30 July 2010

Dee Feat is in Dee Flation, Part 3

Some of you may have read my earlier posts, Dee Feat is in Dee Flation (since this is posted various places, I'm too lazy to have to maintain multiple links, check 19 May and 15 July on this site to refresh your memory). Perhaps not. Today's NY Times has two articles in the business section, one about an inflation hawk who has had the scales fall from his eyes, and the other about why this recession is, in fact, different (and thus more dangerous). Since the Times is an acquired taste, this time I'll do some quoting in the event that some of you Dear Readers don't want to spend time at such a communist rag.

I'll, briefly, reiterate the point of view of myself, and the Saltwater Economists. It's the distribution, stupid does about sum it up. From historical evidence, going back to the beginning of industrial societies, economic depressions are always preceded, and motivated, by large shifts in wealth and income from the many to the few. The rich get richer and the poor have kids. The logic of why this course of events is always inevitable can be stated very simply: as one gains wealth and income, less of that income is needed for sustenance. Since the rich spend a lower proportion of their income, $1,000,000 in one household generates (multiplies) less economic activity than $10,000 in 100 households.

As income concentrates, demand for goods diminishes, and likewise prices and consumption of these goods. Lowered production leads to lower employment and wages. This is deflation. Japan is *still* stuck in that mire going on 20 years. It's the distribution, stupid. It is a downward spiral to hell. What makes it worse for the USofA is that, thanks to idiots like Reagan and the Bushies, a much higher proportion of our economy is now dedicated not to producing stuff for us, but financial manipulations that aren't consumable by most folks. We are further from a self-sufficient society than at any time in our history. Mark that.

Now for some review of what was written today in the Times.

The Fed article tells us how a traditional inflation hawk, James Bullard, has finally realized that what we face is deflation. The article doesn't say that Mr. Bullard has reached his epiphany based on distributional considerations, alas. But he has changed his mind.

"On Thursday, James Bullard, president of the Federal Reserve Bank of St. Louis, warned that the Fed's policies were putting the economy at risk of becoming 'enmeshed in a Japanese-style deflationary outcome within the next several years.'"

The article closes with:
"The outcome could be an 'unintended steady state' like Japan's slow-growth economy. 'The U.S. is closer to a Japan-style outcome today than at any time in recent history,' he wrote."

In the course of the article, the other side is noted, in particular Thomas Hoenig of Kansas City Fed who has the temerity to compare this situation with the 2003 bad recovery and fears of deflation then, which didn't happen. Well, deflation didn't happen then because the housing bubble was on its way, and folks were spending the equity in their houses in substitute for stagnant wages. Some people do love to lie by omission. Hoenig is classic.

The second article, which references the authors of a book whose title is delicious, "This Time Is Different", largely debunks the nonsense of the inflation hawks mentioned in the Fed article. Whether the juxtaposition is coincidence? Not likely.

"Earlier this year, some economists projected stronger growth rates in part because they were looking at recessions in the early 1990s and the early 1980s. The problem with such analogies is that the latest recession was precipitated by a financial crash rather than more cyclical boom-and-bust factors."

Well, yeah. This is the mistake (well, willful ignorance) made by the Fed's inflation hawks. They likely took a course in business cycles whilst undergraduates, and assume that such is the only and entire story. This Great Recession really is different, at least since 1929 or 1873. Cyclical expansion/contraction is driven by imbalances in real economic activity. The Great Recession was caused by financial manipulations not connected to the real economy, except that one tentacle: your house. Rather than a macro-economic failure, it was a micro-economic failure which metastisized.

For the first time, a Real Pundit gets it right (that I've seen):
"Many Wall Street economists and investors have 'been too willing to see this as a normal cyclical event distorted by some crazy things going on in housing,' said Ian Shepherdson, chief United States economist at High Frequency Economics, 'whereas this was almost entirely driven by what was going on in the financial markets and houses.'"

Back on 12 April and 12 May I wrote that housing is not an investment. It's just a place to hang your hat. The fact that you, or your parents more likely, saw ridiculous appreciation in a 2 bedroom ranch is not a given. Unless, and until, most folks get more income, there can be no growth. Remember, one more millionaire has little effect on growth. 100 poor folks with another $10,000 makes a whole lot growth. They spend that money on pizzas and clothes and used cars. The mechanics at the used car dealers get more hours, or more mechanics. They spend more. And so on, round and round. It is a virtuous circle of growth. Much nicer than a death spiral of deflation. Pray the Thought Leaders in Washington get some sense.

22 July 2010

The Blind Leading the Hopeful

It is my MO to avoid the Great Mass of Important Pundits, and to think and write as I see the world. I assiduously attempt to avoid becoming part of the Blogosphere Echo Chamber. I do read the news, of course, to know what's going on in the world and of that, what is fair game for commentary. Shirley Sherrod qualifies.

The lesson here, is as I have been saying for some time: the Democrats generally, and the Obama wing specifically, have got to grow a set of balls. The source of the smear was a known Right Wingnut liar. They KNEW this from the very beginning. Yet, they all swallowed the bait in one big gulp. These guys (and a few gals) are supposed to be the Progressive/Liberal leaders to the Promised Land. Yet they can't avoid an obvious setup. It is just bloody pathetic. The Best and the Brightest?? Nah. Dumb and Dumber. Dumbo on steroids. Keystone Kops of the Potomac.

If they didn't know it before, the Right Wingnuts started the war. They will continue it, whether or not Obama continues to spout Bipartisanship is the Way Forward. It ain't. We won, they die. The stalling on any and all efforts to improve the job situation between now and November is transparent. But not a peep out of either the White House or the DNC. IT'S THEIR FUCKING JOB.

15 July 2010

Dee Feat is in Dee Flation, Part 2

[UPDATE 15 July]
Well, the Producer Price Index was just released, and it's in the minus world. Deflation is here. How long it stays is anybody's guess, but if Obama caves to the Right Wingnut Fatmen, the Famine will last a long time. Fatmen like it that way.

Despite the continuing braying from the Right Wingnuts that Inflation is On The Way, Right Now, I'm Telling You, You Must Listen to Me; well, it isn't. Today's CPI shows that Core prices are down, again. The Core CPI has been bouncing back and forth between slightly up and slightly down for some time. They ain't no flation no how.

The Wingnuts/FreshWater economics crew must be having apoplexy. Inflation just won't happen. What they won't admit is that it has happened, but only in the limited arena where all the money went: the stock market. And, in just irony, the stock market has been experiencing deflation the last month or so. And not because there's any real economic reason, but because deflation is a self-fulfilling prophecy, particularly in a stock market. Buying a stock isn't buying any "thing", just a chit that you've bet that the share price will move up (or down) in the future; which future might be a few minutes, hours, days, etc.

Deflation is mostly propelled by the willingness to postpone consumption; in the depths of a Great Depression it will occur because consumers have less income, but that's rare. (The stagnant median income period of Reagan/Bushies would have been deflationary but for all that smart money housing equity, but that's another episode.) For real goods and services, postponing consumption leads to real loss: you don't get to play with the tchotchke. Stock market purchases, on the other hand, are only valuable unless they're appreciating (well, if you're not shorting, but that's for another episode) in value. Not even Buffett made his money from the dividends; he, along with the rest of the trading crowd, was/is into "buy low, sell high". So, if the share prices drop a bit, that's enough incentive to stop buying. People stop buying (take money out of the market) and all share prices go down. Note, that nothing bad has happened in the real world. Just some traders who've decided to enter into a death spiral.

Both the Obamanauts and the Tea Baggers use the line about Wall Street being separate from Main Street. It always has been, and always will be. What happens on Wall Street is fundamentally a world apart, and should be. It has no real connection to the Real World; no more than any casino does.

14 July 2010

Another Capital Idea, Watson

There has been much ink spilled and breathless commentary spoken recently about how to expand the economy through the usual Right Wingnut means: giving away more money to Haves while strangling the Have Nots. Krugman deserves praise for devoting columns to outing such nonsense. I'm not going to repeat his words here (so far as I know), rather, I'm going to repeat my own.

One the more blatant demands from the Right is to reduce (eliminate, in a future wet dream) yet again the capital gains tax. Some of the so-called Democrats are, for reasons unknown, jumping on this honeywagon. The cheer from all aboard: "we don't want to penalize INVESTORS!!!!!!!!!" Such Bullshit.

As I have stated previously, when you buy $1,000 of Ford, not a dime of that money ends up in Ford's (the corporation) coffers to buy equipment or build a plant or buy supplies. Not one red cent. Nada. Nothing. You haven't INVESTED in Ford, you've GAMBLED that you bought those shares from some FOOL who doesn't know that Ford's share price is going to go up. None of your money is helping Ford. Now, Ford executives may benefit if enough of you GAMBLERS drive the share price nicely above their option strike price, such that they are blessed with an instant capital gain, FOR DOING ABSOLUTELY NOTHING USEFUL.

There was, until recently, Little Orphan Annie, both the comic strip and the weird eyed character. Her benefactor was Daddy Warbucks, stock speculator. Until, I'll guess, Ronnie it was generally acknowledged that money put into stocks was always, and only, SPECULATION. Folks who bought stocks were referred to as Stock Speculators. Then, with the destruction of defined benefit retirement plans and the contemporaneous replacement of them with 401(K)s, putting money in stocks was, by definition INVESTMENT. It would be impolitic to call a spade a spade then, since doing so would serve only to highlight the bait and switch trick that had been played. Those who retired in 2006 or 2007, believing that their INVESTMENT 401(K) would support them nicely discovered the truth: Joe Sixpack is not equipped to be an investment guru.

Stocks (bonds to a lesser extent) are GAMBLING, not investment. There is no economic benefit (to the national economy, and society) to tax GAMBLING at below the level of regular income. The only capital gains that should get such a benefit are those realized from buying stocks at Public Offering, and holding in toto until sale. Those funds did go to Ford; those funds were available to buy equipment, buildings, or supplies. That they likely went to pay the executives bonuses is bad, but not on the part of the buyer of the shares.

Capital gains is just a Ponzi scheme, nothing more. Never was anything more, never will be anything more. We, as a society, ought not to reward SPECULATORS. Just don't do that.

13 July 2010

LeBron's Not the Problem, You Are

I'll begin with the admission that I have no use for LeBron James. Certainly not as a basketball player, highly overrated. Not much better as a human being, recent events determine. But the piling on by the media and "fans" is utter hypocrisy.

These same media and regular folk, not to mention Dan Gilbert and Jesse, have failed, utterly, to hold those responsible for the Great Recession to anything resembling the same standard. I'll grant that the media will occasionally do a piece on the spreading inequality of wealth, income, and opportunity, but not nearly adequately. I define adequately to mean: all those guns 'n God yahoos finally get a clue that they've been duped.

The very notion that a person who can toss a basketball around is worth tens of millions of dollars, or that owners of basketball teams (which own virtually no physical assets, and the players aren't physical assets they own) ought to "earn" hundreds of millions of dollars is sheer lunacy. We've squandered our capital on such frivolity. The idea that there should be one "king" who takes massive amounts of money for just playing a kids game, while the rest of the nation ekes out a subsistence living is pure evil.

We accept this notion in LeBron's case, but we (well, some of us) take the Wall Street Banksters to task for doing exactly the same thing. Again, read "What's the Matter With Kansas". We've (the mass of stupid guns 'n God folk) hoodwinked ourselves into believing that which is quite perverted. We allow a vanishingly small few to take a massive amount of our production, and wonder why we're facing depression and deflation and mass unemployment. As if one is unrelated to the other. Well, they are related. They have been related at least since 16th century. The relation gets stronger as production becomes more industrial, which is the base reason why we're in the mess we are. It really is the Distribution, you Stupid Shit.

12 July 2010

Bermuda, We Hardly Knew Ya

I've mentioned, occasionally, that I was inveigled into cruising to Bermuda a few hurricane seasons ago. I've been reading the Island's major paper, The Royal Gazette, ever since. Both social unrest and water shortage have gotten worse since my visit. The Leaders' response to these conditions have been the usual tepid rhetoric, ignoring the underlying cause. Today's paper reported yet another shooting, which prompted me to write yet another Letter to the Editor, which is below.

I visited a few years ago, and loved the Islands. In fact, when the "new curriculum" was announced, I wrote and asked to be considered for a position.

However, in the time I have been away the Great Recession has occurred and Bermuda's existence as an isolated island (among the most isolated with a developed economy) has led it to be, perhaps unknowingly to Bermudians, a lab experiment in socio-economic structure. For what it may be worth, I have a blog in my name where I have been discussing the general problem, not specific to Bermuda, for some time.

The water problem and social unrest problem were clear when I visited, and have only escalated in severity since. I get no sense from reading the Gazette each and every day, that leaders (both political and economic) have any stomach for the solutions to the two problems. Really, there is a single solution to the underlying cause of both problems.

The issue is income/wealth distribution. Given that Bermuda has a slave history (much like the US states directly west, and to which Bermuda has historic ties), and a remaining plantation mentality, the solution is clearly not acceptable to the controlling class of Bermuda.

No society can persist for very long with the many very much poorer than the few. The few always say something like, "but our poor aren't as poor as Haiti (or whatever place is au courant)", as if that fact were relevant. Wealth, along with all other attributes of human kind, is relative. When the gap in wealth between rich and poor (and the numbers of people in each group diverge widely) becomes obviously rigged and grotesque, the poor lash out. That has been true throughout human history.

It is no accident that the Scandinavian countries, which as "tribes" determined to not allow such gaps to develop, have the most stable societies. And it is also true that these countries are quite productive. Some cavil that they are able to do this because they have homogeneous racial makeups, but that is just racist blathering; as if skin color matters.

The water problem results from the inequality problem due to the fact that the well off would rather import visitors, and put increasing stress on the ecosystem, than to develop a domestic economy. Developing a domestic economy would require fully integrating, and utilizing, all the peoples of Bermuda, and that's just distasteful. Australia is another island nation, though a tad larger. It is the driest inhabited continent (although classified an island when I was in school), and has had a water shortage situation for a very long time. Now they are going about building desalination plants, which some view as foolish. There are 22 million Australians, and some Australians see that the water supply of the island can support that many humans, and "growing" the population simply to grow, is beyond the ecosystem's capacity. Bermuda, while smaller and thus even more fragile, needs to face the same fact.

So, Bermuda faces, in microcosm, the Great Decision: will Bermuda have a future of growing equality and peace, or growing inequality and a police state? The rich few will have to relinquish some perks in life in order for the poor to have opportunity. Or the rich can hire on more police with yet more armament enforcing ever more stringent laws.

It's your choice. Choose wisely.

09 July 2010

The rich are different: they are more ruthless

It was Warren Buffett who observed that there is a class war in progress, started by the rich, and the rich are winning. So, it should come as no great surprise to read in today's NY Times a story about the plight of million dollar defaulters.

The title of this post is a quote from the economist who compiled the data for the Times.

The money quote:
The CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default. The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.

I can already hear the RushBoys bleating, "you're just crying because you want a class war, and you're poor". Sort of the same crap that Paul was spewing about criticizing BP. Where, oh where, is the call for personal responsibility? None, of course, since the point of being rich is that, as Fitzgerald said, "the rich are different". Now, if only we could get them to just pay what they owe, the rest of us wouldn't have keep paying all the sub rosa welfare to them. Fat chance.

And a short observation, which might be expanded someday into a full post, about the Times. I have been waiting years, literally, for the Big Time Pundits to figure out the implications of the shift in advertising from newspapers to the likes of Google. So, I guess it's left to me. It was known for decades that much of the revenue that supported newspapers came from classified ads. If you're under age 30, you may not even know what that means. Translation: all those Craig's List ads for used cars and appliances once got printed at the back of your local newspaper. The sex treats ones, not so much; those are a Craig's List "innovation".

The loss of classified advertising revenue has two implications. The first is that the replacement money has to come from other forms of advertising or price rises. The second is more subtle and insidious; classified adverts are influence neutral, while other advertising (as history has shown) and price are not. To the extent that the Right Wingnuts control all news dissemination, is the extent to which they control elections and the courts and, well everything that matters. There are reports that Yahoo!, Google, AOL, and such are "personalizing" news displays to fit the user. Stupid news for stupid people.

If we lose the Times, it's Robo Cop Time. While I wanted to live to 104 as my karate teacher's teacher did (he got at least that far), a Robo Cop world may not be worth it.

05 July 2010

Supreme Failure

I have, on one more than one occasion, pointed out that the Gummint (which polls assert the populace hate, well until the populace needs something, see Gulf Coast) which put us in this mess took some time to get us here. I start counting with Reagan, although one might start with Nixon, but Reagan makes for a neater cut and eliminates the OPEC oil embargo anomaly. I have pointed out that for the 28 years from the start of Reagan to the end of Bush II, the Right Wingnuts held at least 2 of the 3 elected branches of government for 22. Not having put in the effort to quantify, I have guessed that the Supreme Court was in the Right Wingnuts' pocket since at least Burger.

The just retired justice Stevens had this to say:
"Including myself, every judge who's been appointed to the court since Lewis Powell has been more conservative than his or her predecessor. Except maybe Justice Ginsburg. That's bound to have an effect on the court."

For a very detailed dissection of the fall, see this article.

Toyota Trouble

May be that all that vaunted superiority of Toyota was just lies. May be that Toyota was just better at playing the hide-it game than everybody else. The recent stories, including yesterday's make it clear that this Emperor really does have no clothes. May be they've forgotten all that Deming showed them 50 years ago, in the rush to be more like the USofA. Be careful who you emulate, you could immolate.

02 July 2010

We Dodged the Bullet, Barely

Well, we dodged the bullet. Nonfarm payrolls were down overall, but private sector hires were positive, although not quite as many as hoped. Due to the perversity of the calculations, unemployment is down .2%, to 9.5%; almost certainly (I haven't seen the detailed report; likely won't) due to folks getting tossed off the rolls. It is true that once tossed off, one can continue to report and continue to be counted; few do. It will be interesting to see what the "real" unemployment rates did. My supposition is that they're still going up.

And the Right Wingnuts want the unemployed to starve; yeah, that'll get the economy moving again. Obama was/is stupid. There are just two choices: either prod an economy to do more of what it isn't doing, but did do up to the crash; or steer the economy to do other things and employ folks doing those things. In the case of The Great Recession, we can create more jobs for Banksters and Redneck Nail Hammerers all over again, or we can create other work for the math inclined and muscle inclined which are actually socially useful. I know, the S word. But it is one society, and we either treat it as such, or we adopt the P word: PoliceState. Take your pick.