VitalAccurateThinking: March 2009

Witty Trade-Off

Megan is wittier and smarter than I:

"Life is full of tradeoffs that can not be vanquished with even extremely biting sarcasm."

She is also taller.

Social Security Cash Negative Sooner Than I Thought

This is a concerning, fiscal scenario that could hasten the exodus from this country:

"The federal budget deficit is set to quadruple in 2009 to $1.75 trillion and President Barack Obama’s budget will add another $4.9 trillion in public debt from the beginning of 2010 through 2016. But our fiscal future is in even worse shape than that. As PBS’s Nightly Business Report noted last night, the recession is rapidly making our entitlement crisis worse:"

The Rules Are Not For Them

Instapundit forgets that the rules or not for them:

"Remember, when a private company wants to cover up billions in losses and the responsibility for them, that’s a major scandal and proof of the evils of capitalism. But when a government regulator does the same thing, that’s just how people are, these things happen, whaddyagonnado?"

The More Cynical Explanation is Correct

Instapundit wonders if this is incompetence or purpose:

"If you were a closet Randian and wanted to discredit big government for generations by running it into the ground, in what ways would you act differently from the Obama Administration so far?

Another wishes to apply Occam's Razor. Frankly, I prefer to apply Uthman's Razor:

"Ed Uthman: Of two equally plausible explanations, the more cynical one is correct."

.

Road to Serfdom

The new Czech Prime Minister says the bailout and spending are "a way to hell:

"Czech Prime Minister Mirek Topolanek, whose country currently holds the EU presidency, told the European Parliament that President Barack Obama's massive stimulus package and banking bailout 'will undermine the stability of the global financial market.'"

I disagree. It is a road to serfdom.

Understatement

Gee, you think this is an understatement?

"'The objective is to create a windfall of cash. However if everybody goes out and spends the money it could be very inflationary.'"

The last thing we need now is more cash sloshing around in the system.

Friedman, The Fed and Inflation

I ponder the latest Fed and Treasury plans announced last week and this with the following thought in mind:

"'inflation is always and everywhere a monetary phenomenon.'"

Sooner or later, those chickens will come home to roost.

Covered, not covered?

As I witnessed today, insurance coverage (that is, disconnection between the consumer and who pays) drastically alters economic decisions. Someone at the eye doctors office changed her mind on an eye glass option when thinking it was covered by insurance. The price was never discussed. Who knows if it was a good addition to have or not?

Just think how it will be when the government decides what we get and don't get. I cannot wait.

Inflation=tool of taxation

If you are 50 or under, you will experience this wisdom:

"Here, for example, is the opening of an article that Alchian wrote in 1976 ('Problems of Rising Prices'):
I believe inflation is inevitable as a long-run trend, with transient, decade-long interruptions of stable or falling prices. That forecast reflects my view of government. Inflation is a tax on money. Like any tax, it will be used. The more subtle, the less detected, and the less avoidable the tax, the better it is for those with predominant political power and the more surely it will be used."

Your Government-Sponsored Health System

This is just a taste of what is in store for us:

"A New York City doctor whose low-cost health care plan angered state officials has agreed to increase his fees."

Taleb on Debt

I love this interview with Taleb and a few nuggets of wisdom:

"Complex systems do not like debt. So it will proceed to destroy tens of trillions in debt until society rebuilds itself in an ultraconservative manner. We are in for a worse ride than people think.

[C]omplex systems cascade much faster than that. However, the destruction will be deeper than people anticipate. It will bring down a lot of people.
My rosy scenario is that a better economic environment will develop, a low-debt, robust growth world, in which whatever is fragile will be allowed to break early and not late.

My nightmare scenario is that the government saves Citibank once again, as well as the other banks, and business resumes as usual. Then, the next time the system breaks, it breaks much, much bigger."

In other words, short-term stability for long-term instability.

There the Dollar Goes

And now it starts to decline:

"The dollar dropped the most against the currencies of six major U.S. trading partners since the Plaza Accord almost a quarter-century ago as the Federal Reserve’s plan to purchase Treasuries spurred speculation that it’s debasing the greenback."

Really? Debasing the dollar? Monetizing the debt? You don't say!

I Wish I Wrote That

Megan McArdle is smart, funny and tall "Helicopter Ben fires up the engine":

"the Fed is going to buy up about $1 trillion worth of securities in order to flood the market with new money. Do any other old codgers out there in my audience remember back when $1 trillion was a noteworthy figure, rather than the minimum price needed to get people to take your policy seriously?

Nice. Or, a trillion here, a trillion there. Pretty soon, you are talking about real money.

China to Reduce Exposure?

As they say, this is either a crisis or an opportunity:

There is mounting evidence that China's central bank is undertaking the process of divesting itself of longer-dated US Treasuries in favor of shorter-dated ones.

Sounds reaonsable to me. But how is this going to play out:

"That uncomfortably high level of exposure to the dollar is what has been causing concern to flare in China most recently. A much more desirable figure, from China's standpoint, of its total exposure to the dollar would be 50% or less of its total reserves. A reserve composition of 50% dollars to 50% everything else is much safer because an excessive decline in the value of the dollar would tend to be offset by corresponding increases against the dollar in the value of the non-dollar assets comprising the rest of the reserves.

In order to get to that more desirable composition fairly quickly over the next several months, China would have to somehow divest itself of as much as $450 billion of its existing dollar-denominated assets, not purchase a significant amount of new dollar-denominated assets, and accomplish all this without triggering a global dollar panic.

But, the final paragraphs echo my prognostication.

If the Treasuries bubble persists for much longer, and especially if it continues to mount, the massive and dangerous distortions in the global financial system and the Treasuries-induced strangulation of its credit markets will only become more severe, likely leading to a meltdown somewhere in the emerging markets, one of whose effects will almost certainly spread to engulf the severely weakened Western European and US financial sectors and plunge particularly the US economy into a deep depression, with potent negative effects upon the dollar.

Such an eventuality will tend to force global investors to evaluate the safe-haven appeal of the dollar based much more on the fundamentals of the US economy, and that will portend a stampede out of the dollar and a potentially chaotic bursting of the massive Treasuries bubble. Hence, even if the US finds buyers for its huge sums of new sovereign debt now beginning to flood the markets, the picture does not look good for the dollar beyond the short term.

Obviously, if the US reaches the point where it fails to find sufficient buyers for its new flood of Treasuries, that will also become a perilous situation for the dollar and for the huge Treasuries bubble, which will almost certainly burst as global investors seek better stores of wealth in hard assets, following the lead of China's central bank.

Either way, the US is engaged in the implementation of extremely risky and potent inflationary, dollar-debasing policies, making a loss of global confidence in the dollar in the short to medium term a virtual certainty. Even if the massive spending does restore economic growth, the US economy is likely to remain very weak for some time. That will make it extremely difficult for the US Federal Reserve to tighten monetary policy to fight off the inevitable and potent inflation that will result from today's shortsighted policies.

When the Fed attempts to tighten, the US economy will likely be plunged into a second-round recession or depression, with obviously awful effects upon the dollar. But if the Fed fails to tighten sufficiently and quickly, runaway inflation will ravage the currency anyway.

Prudent, forward-looking Chinese officials have clearly assessed the entire situation as one demanding careful but swift action to ensure that its huge reserves are not imperiled by what has obviously become an untenable global rush into an unstable and perilous dollar bubble.

Time to short the dollar and the treasuries?

Truth, Incentives Matter

Who knows when or how Atlas will shrug:

"What is the breaking point? Where will the resistance form? Heavy questions, but unavoidable in the current political climate. The productive members of society can only be pushed so far, some say."

Not Obvious To Me

Powerline thinks this is obvious:

Of course, what the Chinese are worried about is not that the United States government will default on its bonds. That obviously won't happen.

Why not? Who is going to pay? Just the rich? Talented immigrants? Obvious? Not.

It's Always "the other guy"

It's always the other guy who is supposed to pay taxes while it is the elite who expect to be exempt:

"What's the difference except that the Hollywood elite think that taxes are for thee and not for me?"

No difference.

Let's call them Baby Busters

They are not Boomers, just a generation that will bust us all. From the comment section at Tigerhawk:

"Interesting how taxes go up when the Boomers needed them...as they went down when the Boomers were in prime earning years..."

Interesting indeed.

No Representation Without Taxation

Amity Shlaes has a good point:

"The mood of the skeptics today is just the reverse of the mood at the Boston Tea Party. Then, we said no taxation without representation. Today, try flipping that line: No representation without taxation."

Society fractures when the majority votes to have no taxes on themselves and all the taxes on "the other". There is literally, "no skin in the game" so why not have bigger and bigger government paid for by "someone else"?

I Guess the 1st Amendment Does Not Count Anymore

Even in Texas, the F-word can get you arrested:

"For the second time within the past eight months, a person using the word during private conversations in public places — once at a Wal-Mart in La Marque and then at a Mexican restaurant in Galveston — have been taken into custody and cited for disorderly conduct."

I don't prefer vulgar language, but that does not mean it should be criminalized.

China Should be Scared

...not concerned:

China's premier expressed concern Friday about its massive holdings of Treasuries and other U.S. debt, appealing to Washington to safeguard their value..

Within five years, the US will either default on its bonds or devalue the currency via inflation. Probably both.

It is mathematically impossible for the top 5% of taxpayers to pay back the $7 trillion in debt. Thus, defaulting and inflation are the only options. Then, all Americans savers holding assets in dollars and Chinese who own US debt will be hurt.

Buy and Hold Repudiated

For all of you still holding onto the buy and hold mentality, this chart should destroy it (H/T Instapundit)

Basically, bonds outperformed stocks over the last 30 years. There is no premium to investing in stocks.

This chart and an article on the looming public pension disaster can be found here.
:

It would seem this way

Tigerhawk has a question:

"However, with inflation, a whole realm of taxes on savings becomes viable.

You have to wonder whether that is part of the plan."

Of course. That and inflation encourages even higher levels of debt.

The Government Cannot Create Value

Coyote gets it right. The government cannot create value, only (mis)allocate resources:

"By the way, this really gives the lie to the whole government stimulus effort. They may be moving large amounts of money around, but they can’t create value, and in the absence of real value creation all they are doing is inflating the currency."

Wanna help? End The Drug War

American officials want to help with even more military aid:

"President Obama and Joint Chiefs of Staff chairman Adm. Michael Mullen on Saturday discussed how the U.S. military can assist Mexico in addressing growing violence from drug cartels, according to a military official."

How about decriminalizing chemical substances? That might make a difference.

Related:

Houston has long been a major staging ground for importing illegal drugs from Mexico and shipping them to the rest of the United States, but a recent Department of Justice report notes it is one of 230 cities where cartels maintain distribution networks and supply lines.

I'd Dodge Too

If I made over $250,000, I would dodge too:

Lawyers, dentists and entrepreneurs are among some high-earning professionals brainstorming ways to decrease their pay to dodge [my emphasis] a proposed tax increase on incomes over $250,000.

Is it fair for people to reduce high salaries to sidestep President Obama's tax proposal?"

Frankly, the thought that the product of labor automatically belongs to the government (or the "common good") is anti-freedom and anti-liberty. Shame on those that would condemn people for working less to reduce their taxes.

Ban The Best

Of course Bill Gates has banned the best.

In the latest issue of Vogue, Bill's wife, Melinda Gates, reveals that among the "very few things" on "the banned list in our household" are—you guessed it—iPods and
iPhones.

Personally, I have a BlackBerry and love it. It is probably 2nd best to iPhones, but I thought a BB would play nice with Windows and Macs so that is why I got it. I have a MacBook and an iPod for music; I would never give either up.

I kinda fill sorry for Bill having to be in 3rd place on most everything.

Incompetent or Unethical?

This is a false dichotomy:

"One point they make is this: did economists know that the models that financial firms were using were flawed? If we answer 'no,' then we were spectacularly incompetent. If we answer 'yes,' then we were spectacularly unethical, because we failed to convey these flaws to decisionmakers."

Perhaps they were foolish to believe their models were robust enough to predict all possible outcomes. Nassim Nicholas Taleb would say they engaged in a Ludic Fallacy by fooling themselves into thinking they possessed all information and could accurately calculate risk. It does not require incompetence nor immorality to engage in such fallacious thinking, merely hubris.

Labels: economic models, Ludic Fallacy, Nassim Nicholas Taleb

Save Us All (or not)

The effort to save everyone has gone global:

"GORDON BROWN hopes to forge a partnership with President Barack Obama in Washington this week, to call for a “global new deal” to lift the world out of recession."

But, many on the left don't want to participate:

Anger rises in Germany as the economy falls. Trade unions and globalization-critical protesters are planning demonstrations in Berlin and Frankfurt under the banner: "We're not paying for your crisis."

Of course, it is all about soaking the rich.

The Ongoing War

Larry Kudlow thinks war was just declared:

"[Obama] is declaring war on investors, entrepreneurs, small businesses, large corporations, and private-equity and venture-capital funds."

Come on. How about some intellectual honesty to say that this is more like turning up the heat on the pot of water that is already boiling? Why just say that Obama declared war when capitalism was dramatically canceled under Bush, Clinton and the Bush again? Really, it is just an ongoing war that just went nuclear.

Never Miss An Opportunity to Exploit a Crisis

Statist policies almost always expand during a crisis:

"With a long deep slump, I think the most likely outcome is that we will be 'strangled by the state.' All of the ambition and 'animal spirits' will be channeled into opportunities created by government appropriations and subsidies. In spite of a weak economy, statist policies will remain in place, because those who are receiving a share of the pie from the government will be a more potent political force than those who are upset that the pie is stagnant or shrinking."

It will be the Fatal Conceit to think that faceless, nameless bureaucrats can manage the economy to productivity better than the spontaneous order of the market.

VitalAccurateThinking

Tuesday, March 31, 2009

Saturday, March 28, 2009

Wednesday, March 25, 2009

Tuesday, March 24, 2009

Monday, March 23, 2009

Covered, not covered?

Sunday, March 22, 2009

Friday, March 20, 2009

Thursday, March 19, 2009

China to Reduce Exposure?

Sunday, March 15, 2009

Saturday, March 14, 2009

Friday, March 13, 2009

China Should be Scared

Tuesday, March 10, 2009

Monday, March 09, 2009

Sunday, March 08, 2009

Thursday, March 05, 2009

Wednesday, March 04, 2009

Ban The Best

Sunday, March 01, 2009

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