I Still Hate Neil Irwin, part the fifth

As time goes by, Irwin gets ever closer to the obvious truth: income and wealth concentration aided and abetted by the tech asymptote is the cause of diminished economic growth. Today, he has another go at it.

Remember back in December when the Federal Reserve raised interest rates? That day, 10-year Treasury bonds were yielding 2.3 percent. Those bonds had fallen to 1.74 percent by Thursday (the Fed controls short-term interest rates directly, but longer-term rates are set in the open market).

It's so rare for a business/economics reporter to tell that kernel of essential truth: the Fed doesn't set the market rate of interest, Mr. Market does. The Fed only, directly (well, sorta), controls the Fed Funds Rate:

But the Fed really doesn't have that kind of control over interest rates. It can't simply make interest rates whatever it wants them to be.

The Fed certainly has limited influence over short-term interest rates, but to say it has some kind of ironclad control over rates is surely incorrect.

There's a whole spectrum of interest rates, even in the short-term market, and the Fed has the most influence over the one that it targets: the federal funds rate.
[and this from the Heritage Foundation, would you believe?]

So, no, the Fed doesn't even get to set the Fed Funds rate by fiat. Don't you just love a central bank that can't act like a national bank. Here's a neat bit of history. The USofA (well, the Redneck parts of it) remains stuck in the 18th century. The punchline: the Rednecks killed it.

So, back to Irwin. What he, and he's hardly alone, fails to do is follow the money. Why is it that all that idle moolah is chasing Treasuries rather than making new plant and equipment? Why is a lot of that idle moolah being used to buy back corporate shares? And so on. The answer boils down to two:
1 - there just isn't much new under the Sun. case in point: AstraZeneca wants orphan drug status for Crestor.
2 - the CxO class can't find anything new under the Sun.

The result is simple: it's a zero-sum society. The financial sector runs interminable adverts on the TeeVee telling us that we have to save more. But without growth to drive interest return, all we get is deferred consumption. Which is to say, reduced consumption in the present. Which leads to recession and depression as demand flickers out like a dying candle in the wind.

The Right Wingnut cabal remains stuck in the agrarian mindset, that economic growth must be driven by population growth. Much of the rhetoric in support of mass migrations, mostly to developed capitalist countries seeking cheap (but local) labour, is that migrants have always been good for the economy. And, yes, through the end of the 19th century in the USofA, that was mostly true. But 19th century USofA was a vast land of untapped (by white folks, anyway) resources. It's not often mentioned in such propaganda that the USofA population has doubled since 1950. For those still wondering where the middle class went, it didn't go anywhere. What's happened is that the resources of the planet can sustain only so many middle class folks. Double the population, while keeping the number of middle class static, and you see a vanishing middle class. It's all about resources. We had two World Wars in the 20th century over who gets to control such vital resources. We're likely to have more as the per capita level of such resources drops. Have a nice day.

The Great British Depression: Come On Down! [update]

It's just past 8 am EDT, and the most thrilling carnival ride in years is about to start.

How much will you bid on a market basket of UK exports? Same as yesterday? 1% more? 50% less? "Should I stay, or should I go??" The last pollster prediction was too close to call. The bookies make it Remain by a neck.

Financial markets are on a knife's edge ahead of Thursday's Brexit referendum, but investors will have to wait longer than usual to get the result of the vote.

Unlike normal general elections there won't be any exit polls at 10 p.m. London time, or 5 p.m. Eastern Time, when the voting stations close, so anyone nervously waiting for the outcome will have to stay awake and watch for local results to trickle out overnight.
-- here

That's too bad!! If the UK polling stations closed at American 8 pm, we'd have Mr. Market all in a tizzy for the last hour. Oh, the joy of it. OTOH, there will be leaks of exit data all day long, so we just might have the start of The Great British Depression today. All those .1%-ers pining for massive deflation will get their wish. They'll be able to buy a new Rolls at half price.

In the absence of exit polls, hedge funds and investment banks have commissioned private surveys to give them a head start on trading, according to U.K. media. That means financial markets could start to react to the referendum before any official results have been announced.

Cute. Even public voting has been privatized.

[update]
We see the triumph of nativism over intelligence. What a shock it will be to the Brits when they discover that financial services they've ridden all goes away. The City exploded when the UK went EU, not the other way round. They've bitten off their nose to spite their face. See, fiduciary capital is naturally stateless, and there's nothing of substance holding it in the City. You just need computers, servers, desks, and office space to hold same. With cloud-y computing all the rage, the City work will pop up in Paris and Berlin and Rome and such, since the servers need not be co-located, anyway.

Hopefully, the ramifications will become clear before the USofA gets to choose between nativism and intelligence.


We must all hang together, or assuredly we shall all hang separately.
-- Ben Franklin

Money For Nothing, part the second

One of the adopted themes of these endeavors is that predicting tomorrow based on the last X years/months/weeks/days requires that the context of today and tomorrow is quite the same as the previous Xs. Gordon's book is a very (overly?) long account of how tech as been fleshed out during the last century or so. Key to understanding the history is that innovations such as the steamboat had much bigger impact on progress than has/will Twitter.

Moreover, one need keep in mind that both the DotBomb of 2000 and the Great Recession of 2008 were powered by the same context: a global over-supply of savings. Some (much?) of tha glut of moolah is unused corporate profit, which is in the trillions of dollars. That segment of the glut exists just because the CEO class no longer knows how to deploy fiduciary capital into innovative physical capital. Both the DotBomb and the Great Recession were bubbles generated by all that idle moolah demanding high returns and little risk. In the former case, the likes of pets.com were viewed as can't miss sure things. In the latter case, holders of idle moolah decided they'd learned the hard lesson of chasing high return at low risk in the dot.com world, so it all flooded into moderate return at low risk: the American house.

So, we got "Viagra at The Home". The common knowledge was that house mortgages were a safe instrument; historically, default rates were teeny. The mortgage industry obliged the demand for securities by creating ever more mortgages, which required making said mortgages to folks who'd not previously qualified. Rising house prices, per fixed definition of "house", can only happen if mortgagees (Joe Sixpacks) have rising incomes, or drastically reduced other spending. Neither accounted for the experienced house price inflation. Once that inflation just slowed (it didn't have to stop, much less reverse), escaping mortgages became impossible. Crash.

Coupled with this demand for high return at low risk is the scenario that the .1% will engineer a crash just so they can "earn" their 10% return in the form of deflation. Brexit may well do that. Turns out that not only the .1% but also the millennials think that 10% is their God given right. Gad.

Research from U.K.-based asset management firm Schroders shows that millennials (those ages 18 to 35) expect annual investment returns of 10.2 percent. That's higher than the historical averages of 9 percent to 10 percent. More important, it represents a much bigger bang for their investment buck than they're likely to get given today's historically low interest rates around the world amid slow global growth.

This week, Treasuries have traded at 1.56%. Given the Giant Pool of Money (some may be from the ECB and BoJ) chasing high returns at low risk, that ain't gonna happen. Ironically (or perversely, depending), insurance companies and brokerages have been pumping "you should save more, with us of course") adverts on the TeeVee. Yet mo money chasing little demand for it. Perversely (that again), economic growth is driven by growing aggregate demand. Depending on how that demand is distributed, an economy gets more or less growth. But if most folks stop consuming and start "saving", they get recession (or, heavens, depression) and yet less return on their "saving". Welcome to the world of zero sum.

Lord of The Flies, part the second

These endeavors have discussed the "Lord of the Flies" attributes of my beautiful Bermuda, not that I could afford to live there or work in the predatory financial services companies that own the island. Turns out, I'm not the only one to have figured out that islands, especially the lone, isolated types are microcosms of a dystopian future. The future need not be so, but we can only avoid it if we, as a global tribe, take concerted action to prevent the .1% from taking everything of value that isn't nailed down. Take my wife! Please!

Of all Mr. Thiel's social-engineering enthusiasms, one I would have most loved to see play out is Seasteading, an initiative to create libertarian utopias on artificial islands in the middle of oceans. In 2008 Mr. Thiel and the activist Patri Friedman founded the Seasteading Institute, with the goal of building these communities. Seasteading, Mr. Thiel wrote, could "create a new space for freedom" where entrepreneurial leaders, working beyond the reach of governments and their pesky laws, could take society forward.

Recently Mr. Thiel suggested that he'd gone cold on Seasteading, because of cost and practicality. Unmentioned was the possibility that the experiment would have come to an ideologically inconvenient conclusion: that a small island -- whether created by nature or man -- would be an astonishingly bad place to live without rules. [no shit, Sherlock; and my emphasis, natch]

The wonderful aspect of the article is, of course, that the author agrees with me on the salient point: all this talk of innovation being antagonistic to conventional academics is based on a warped notion of innovation. Most of this innovation of the last couple of decades is a continuing replay of infotainment software, Just today, we get more such data.

A majority -- 55 percent -- of employers considered smartphones to be the biggest killers of workplace productivity. That's hardly surprising given that more than eight in 10 workers (83 percent) own the devices and 82 percent keep them within eye contact while at work.

It all started with the GUI wordprocessor (I'm snarking at you Word), which enticed folks into spending their time worrying about the sizzle rather than the steak.

So, back to the Thiel takedown:

We don't have enough of the desperately needed inventions -- nuclear fusion energy or cancer cures -- that emerge when credentialed scientists tinker away for years on expensive machines that have nothing to do with Snapchat. Of course, this sort of tinkering most often happens in the academic institutions that Mr. Thiel reviles, despite their role in the foundational breakthroughs -- such as the internet -- that enabled Mr. Thiel to build his $2.7 billion fortune.

Alas, you can't really eat the sizzle.

The Good. The Super. The Supreme. part the eighth

It's good to be alive.
It's Super Tuesday.
It's impossible for the Rabid Right to get it's way with the Supreme court.

Regular reader may recall the proposition that motive and incentive always trump (hehe) data when they are in conflict. With the passing of Scalia, the RR immediately looked at the data, their control of the House and Senate, and pronounced that there would be no Obama replacement. They intended to get a Super Scalia, i.e. more rabidly right, next year.

My, how bad was that assessment? Earlier today I saw a headline that Obama is to meet today with Republicans to discuss appointment. At the time of the passing, I allowed (although not until now in print) McConnell was out of his mind.

Here's the situation. If the RR double down on the election, what's the likely outcome? We won't know until tomorrow morning, but the candidate will be either Trump, Rubio, or Cruz. None can win the election, whether against Sanders or Clinton. A bold statement, but Trump is a wacko billionaire, and the other two are paid for by wacko billionaires. Not only is the RR certain to not win the White House, if it pushes its KKK agenda, it will lose both House and Senate; the latter with greater certainty.

So, McConnell et al face a simple wager: get a "moderate", less than Super Scalia, now or risk another Ginsberg in a year. Such a deal?

[part 2, 3 March]
As any Ph.D. quant or desperate stockmarket plunger knows, odds on an outcome change as the event's time approaches. In the case of sports events, the bookies adjust odds to keep the amount of moolah going to each outcome about equal. The same might be said of political events. If events proceed as at present, Trump becomes more unstoppable toward the nomination. As that happens, the RR has to gauge whether they can get a Trump White House, and if so whether he'd nominate a Super Scalia. Both are highly unlikely.

Here's a bit of Kristof

Me: He has a reputation as a straight shooter, but he lies. When PolitiFact was choosing its "lie of the year," it found that all its real contenders were Trump statements -- so it collectively awarded his many campaign misstatements the "lie of the year" award. And in backing him, you're pretty much guaranteeing a Hillary Clinton presidency. Indeed, because of Trump, the betting markets are now predicting a Democratic Senate as well.

Voter: Come on! Trump proved all of you pundits wrong again and again, and he'll do so again. And even those betting markets you like to cite -- they show Trump with at least a one-in-four chance of being our next president, and that's while other Republicans are trying to rip him apart. Just wait until the party rallies around Trump.
[my emphasis]

And, as expected, Obama is floating a "moderate". Take a small chance now, or a bigger one later. Brinksmanship in action.

Naming her would escalate political pressure on Republican Chuck Grassley of Iowa, the chairman of the Senate Judiciary Committee, who spoke fondly of Kelly in 2013 before the Senate voted 96-0 to confirm her for the Court of Appeals.

Not game, set, match. Too soon, but it's political waterboarding at its best.

[part 3, 17 March]
Thanks to a raging flu, I've been bedridden, so this is a couple of days late in typing.

So, in sum, Obama has taken the predicted tack: here's an old guy, with a mixed/neutral record. If you don't take it, here's your options.
1) Trump wins, and may be you a Super Scalia. But you're just as likely to get a Sherman or Taft, if Trump is pushed to make good on his anti-hedgies rhetoric.
2) Trump gets trounced by Hillary. The most likely outcome. She'll nominate a 40-something anti-Scalia, and won't back down. Constitutional crisis, or as the Rabid Right likes to say, "elections have consequences". Moreover, Trump could (still too dim) take down the Senate. Which is the main reason the RR is so intent on getting rid of him. Cruz is no better, just sneakier.

[part 4, 22 March]
Thanks to some reporting from the NYT, we now know that Roberts, not the most truthful of appointees during confirmation called for a dialing down of partisanship.

Last month, Chief Justice John G. Roberts Jr. delivered some blunt remarks about the Supreme Court confirmation process. The Senate should ensure that nominees are qualified, he said, and leave politics out of it.

Still, only the fourth inning.

[part 5, 25 March]
Well, more pressure. Chinese water torture, sort of. Or, waterboarding, if you're of The Donald tribe.
the polls building pressure.

Senate Republican leaders have said they will not hold hearings on any Supreme Court justice nominated by President Obama because they want to wait until the next president is in office. Seventy-three percent of Americans think this is being done for political reasons, while just a quarter say it is because that's what Republican Senate leaders think is best for the country.

And the Blue State Republicans are getting squeezed.

A week ago, [Sen. Mark Kirk of Illinois], who faces a tough reelection fight, became the first Republican senator to break with the rest of his conference to call for an up-or-down vote on Garland, according to reports. Kirk told a Chicago radio station that his colleagues should "just man up and cast a vote."

One out, bottom of the fourth.

[part 6, 22 April]
In the news, GOP pulling the plug on state elections. Kind of a surprise, at least to me. The Rabid Right has taken over much of governance by the simple expedient of taking over state government. Why stop now?

The lede:

The Republican National Committee is scaling back its financial commitments to some of the most hotly contested states because of flagging fund-raising, the most concrete evidence yet of how the party's divisive and protracted presidential race is threatening the party's entire ticket in November.

Here's the pressure point: they're getting ever more worried that Trump will not only lose, but take the Senate, and worse the House, with him.

This sort of unease about Mr. Trump, along with the dislike many of the party's business-oriented donors have for the hard-line Mr. Cruz, has prompted the R.N.C. to begin privately assuring donors that it will create a so-called Senate Trust fund. Money earmarked for that fund will go entirely to initiatives aimed at retaining the Senate -- including hiring field operatives and opposition researchers and bolstering digital efforts.

If events keep following this story, Republicans will have to admit that Garland is the best they're going to get.

Drip, drip, drip.

[part 7, 11 May 2016]
(One might be tempted to name this piece, "7 Days in May", but I'll pass on that.)
New polling out:

A plurality of swing-state voters approve of Judge Merrick Garland, President Obama's nominee to the Supreme Court, according to a new Quinnipiac University poll conducted in Florida, Ohio, and Pennsylvania. The survey, released Wednesday, found that a majority of voters in those states would like the Senate to at least consider Garland's nomination.

The Donald, more than Hillary, needs the swing states, since he's carrying the baggage of the extreme Right Wing. It gets funnier by the day.

The question of Garland's nomination has already seeped into at least one swing state Senate race. Sitting Pennsylvania Sen. Pat Toomey, a Republican who is running for re-election, has said he would like to wait for the next president to pick the next Supreme Court justice -- a decision that has 30 percent of voters saying they would be less likely to vote for him in November.

And it will get worse for Pat and his brethren. It's only May.

Addendum (not worth making a new update):

Check the Iowa bet on Congress, bottom of the page. Yikes!!

[part 8, 6 June]
I've never heard of Earle I. Mack, but he paid $104,000 for page A5 of the NYT. He's posted the page here.

drip, drip, drip.