it is the little brother to trust. Given the stranglehold that the same FIRE (Finance, Insurance, and Real Estate) establishment that helped to create this mess has on public policy, it seems unlikely that a candid appraisal of our situation, and a consensus on what to do will emerge anytime soon. Further, it seems to me that such an appraisal is prerequisite for the return of any real confidence.

If history is any guide - and I'm not sure it really is - we may have a ways to go before we even get started figuring out what we are dealing with. It seems reasonable to expect further declines in confidence, along with deteriorating perceptions of economic prospects. Right up until the "perception becomes real" and a critical mass of people agree on what is actually going on.

Thanks again for the post. It got me thinking.

For those interested, an audio clip and the full text of the relatively short speech is here:

www.americanrhetoric.c...

The Coming Depression: See It Clearly Through Historical Eyes

True enough. But who among us did not know that 30 years straight of deficit spending, and more recently 8 years of tax cuts along with two wars would not add up to something nasty?

I don't see how major tax increases can be avoided, as painful as they will be. It seems purely delusional to view the last 30 years or so as anything but a period of major, deferred, tax increases. Mr. Lou (above) is right, at least one generation has failed miserably to act with anything resembling restraint or responsibility.

It is also worth remembering that the highest effective marginal tax rates immediately following WW2 were well north of 80%. Ouch.

The relatively modern (post 1980) "discoveries" of The Laffer Curve and Hauser's Law aside, it does seem that taxes must go up, probably by a lot. It will suck, and it will hurt, and it will slow the economy. Probably just a coincidence that Laffer's/Hauser's theories gained acceptance along with trickle down as the GI generation departed to parts unknown, and politics became increasingly driven by the Boom generation. Someone was always going to have to pay. . .Now we know who that someone will be. I just wonder how long it will take, and if it will have to wait for the Boom's political dominance to subside. I guess time will tell.


On Feb 23 08:38 AM know nothing wrote:

> All the Obama plan is doing, is forcing a equallibrium distrubution
> of wealh. By welfare programs for the poor, bailouts of the incompetent,
> and taxing the people who were able to manage their investments.
> Raising taxes on buisnesses and individuals, to pay off the deficit,
> will be the final nail in the coffin. Almost everyone is loosing
> wealth in this enviroment, now to raise taxes on the few winners
> that are left, will cripple buisness development,and job development.
>
>

The Great Awakening: Boomers, Your Crisis Has Arrived (Part 3 of 3)

Wow! Not just thought provoking, but this post has surely brought out the most diverse comments I have seen on SA. More even than a "gold will save us from damnation" type post. Clearly the strange ideas are starting to take flight. Ron Paul as a thinker. . .Incredible.

Having read a couple of Strauss' & Howe's (S&H) books, I am intrigued by this post and the responses it has provoked. While I appreciate the broad accuracy of S&H it reminds me a bit too much of astrology in some way, maybe it's all of the made-up words, and concocted spirituality. Just a matter of taste I guess.

My real problem with the work of S&H stems from the complete rejection of any responsibility, it implies that the forces at work are inevitable, and completely lets those responsible off the hook. I also found their methodology a bit difficult to define, which could simply be my bad. Where we are today and where we go tomorrow are the result of our own choices. Not some preordained ritual dance around the campfire. While there is no doubt in my mind that boomers are not a monolithic group, they do seem to relish their own internal ideological split, a split along the lines of a swiftboat campaign, the Moral Majority, celebrations of Woodstock and the like. As many of the comments to this post suggest, and as the last 30 years of American political culture reinforce, the Woodstock crowd did not win this ideological contest. Clearly all boomers fall neither into the Oliver Stone or Dick Cheney classifications, and yet we never hear from these people in the middle, at least not with any degree of volume or clarity.

One characteristic that most boomers do seem to share is what I would call their gullibility, and what S&H might term "a fondness for belief." It may seem self-serving and convenient to non-boomer observers, but I am forced to conclude that it is genuine. It is in my opinion how an entire generation has been duped continuously by Ronald Reagan, Bill Clinton, George W. Bush, and now quite possibly Barak Obama. I've been duped too, once or twice, but there seems to be a certain eagerness with which boomers approach ideological purity that is frightening to me. From extreme to extreme, as a people we too often reject a pragmatic middle course, and the boomers seem the likely culprits, or at least the catalytic drivers in these contests. It seems to me we need to let go of the past and start talking like reasonable adults. A first step might be to stop indulging in the notion that the future is predestined. Another temptation we should avoid is clinging to our past, and now invalid, expectations for the future. As things continue to deteriorate we should at least admit that those who will be most negatively impacted are the very young, and possibly even the yet to be born. As they do not yet have a voice, it would seem that it is up to us to do something.

The time for reading the meanderings of S&H was 20 years ago, and then to act toward the prevention of their "predictions." Since we (and by "we" I mean you boomers) have failed to do so, does that really mean boomers should continue to hurl their ideological feces at one another? Granted, it can be entertaining at times, but right now it seems like a downright dangerous indulgence.

As a first wave X'er I have to admit I am very disappointed in my next elders, but then I have made my fair share of mistakes too. Surely there is a Boomer Silent Majority out there that adheres neither to Rushdoony or Nader? I hope so, I really do. Until we get our own heads on straight, all of this amounts to yet more fiddling while Rome burns.

Generationaliy speaking, I don't know who is most to blame. I know that if we adults, regardless of the time we were born, persist in these old habits, it will be OUR fault. The country is pretty diverse, this "One True Religion" approach to social, political, and economic issues has got to go. Yesterday.

So too must our infatuation with pseudo-science like the ideas of S&H. As for whether there is a war in our future, who can say with any degree of certainty? If war does come, will it be the result of some cabal or conspiracy?

It is looking like we still have a lot to do in the way of fostering a reasonable discussion of these important issues. I'm worried that the clock is ticking, and we have yet to moderate our dialogue, we have yet to ignore the extremists at both ends of the spectrum. Unity still seems like a far off place, obscured by memories of Vietnam and Woodstock. I hope I am wrong.

The True Meaning of Protectionism

Agreed. If you are not promoting endless tax cuts for the wealthiest then you are a socialist. If you are against completely unrestricted trade, you are protectionist. These labels are becoming most tiresome, and more importantly they are becoming dangerous ideological obstacles to any reasoned discussion. How do we start talking sense in this country? I'm really at a loss to find any way forward because we cannot even speak to one another rationally yet.


On Feb 08 09:28 PM neutrino23 wrote:

> America should have a well thought out industrial policy that is
> more sophisticated than "every man for himself".
>
> The Asian countries cited above as having grown in strength all benefited
> from relatively closed borders. Either the tariffs are high (on some
> goods) or there are other obstacles to imports.
>
> Free Trade is actually a euphemism for letting large companies seek
> out the lowest wages they can find on the planet. I'm not in favor
> of simply closing the borders but we should have policies that are
> reciprocal with our trading "partners" and that encourage sustaining
> manufacturing jobs at home.

Stimulus Watch: How the Devil Are They Going to Finance All of It?

It does seem as if taxes have been going more or less down for the last thirty years or so, and that public and private debt have been going more or less up for about the same period. The so called "Laffer Curve" has its limitations. It seems pretty obvious that taxes will now go up in a big way. If taxes do increase it will likely harm the pace of recovery, but I for one cannot see any other way to reassure potential buyers of US Treasuries, or to pay for that most wondrous generation - the boomers. The myth that lower tax rates lead to greater revenue, and that the Laffer Curve is equally applicable to all situations is obviously false. If Reagan ran for office today he would probably lose. There is a growing awareness these days that the increasingly extreme ideological conservatism of the last 30 years is a failure. Death by hubris I suppose. And while I hope the pendulum does not swing too far and too fast the other way, it will be refreshing just to talk about something other than tax cuts for a change.

Lobbying Datapoint of the Day

Looks to me like these folks are better investors than we ever realized. So far they have already collected more than $350 billion. . .A nice return on their paltry $114 million.

Currency Trading Fundamental Forecast for February

Nice. A very concise set of ideas and tools. Thanks for sharing this bit of analysis.

The Next American Revolution: Main Street vs. Wall Street

I have to admit I am somewhat puzzled. I tend to broadly agree with gnc0519, above. I suppose it is most often the case that we prefer to lay the blame for what goes wrong on others, but I am forced to wonder why we would want to continue to:

A. Blame those in political or economic power
B. Rely on those same people to help alleviate the situation

And here's why:

It seems obvious to me that our current ideological framework really began to take shape with the election of Ronald Reagan to the presidency back in 1980. Since that time our national debt has grown dangerously large, even while income taxes have steadily fallen. It seems fairly obvious that there has been a more or less undeclared war on our own children at work here for many years. It also doesn't seem to matter which party is in power, as they may bicker about social issues, they tend to agree on things like taxes, immigration, trade, and of course the aforementioned accumulation of debt. Each party pays lip service various solutions that the people seem to be interested in, but the actual implementation of any proposed solution is typically ineffective and full of loopholes, or simply goes unenforced.

All of this when all of us also know that education, and medical care costs have risen far faster than average incomes. For education we implement the joke of "no child left behind," and the giveaway to banks that is the student loan program. For healthcare we implement a prescription drug program for medicare that is yet another giveaway. And we mildly proclaim that the system is corrupt, and that our wills as a people are thwarted by some inevitable force of nature, i.e., corruption. We rationalize it away.

Is this really because we are powerless? Have other policy options and approaches been off-limits due to some shadow conspiracy that limits the scope of political and economic discourse? Why have we pursued policies and politicians who on the face of it wish to return the USA to the 1880s? It's not like it happened overnight.

I really don't know what to think. But at the moment I am leaning toward a moral failure of some sort. And not on the part of our politicians either. I'm not talking religion here either - though I suppose that may play a role - because there has been a simultaneous rebirth of religious conviction.

It looks to me to be "our" fault. I can't help but believe that if we as Americans really wanted something better for our children and ourselves, we would have seen through the flimsy, and archaic rationalizations that have been offered for almost three decades.

I want to know how and why this happened. It seems as if we have failed as a society to live up to our legacy, the example of those who, for example, served in WWII. Those who built the future that we have demolished so effectively. Those who lived at a time before the word "sacrifice" was purged from the American political lexicon. In short. . ."We have met the enemy, and they are us."

To make matters worse, it does not appear that any restructuring of the ideological framework in which we have all lived for 30 years or so is in the making. The same rhetorical devices are still in use, and the same "all gain, no pain" mentality appears to be intact. The coke vs. pepsi style of our American politics is still alive and well, or so it seems to me. I really want to know. . .How did we arrive at this place? How do we get together enough as a people to move on from it? I would really like to know, because so far it looks like more of the same for the foreseeable future. And if violence is the proposed solution, have we already lost the battle? Can't we work out something besides civil war? This kind of talk seems to me to be as irresponsible as the 30 years of failed philosophy, and related rationalizations that have contributed so much to our present condition. Just a thought.

U.S. Mint Actions Discourage Gold Ownership

Impressive. Smarty_Pants demonstrates that it is still possible to discuss gold in the light of reasonable explanations, not the most commonly used "magic metal" or "conspiracy" based explanations. Boy. . .It's like it actually might be another commodity instead of the fetish many seem to believe it is.

Bravo!

On Jan 23 10:04 AM Smarty_Pants wrote:

> Maybe the reason they stopped concerning themselves with producing . . .
> 2008 = 860,500 oz
> 2007= 198,500 oz
> 2006 = 261,000 oz
> 2005 = 449,000 oz
> 2004 = 536,000 oz
> 2003 = 484,500 oz
> 2002 = 315,000 oz
> 2001 = 325,000 oz
> 2000 = 164,500 oz
> 1999 = 2,055,500 oz
> 1998 = 1,839,500 oz
> 1997 = 771,250 oz
> 1996 = 275,000 oz

Geithner on Yuan: Misstep or Warning Shot?

Agreed. In the context of the current economic situation, and the recent political shift in the US, "manipulation" is indeed a carefully chosen word. A quick look at the recent (and often contradictory) posturing from North Korea is also interesting in this context:
www.google.com/hostedn...
www.upi.com/Top_News/2.../

I differ with many on the subject of China's ability to significantly affect demand for US Treasuries, and demand for the US dollar in that I believe the pain would be relatively short lived. Too many other wealthy participants (i.e., Japan and the Saudis) would be more than happy to help mitigate the longer term effects as they depend on the US not just as a market for exports but for their defense as well. I could be wrong, and we really won't know unless it happens, but it seems to me that the economic threats of China's withdrawal as a US creditor are likely to be hollow, at least over the longer term (say, two years or so). In any event, it seems inevitable that China will not be in a position to finance the US at recent levels for much longer anyway.
The last 10 years or so have been an anomaly in terms of US/China relations, based more on short term expediency than any long term agreement as to a vision for the economic, political, and military future of Asia, or the role the US thinks is appropriate for China globally. At their best US/China relations were never as good as the US relationships with Japan or Taiwan have been at their worst in the post-war period. We're probably about to return to a more normative arrangement, which is to say a more hostile one, and attempt to decouple our respective economies. I for one believe that internal political changes are lurking in the near future for China. I wish I knew what form they might take. I also agree that the possibility of military confrontation is rising somewhat, and that the potential for mistakes and misunderstandings leading to such a confrontation is apparent. I am looking for the rhetoric to heat up, and for the perception that "constructive engagement" with China (remember the 90s?) as a means of promoting human rights and democratic reform to steadily lose traction in US public opinion, and therefore in US politics. It has, after all, effectively been a failure. Though I doubt that it was ever a real US goal in the first place, because if it had worked it would have been the first time in history that a geopolitical rivalry were resolved through economic ties and trade.
War is typically the way in which such disputes are resolved, though I by no means think it is at all likely, it does seem that the likelihood is rising. For practical reasons that have not changed since the 1950's the Korean peninsula remains a more reliable flash point than say, Taiwan.

I hope it does not go that way. . .It just seems that in volatile times like these, the misjudgments of those in power on both sides have a tendency to devolve into a spiral of events that can get out of control. Especially when at least one of the main players, North Korea, is not quite under the total control of their Chinese allies.

In short, I don't see that China really has a viable or effective economic card to play in the current situation, which leaves only the military card. It seems to me that this increases the risk of a mistake by either or both participants leading to a confrontation. Not exactly inevitable, but certainly worth watching if the current economic trends do not reverse, and the malaise instead deepens.

These are certainly strange and interesting days. I'll keep my fingers crossed that things do not fall apart so completely, but I am appalled at the rapid pace with which the global economic miracle continues to unravel. Rapid economic degeneration is usually not a recipe for political stability, especially where the prevailing political apparatus is inflexible or has difficulty adapting.

On Jan 23 10:18 AM bearfund wrote:

> Of course it's a warning shot. At that level nothing is accidental;
> it may be a mistake, but it's not an accident. The charge of "manipulation"
> is ludicrous; OF COURSE the yuan's value is manipulated: it's well-known
> to be loosely pegged to the US dollar! That's not news to anyone,
> so this word choice is clearly deliberate and intended to provoke.
> A much softer way of saying the same thing is "inflexible" or even
> just "undervalued".
>
> They are looking for a fight over trade with their biggest creditor.
> It would not shock me to see the PBOC sit out a few Treasury auctions.
> Word will get back to Mr. Geithner pretty quickly as to why he had
> to pay 30bp more. With any luck he'll press the issue; the relationship
> between the US and China isn't healthy and it wouldn't hurt the US
> to be forced to borrow and spend less. A greater worry is that this
> sort of thing, under these conditions (don't forget that China has
> over 1 billion citizens, 10% more men than women, and rising unemployment),
> can easily lead to war. It's a game of chicken on the world's biggest
> stage and both sides might eventually decide they're simply not going
> to blink at all.

Chinese Youth Will Propel Economic and Political Changes

The author makes his living advising companies on how to profit from the Chinese economy. It is probably unreasonable to expect him to present an assessment that is not somehow rooted in optimism for the situation in China.

I for one find it to be very unlikely that China will be able, or even willing, to consume it's way out of this growing mess. Much like the rest of us, they will soon be unable to do so, as the recent global boom was driven entirely by cheap and easy credit. Stealing from the future was never a viable way to generate economic growth in perpetuity. . .As we are learning to our detriment now.

In short, we are all renewing our acquaintance with the notion of "sound credit," and no one in their right minds is lending at the moment. I'm skeptical that China (and Japan) will be able to avoid a pretty crushing, 1930's style depression, complete with the unrest that these events typically bring. I hope I am wrong, but only time will tell. Some people are slowly starting to offer an alternative view of what may be in store:

scotlandonsunday.scots...