If It's Friday, This Must Be Krugman

Well, not this time. He's needling the right wingnuts about various chimera, as usual. No, but today's Business Section of the Times is full of belly laugh quotes, many of the subjects chronicled here in past missives.

Let's start with Amazon's stool dump. As opined here in the past, Amazon can't feasibly make any money unless it manages to monopolize retail trade. Without a price-fixing monopoly, Amazon is hostage to transport costs. There's a reason they've been madly building 'stores', which they euphemistically re-name 'distribution centers'. Which mostly end up being juxtaposed to railheads. Simple fact: the cost of moving a pound of widget by air freighter is at least ten times the cost of moving a tonne of widgets by freight train. So, more localized stores. Just don't call them 'stores', of course. Unless Amazon can get into position to charge the true cost of delivery, which means monopoly, it'll never make any moolah.

Writers are peeved at Amazon. On Thursday, investors became disgruntled too.
...
"Skepticism is increasing," said Colin Gillis of BGC Partners. "It's hard to have $20 billion in revenue and not make any money. It's a real feat."

Well, no shit Sherlock.

Amazon's new Fire phone has been showered with 'blah' reviews, so I suppose it shouldn't be a surprise that,

[Thomas J. Szkutak, the chief financial officer] declined to say whether Amazon would ever tell investors how many phones it sold. "I can't comment on what we might or might not do here," he said.

Confidence inspiring, that.

"Don't cry for Argentina", I guess. I've not been following the sovereign debt problem really closely, so today's report is awe inspiring. It seems that Argentina and some hedge funds have been arguing over Argentina's right repay on its terms. And this is to be adjudicated in a New York City federal court. Well.

This week's hearing made clear that [judge Thomas Poole Griesa] had not completely understood the bond transactions that he had been ruling on for years.

Oops?

The entire notion that private, American, hedge funds should have the power of US courts to run the governments of other countries has caused some agita. Now, we find the judge is, essentially, clueless. Just run the link. If ever there were a caricature of a doddering old fool... American jurisprudence: of the 1%, by the 1%, for the 1%.

It is not as if no one had pointed out the issues in the many legal briefs and arguments filed in this case, both before Judge Griesa and before appeals courts. But those arguments seem not to have registered. "For this to come out after this has gone through so much legal process, in the most sophisticated financial jurisdiction in America," Ms. Gelpern [law professor at Georgetown University] said, "has to be astounding."

Of course: only little people have to pay attention.

As Wednesday approaches, the judge has a lot to think about. It would be better if he had done some of that thinking before he issued his order, or if the appeals court or the Supreme Court had forced him to do so.

In a similar vein, is Cyprus. In a nutshell, Cyprus banks got into trouble along with the rest of Europe. What made it different was that the banks stored up Russian oligarch money, so when it all went to hell, the little people were made to pay. In order to determine how much the little people would pay, both Pimco and BlackRock were hired, by different folks at different times, to figure it out. The Pimco number was higher, and the BlackRock report was hidden.

As for the BlackRock analysis, it was kept strictly under wraps. So much so, that in internal communications BlackRock bankers used code: Claire for the Cyprus central bank, Peter for Pimco and Ben for BlackRock.

What's a few billion Euros from the little people, when the banksters might run out of cavier?

"We did not know anything about any BlackRock report," said Michael Sarris, the Cyprus finance minister who led the talks with Europe. "If there was anything that identified flaws in the Pimco report or indicated that we needed less money -- then clearly this should have been brought to the table."

I Still Hate Neil Irwin

The morning, during the week, begins with a reading of briefing.com, via Yahoo! Finance, then a toddle off to the newstand for The Times and thence to the coffee place to inhale both. Most often, these toddles involve creating the rough draft of one of these missives. Since I don't put one up every day (it just seems like, at times), most never get past that stage.

Today's puzzlement: why do the mainstream pundits remain puzzled that interest rates remain low? It's as if, and likely so, that none of them ever read up any physics or chemistry. They view returns on investment in purely fiduciary terms, a fact which goes a long way to explain why few saw The Great Recession coming. That Giant Pool of Money was sitting out there in Y2K, and Masters of the World in the C-suites had no use for it. They simply couldn't figure out profitable, enough, ways to turn moolah into machines. So, the banksters ginned up fiduciary instruments in sufficient quantity to sop up the Pool. The Pool hasn't gone away, and the MotW still don't have any idea what to do. Share buybacks are the current new idea. That and sub-prime car loans. Read up on the latter, you'll get a chuckle.

The essay was nearly complete, in noggin, when I got Irwinned (a term, alas, that I'll be using a lot I suspect). OK, go read it. Just remember, you've read it all, save the quotes of course, here before. I don't run in the same circles, alas.

I do find him naive`, on a few points, though:

If companies increased their spending enough to close that gap, it would mean an extra $220 billion in annual economic activity and perhaps a couple of million more jobs. But there may be even more important and lasting consequences for this lack of spending by businesses.

Capital spending improves worker productivity. And worker productivity improves living standards.

The implication: as productivity rises, so do wages. In the Adam Smith notion of free market economics, yes. But the data are overwhelmingly contradictory over the last 4 decades. Little to none of productivity increases have ended up in wages. Employment doesn't, overall, go up. Just as the Foxconn guy intends to replace cheap Chinese hands with robots, so too do American capitalists. When 5 workers can build a robot which replaces 100 workers in use, you see that the arithmetic favors the MotW. And so it has happened. The Great Migrations, from farm to factory, in the 19th and 20th centuries, were based on unskilled labor moving to another unskilled labor. Given the leverage involved, with the current notion of income distribution, increasing STEM graduates will only create a larger pool of disenchanted and unemployed smart people. The MotW have shown little inclination to buy more STEM folks than they need, and they don't need all that many, especially when they can get them nearly for free from India. Guess who those Eastern European cybercriminals are? Yup.

"As manufacturing approaches full capacity, wage pressures will build and many businesses will be forced to redirect their profits away from stock buybacks and toward actual physical investment, which will help bolster U.S. GDP," [Scott Anderson, chief economist of Bank of the West] writes in a research note.

I gotta get me a pair of them rose colored glasses.

The real impetus for physical investment is better productivity, making more widgets cheaper; we're long past the time when ditches are really dug by hand. The MotW will only make such physical investments if they have, or foresee, unmet demand. But with the 99%'s share of income at best stagnant, there is no macro- unmet demand. Remember all that talk about 450mm silicon wafers? Hasn't come to be, has it? Productivity gains, from the perspective of MotW, depend on a) unmet demand with current capital and b) freezing out labor from the gains. The problem is that the MotW have gotten b) in spades but, as Your Good Mother said, "what happens if everybody behaves like you?" As the MotW squeeze out labor, and we don't get a new theory of income distribution, demand sags.

As demand for consumer widgets sags, so too does demand for more efficient capital. I think that's called a death spiral. Whee!!!!

They're Still Freedom Fries

The missives in these endeavors generally aren't reactionary to other posts out in the blogosphere; that behavior is mostly directed to news organs (I'm talking to you, Irwin). But today brings a reference post to a post, on the subject of income inequality. In this case, Tour de France winnings. What's amusing, and futile to my way of thinking, is the effort expended in attempting to find a quant model to fit these data. Ain't gonna happen.

Winnings, in any sport outside of table stakes poker (and you can name others, I suppose), are determined by the policy of the sponsors. First gets 100 units, second gets 10 units, and so on down the line. At one time, though I'd have to look it up, memory tells me that professional tennis players forced the purse distribution to be *more* unequal (here's a report on the current method). That's it. That the "winner take all" (yup, the girls) approach (and, yes, I'm talking to you, LeBron) in sport has infected normal enterprise goes a long way to explaining the global economic malaise. Why is an extra two points per game actually worth an extra $4 million/year; or whatever? That's the distribution function; set by the sponsors based on whim. In what rational world are boys and girls who play games awarded vast amounts of moolah, over folks who actually produce? What value do they provide? None, of course. Well, a bit of reflected shine on the owners.

The money comes from sponsors, TV, gate receipts (none of those, that I know of, for the Tour), and whatever. That money comes from the revenue of the sponsors, which is to say Ma and Pa Kettle who buy the sponsors' widgets. The widget buyers don't get to decide how much of the price of a widget should go to LeBron or Lance. (Aside: in today's NYT Business section is a piece on corporate boards, which asserts that boards have decided that boards shouldn't truck with shareholders, much less the public. I think that's a working definition of oligarchy.)

Policy trumps data, when they disagree. Good luck finding a general quant model of income distribution in sports. Just look up the formula for the sport/event you're curious about. Then go have a micro-brew.

What A Buzz Kill

Buzz Aldrin got reported in Daily Tech from Reddit. I don't do Reddit (a major character flaw, I know), so I'll content myself with the DT quotes. That's all I need, anyway.

OUR resources should be directed to outward, beyond-the-moon, to establishing habitation and laboratories on the surface of Mars that can be built, assembled, from the close-by moons of Mars. With very little time delay - a second or less. Much better than controlling things on the Moon from the Earth. So when NASA funding comes up for review, please call your lawmakers to support it.

Buzz, according to the Wiki is a West Point grad in mechanical engineering. May be that's why he doesn't get it.

The reason NASA, and everybody else, has lost interest in space "exploration" after getting to the moon is simple physics and chemistry: the moon is as far as one can move humans in tin cans using chemical rockets. Fueling humans to Mars simply isn't possible with known chemistry. We know how much throw weight we can move past the moon, and it ain't much more than a Beetle. And the Area 51 aliens haven't yet divulged the secrets of Warp Drive. Even if we could get to Mars, there's no there, there. Once Again, Gertrude nails it. We'd have to ferry all life support from... somewhere? The Area 51 aliens haven't shown us how to make that Replicator, either.

We know where "earth like" planets are, and they ain't accessible with chemical rockets. And what, exactly, was the benefit of going to the moon? We just beat the Russians. BFD.

Buzz, how about we clean up our act here? Recognize that we really live in one of these, and make the best of it. We all live "Under the Dome".

I Hate Neil Irwin

Well, only metaphorically, of course. A few days back, I referenced a Business Section piece he did on why the Almighty Buck is so, since he was confirming previous postings in these endeavors. Fine. As I looked at my dead trees Times this morning I nearly fainted. There, on the front page, above the fold, full right side column, was Irwin. You don't get a much better placement than that. Damn his eyes!!

Cut to the chase: he concludes, and quotes Bernanke for support, that The Giant Pool of Money persists due to The Masters of the World being unable or unwilling to make real investment.

Worldwide, more money is piling into savings than businesses believe they can use to make productive investments.

Well, no shit Sherlock. But, credit where credit is due, he spikes the banksters' complaint:

But while central banks can set the short-term interest rate, over the long run rates reflect a price that matches savers who want to earn a return on their cash and businesses and governments that wish to invest that savings -- whether in new factories or office buildings or infrastructure.
...
What if the problem is not too much savings, but a shortage of good investment opportunities to deploy that savings? For example, businesses may feel that capital expenditures are unwise because they won't pay off.

In other words (the ones used here for so long), in the long run real return is determined by growth in real productivity of real assets. No new science, no new engineering, then no return. All that's left is non-consumption, and that's a zero-sum game.

Bernanke:

Mr. Bernanke himself has been wrestling with the possibility that the original framing of a global savings glut got the problem in reverse. "I may have made a mistake in trying to assign a name," Mr. Bernanke, now at the Brookings Institution, said in an interview. "A glut means more than is wanted. But it doesn't necessarily arise because people want to save more. It can be because they invest less."

The "they" is the borrowers, to be clear.

Neither Irwin nor Bernanke, as quoted, address why it is that real investment opportunities are not manifest. To the extent that the .1%-ers demand that 10% income from their stashes of moolah, and governments permit them to extract it from their macro-economies, we'll spend a long time in a New Dark Age. The difference is that this one won't have a renaissance of new knowledge to end it. We need a Robo Cop.

Channeling Yoda

Today Krugman, finally, says it (likely, written before the Brazil World Cup road collapse, for just a touch of international irony). The Jedi tinged title, of course.

Since 2008, however, our economy has been awash in unemployed workers (especially construction workers) and capital with no place to go (which is why government borrowing costs are at historic lows). Putting those idle resources to work building useful stuff should have been a no-brainer.

From the point of these endeavors, and being Vulcan Mind Melded, the phrase "capital with no place to go (which is why government borrowing costs are at historic lows)" is what matters. There is a reason that all that moolah, whether Chinese, German, or USofA, decided to assault the American housing market: all those multi-million dollar CEOs just couldn't (and can't) find productive use of fiduciary capital. They borrow, at near zero cost, to buy back stock, to buy competitors, and dole out much of it to themselves. In other words, they re-cycle all that moolah amongst themselves. Is it any wonder that we're not much better off, as a country? The United States of Mississippi.

All those quants, and especially the amateur wannabes, just can't get it through their thick heads that, if you want to understand the future, looking at the past is of limited value. For natural processes, where God makes the rules (and, thus, the rules don't change) the past very much informs the future. In human endeavors, especially finance and banking, where Men make the rules (and, thus the rules change, most often opaquely to those not in on the gag) looking to the past to inform the future leads to, well... The Great Recession. "House prices have been rising exponentially, so they must always rise exponentially! Give us more sub-prime ARMs!!" OK, not a direct quote that I can cite, but that does explicate the behavior.

In finance and banking, one might say, "follow the money". And that's a reasonable approximation. A better one is to follow the incentives, since the money, as water, finds its own level. Money flows according to the plane of incentive. Right now, the incentive is purely fiduciary. If that continues long enough, what Stein said of Oakland will be true of the entire United States of Mississippi, "There is no there, there."

In other words, the problem of capital allocation and increasing productivity aren't a post Great Recession manifestation. They *caused* The Great Recession. The holders of fiduciary capital, in the prelude to The Great Recession, wouldn't or couldn't find productive use (in the sense of physical production) for the money. So, it all flowed into fiduciary instruments. The lowest risk, historically, was USofA housing. Spanish beach condos as well, but that's another episode. A Ponzi scheme, self-generated, in the sense that there was no single Mr. Ponzi, short of the guy running Countrywide (Angie Mozilo). Or, as one participant observed, a game of musical chairs; hoping that one's company always finds a seat when the music stops.

The French Connection

Some time back, 2011 if my memory serves, I mused that the Almighty Dollar has been New Gold for decades. Despite the 1973 oil embargo, the notion of petrobucks replacing the US buck never materialized. Saudis don't have the nukes and such. Being the globe's reserve currency, the operational equivalent to the yellow metal, has its advantages. Previously discussed in these endeavors.

Well, the mainstream pundits have caught up.

In short: The dollar is the global reserve currency, the bedrock of the world financial system. And that role gives the United States surprising power over what happens in the world even in spheres that would have little to do with finance.

Dollar diplomacy goes back to Taft, as an extension of the Monroe Doctrine, but it has continued to this day. Bretton Woods, post WWII, codified the power of the American Buck. Nixon's removing the US from a gold standard only strengthened the country's hold on international commerce. I doubt that Nixon or his masters quite understood this consequence.

Interestingly, at least to me, is this quote from David Frum (in the Wiki piece):

If you want a classical gold standard, you get chronic deflation punctuated by depressions, as the U.S. did between 1873 and 1934.

That he would even acknowledge the destructiveness of goldbuggery is awesome!

As to his third "system", there's nothing inherently inflationary in fiat currency. As we've seen post Great Recession.

Back to the Irwin piece:

The dollar is by a wide margin the most widely used currency for international trade and for foreign governments, wealthy individuals or corporations looking to park cash.

If folks only had that in the front of their noggins when all that moolah came looking for "no risk" home loans. To be fair, a good deal of German moolah went to pay for Spanish resort condos and timeshares.

I strongly suspect the likes of Kochs would just as soon see the Euro go belly up. One less competitor.