Makes Sense's Comments

The Real Unemployment Numbers

Sat, 08 Nov 2008 15:00:48 -0500

I'm weeping huge crocodile tears about those who have given up looking for work. And for those that are sitting around waiting for an offer that is not an insult to their lofty skill sets and minimum salary requirements. I agonize over those poor felons sitting in jail not being granted the basic human dignity of being included among the unemployed. I burn with outrage over all those military personnel -- and other government employees -- being considered employed, skewing the percentages. Come to think of it, they are just like the felons: they consume but they can hardly be said to produce what they consume, unlike the working stiffs of the private economy. Come to think of it some more, I think I'll start worrying about those who _are_ employed in the private economy: they are shouldering the burden of production for that huge leisure class Trader Mark wants included in the unemployment figures.

Hey, I've got an idea! If you consider yourself un- or under-employed, look around for unmet needs and figure out a way to meet them. Presto -- you're employed.

I would like to remind everyone of the iron law of incentives: If you want more of something (e.g. unemployment), subsidize it. If you want less of something (e.g. employment), tax it. Doesn't that suggest something to you? That's right, slash or repeal all taxes on employment: income tax, FICA, corporate income tax, etc. Of course then you will have to cut government consumption by transferring many government 'workers' to the private economy but just think what that means: all those consumers now become producers. I see a huge surge in employment on the horizon, don't you?

Deflation Changes the Rules

Thu, 09 Oct 2008 20:07:45 -0400

Hmm, the question is, deflation or inflation in the next few years?

I remember the 1970's when the Fed was trying to unwind the unpaid debt of the Vietnam War plus Great Society by inflating. Meanwhile, the economy was stagnating with low growth and high unemployment. If you think that whoever is elected president in November will cut spending, thereby easing the pressure to create cash for the Treasury to borrow, then you may believe we can avoid the inflation scenario.

Alternatively, the world may be so investment shy that it will pile balance-of-trade dollars into the Treasury, financing more debt at low rates. The new administration and Congress will own the economy, and should they want to spend money, what they want to buy will be produced, be it howitzers or health care, which is likely to drive up prices in the favored sectors due to the increase in demand. Meanwhile the stagnation, the drop in demand, will be felt in the consumer goods sector -- including houses -- unless they start throwing money from helicopters, which brings us back to the inflation scenario again. As I see it, the only way to avoid the inflation scenario is to somehow generate a rapid increase in productivity, but when have we seen this except where the conditions are ripe for entrepreneurial risk-taking based ultimately on supplying real consumer demand? In other words, every scenario leads to inflation while at the same time every scenario leads to a recession in the non-government sector of the economy, which is the only productive part.

So the answer is: Stagflation.

As far as I can tell, the only way out of stagflation is to bite the bullet, squeeze the money, allow the recession, and clean out the bad debt.

But we don't believe in those politically dangerous recessions any more, do we? We believe that the government should be able to fix anything. They have the guns, don't they? Just have them _force_ people to produce. And maybe throw another trillon dollars at the bankers -- that sounds productive. Yeah, that's the ticket! /sarcasm off...

The U.S. Banking System is Effectively Insolvent

Mon, 29 Sep 2008 16:26:58 -0400

I second the analysis of Socialism Cannot Compete. Now, how do we persuade Congress to get the hell out of the way of (those who ought to be) free Americans?

No Bailout? Heaven Help Us

Mon, 29 Sep 2008 01:32:59 -0400

"At this time more than ever, we need to restore confidence in our financial institutions."

Yeah, sure. And when your champion athlete looses his legs you need to prop him up on stilts and give him a lifetime achievement award.

Do I hear whistling in the dark? The 'do nothing' option was ideal. Let the jerks fail -- sorry if you bet on them, but that's life -- and, believe it or not, there will be healthy banks that survive and will pick up the pieces. But I guess we prefer to keep the geniuses who got us into this mess in charge, fiat legs and all.

Real Capitalists Nationalize

Sun, 28 Sep 2008 16:14:04 -0400

Real capitalists take the consequences of their own investment decisions -- good or bad. Any bailout is a collectivist power grab by the worst among us for the benefit of the worst among us. This used to be a semi-free country. Kiss your freedom goodbye. Most will not even know what they lost, of course. They will be told to blame their malaise and hopelessness on the greed of the capitalist class.

Bear Market? Numbers Don't Add Up

Fri, 26 Sep 2008 16:10:09 -0400

ringoes_man: "The solution to this crisis is a 5-15% tariff on all imports."

That's what they said in 1930! Ever hear of Smoot-Hawley?

en.wikipedia.org/wiki/...

It was a contributing cause of the Great Depression.

Solution to the Global Petroleum Crisis

Thu, 26 Jun 2008 11:07:50 -0400

Don't you just love all the wanabe commissars of energy who find the answers to the discomfort of every market change emerging from the business end of a gun? Don't like a particular market result? Use force and make people's behavior conform to your personal vision of the good!

Some ideas are not merely economically false; they are morally contemptible.

The New Pillars of Inflation

Sun, 16 Mar 2008 13:43:07 -0400

Clue me in wrote: "How do I ride out this storm? I can see the darkening clouds - where is that ray of sunshine?"

Three rays of sunshine: "The first is agriculture, the second is gold, and the third is base metals."

The 'Plunge Protection Team' Working Overtime: A Play-By-Play

Mon, 13 Aug 2007 17:53:57 -0400

Thanks to crataylo... for the link to the Robert Bell editorial. While it was obviously slanted politically (what are the odds that the next Democratic president will revoke Executive Order 12631 and decommission the PPT?), the information led me down some interesting paths. One thing that bothers me: I could find nothing online to corroborate Bell's contention that the Contract Administration Services (CAS) of the Defense Contract Management Agency could do anything with its power to permit price premiums on DOD contracts to cover pension fund losses that would operate in the short term to prop up securities markets.

In fact few of Bell's suggested intervention paths seem suited to the short term, although it is barely conceivable that the PPT could organize a conspiracy to repatriate foreign profits under the "American Jobs Creation Act" and trigger one or more takeover bids on their signal.

On the other hand, the Fed's Permanent Open Market Operations:

www.newyorkfed.org/mar... Note link on page: "Show last 10 Operations"

Can apparently have a profound short-term effect. See Michael Bolser's "Repurchase Agreements and The Dow" (2003):

web.archive.org/web/20...

Bolser writes:

"There were four closely spaced Permanent Open Market Operations just prior to the 1,000-point mid-March [2003 -R] DOW launch. In addition, there was another POMO on March 13th of $710 Million coupled with a net TOMO injection of $3.25 Billion which resulted in a 303 point DOW gain on that day."

Add to that the Fed's Temporary Open Market Operations:

www.newyorkfed.org/mar...

and you have something a trader ought to watch very closely. Heres what the Fed says on their POMA page: "Monetary policy can be implemented through outright purchases or sales of securities, which permanently changes the size of the Federal Reserve's System Open Market Account (SOMA) portfolio."

I suppose you can set some financial news services to automatically tell you when the Fed acts on
the POMA or you may as well check it daily while you check the TOMA page, since that does show new operations daily. Now all I need is help charting the history data of these operations and see if they are as good predictors of market moves as Bolser suggests they were in 2003.

On the other hand, if it is truly a conspiracy of the PPT and their Wall Street friends, why would they publish data that tips their hand? That's not entirely a rhetorical question, but as I indicated, I haven't back tested the hypothesis that the Fed data is predictive.

The 'Plunge Protection Team' Working Overtime: A Play-By-Play

Sun, 12 Aug 2007 19:31:25 -0400
I'm curious, just what legislation is it that authorizes the government to manipulate the "free" market in securities?