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Archive for the ‘economics’ Category

Giving Credit Where it is Due

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It sorta seems like the US is backed into a bit of a corner. At least temporarily. A big part of the reason I have considered moving is just the general uncertainty. It is pretty clear that the trend is going to be a lower standard of living across the board. The question is how will people react to it? This year and next year no cost of living adjustment for Social Security. Numerous food commodities are up 30% to 80% over the past 3 months, the US Dollar index is down about 13%, and in spite of having excessive liquidity in the system Ben Bernake keeps jawboning further easing to paper over the fraud from his banking buddies.

The big issue is that those who committed the crimes which have caused the instability have not been punished, but rather rewarded. They claim that oversized record bonuses are needed to retain the best and the brightest, but when they crash the system they play naive:

They can’t have it both ways. First they said that the brightest and most talented Americans work at these companies and therefore they need to be paid millions to keep them. And then when something like this happens they can’t claim incompetence. So yeah I with Black on this one after all he had plenty of experience dealing with very corrupt bankers.

Rather than enforcing the rule of law, there has been a gradual evolution of the creation of a mechanism for systemic economic fraud which will become legal after the fact due to “systemic risk”

The financial industry functions on the assumption that contracts and activities that are either illegal or unenforceable under current law will – as long as they involve significant bank losses or liabilities – always be made legal retroactively.

Over the past half century the financial industry has not treated the law as a bedrock institution that constrains the nature of its activities, but rather as a set of rules that can be forced to adapt to the industry’s needs and desires. Thus, the industry knowingly and deliberately creates standardized contracts that are either designed to circumvent the law or in some cases flatly illegal under current interpretations of the law, and then when a case involving the contract arises (which in many instances happens only long after the standardized contract has become an institution), the financial industry tells the court that the dubious or illegal contract is so widespread that the court would create systemic risk by enforcing the law.

The issue with foreclosure mill policies is not just the end outcome

“The mortgage servicers hired people who would never question authority,” said Peter Ticktin, a Deerfield Beach, Fla., lawyer who is defending 3,000 homeowners in foreclosure cases. As part of his work, Ticktin gathered 150 depositions from bank employees who say they signed foreclosure affidavits without reviewing the documents or ever laying eyes on them — earning them the name “robo-signers.”

The deposed employees worked for the mortgage service divisions of banks such as Bank of America and JP Morgan Chase, as well as for mortgage servicers like Litton Loan Servicing, a division of Goldman Sachs.

but all the other stuff they are hoping to hide in rushing fraud through the courts. The fraud is so fast and so furious that title insurers won’t even insure titles foreclosed on by its own attorneys: “The title insurance arm of one of the state’s largest foreclosure law firms is refusing to cover properties foreclosed on by its own attorneys citing potential defects in court filings.

The creation of a banana republic is the obvious outcome of current policy:

Either there is due process of law or you have a kleptocracy/”banana republic” oligarchy. At present, that is the decision we face as a nation. If the banking Elites and their partners in the Central State (Fed and Treasury) are allowed to “win” and gut the property laws of the states, then the U.S.A. will be revealed as a kleptocracy/”banana republic” oligarchy.

If state laws are upheld, then the “too big to fail” banks are insolvent and they will fail. Then the question of kleptocracy arises once again: will the banks be allowed to fail as per Classic Capitalism, that is, their owners and managers will have to absorb the losses of that bankruptcy/failure, or will the Central State use its powers to collect taxes and cover the private losses of the Bank/Financial Power Elites? Privatizing profits and socializing losses has been the entire game plan since the global house of cards collapsed in 2008.

It’s decision time, citizens. Either the banks/Central State “win” and we are a kleptocracy/ “banana republic,” or they lose and the U.S. mortgage/ banking sector implodes and is either formally socialized (i.e. owned lock, stock and barrel by the Central State) or rebuilt from scratch without big banks, Federal guarantees and the Fed’s incestuous interventions. (“We create the credit that enables the mortgage, you issue the mortgage, and then we buy the mortgage.”)

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October 15th, 2010 at 11:37 am

Posted in economics

Debt is Accounting, Not Reality

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Barry Ritholtz highlighted a great downloadable PDF from Jeremy Grantham of GMO titled The Last Hurrah and Seven Lean Years

It is well worth a read, but here are a few great highlights from it

  • “Debt is accounting, not reality. Real economies are much more resilient than they are given credit for.”
  • Attempts at economic stimulation tends to stimulate the stock market more than the economy because it trades off momentum & a multiplier effect.
  • “Since 1932, in the third year of the Presidential Cycle, the average S&P 500 return (from October 1 to October 1) is 22 percentage points ahead of the average of years one and two! And this is statistical noise? Year three is the time when, driven by politics, financial stimulus and moral hazard are applied so that the economy – particularly increases in employment – can be a little stronger in the run-up to the election in year four.”

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May 14th, 2009 at 9:43 am

Posted in economics,investing

Capitalism, in a Nutshell

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Education is Ignorance

Everybody reads the first paragraph of The Wealth of Nations where he talks about how wonderful the division of labor is. But not many people get to the point hundreds of pages later, where he says that division of labor will destroy human beings and turn people into creatures as stupid and ignorant as it is possible for a human being to be. And therefore in any civilized society the government is going to have to take some measures to prevent division of labor from proceeding to its limits.

There’s a side current here which is rarely looked at but which is also quite fascinating. That’s the working class literature of the nineteenth century. They didn’t read Adam Smith and Wilhelm von Humboldt, but they’re saying the same things. Read journals put out by the people called the “factory girls of Lowell,” young women in the factories, mechanics, and other working people who were running their own newspapers. It’s the same kind of critique. There was a real battle fought by working people in England and the U.S. to defend themselves against what they called the degradation and oppression and violence of the industrial capitalist system, which was not only dehumanizing them but was even radically reducing their intellectual level. So, you go back to the mid-nineteenth century and these so-called “factory girls,” young girls working in the Lowell [Massachusetts] mills, were reading serious contemporary literature. They recognized that the point of the system was to turn them into tools who would be manipulated, degraded, kicked around, and so on. And they fought against it bitterly for a long period. That’s the history of the rise of capitalism.

Comment on the $3.3 billion in TARP money given to Amex

Another theory not heavily subscibed to (but growing now that it is more obvious) is that large corporations are actually Antimarket, meaning they don’t fit the idealized free market that is stated as the moral driver of our economy….they actually are in the business of restricting competition and teaming with governent to command the economy at the expense of the consumer. Autos, Big Pharma, the Weapons industry…

A Highly Evolved Propensity for Deceit

Deceitful behavior has a long and storied history in the evolution of social life, and the more sophisticated the animal, it seems, the more commonplace the con games, the more cunning their contours.

Don’t Regulate the Free Markets!

Here’s one of the simple truisms that gets lost in the political (i.e., bumper sticker) discussions.

Don’t regulate the free markets! Don’t interfere with innovation! Don’t stifle incentives!

What bullshit.

One of the best ways to win a debate is to control the language used. This was one of the elements George Orwell was discussing in 1984, and why the language in the novel was degraded to phrases like “double plus good.” All nuance was dismissed. He who controls the language controls the political economy is what Orwell was saying. In modern times, its done not with boot-jacks and guns, but with catchphrases and clever marketing. Its not as heavy handed, its just more insidious.

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December 23rd, 2008 at 2:52 pm

Posted in economics

Inflation is Good – 1930’s Keynesian Propaganda Video

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Classic video about the virtues of inflation, with the complete opposite approach as Whip Inflation Now. 😉

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December 16th, 2008 at 9:05 pm

Posted in economics

Materialism & Overconsumption as a Broken Strategy

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Andrew J. Bacevich, author of The Limits of Power, was interviewed by Bill Moyers. In the interview Dr. Bacevich highlights how America’s Ponzi-scheme of ever-expanding credit, energy addiction, and imperialistic military powers used to support endless materialism is not working out too well, and how we are in for a crash if we do not change our ways.

He also mentions that the biggest thing that needs changed is an internal problem rather than an external one, which is good news, as it is much easier to change how we act than force change onto others…though how could you win wide coverage in this country by preaching the virtues of thrift and moderation?

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September 30th, 2008 at 3:54 am

Posted in credit,economics

The Federal Reserve Giveth & US Treasury Taketh Away

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Nice interview of Marc Faber on CNBC

“About 15 percent of U.S. households have negative equity. Who supplied the leverage into the system? It’s called the Federal Reserve Board,” Faber said.

“If I’m the drug dealer I’m not responsible that everybody takes drugs, but I facilitate it, especially if I give it out free of charge, I can enlarge the market share, and that’s what the Fed has done.”

President Bush went on national TV to try to sway the population that the proposed Wall Street bailout is a good plan, but is it? Chris Martenson describes it as act of financial terrorism, and The Greatest Looting Operation in History.

The bailout proposal, as originally presented (on Sat. 9/20/08), was shocking.

First, there was the sneaky language that the $700 billion figure was the most that could be spent at any one time, meaning that there was no limit on the spending at all. Second, the right of review by any court of law or other administrative body was to be stripped away, a distinctly unconstitutional and anti-American provision if ever there was one. Third, the Treasury Secretary was to be embodied with complete unitary power in selecting who was to be empowered with an open-ended taxpayer checkbook.

No review, no limits, no questions.

Marc Faber, expecting more shadiness from the US government, predicted that if this emergency measure/theft did not work well enough that…

“The next emergency measure will be that Americans are not allowed to buy foreign currency and transfer money overseas, and the next measure will be not permitting Americans to buy gold and so on and so forth…. It creates even more uncertainty in the market place when you continually change the rules,” Faber said.

It wouldn’t be the first time United States citizens had their gold confiscated. In 1933 Franklin D. Roosevelt issued executive order 6102, requiring all US citizens to hand all gold coins, gold bullion, and gold certificates over to the Federal Reserve. Shortly after confiscating all gold the price of gold from the treasury was raised from $20.67 to $35 an ounce, devaluing the US dollar by 41%.

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September 25th, 2008 at 1:49 am

Posted in bubbles,economics

Inflation vs Taxes

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Some entreprenuers fear that Barak Obama might increase tax rates if he gets elected. But is it any different than what we just lived through? One savvy commenter recently stated “One party will strangle us with taxes, the other will strangle us with inflation. Care to tell me the difference?”

Barrons recently published an article titled Spinning a Grand Old Fantasy, highlighting how the Republican party has become the party of big government and socialism (at least for the rich):

Democrats are depicted as the party of big, intrusive government, willing to “ignore fiscal problems while squandering billions on ineffective programs.”

The GOP, however, has no moral legs to stand on when it hurls such insults.

The Bush administration has bailed out Wall Street, and stands ready to bail out mortgage giants Fannie Mae and Freddie Mac — in the process abetting a slide into more intrusive government. If we are headed down the road to socialism, then the GOP can be credited with setting the pavers.

Because inflation happens, we just assume it is part of the economy. We typically do not lay blame on anyone for inflation – except in some cases claiming merchants are greedy, but that statement misses the cost of inflation and who controls it – inflation is largely controlled through the money supply. Grow the federal debt and money supply faster than the population and you have inflation. Inflation is an intentional economic strategy, one which had no lasting role in our economy from 1776 to 1913, but has been present ever since the Federal Reserve was created

  Taxes Inflation
Income Only hits you after your business expenses are paid and you have reinvested in growth. It only touches a small part of the business, while the core business is allowed to grow logarithmically untouched. Hits the first dollar you earn and the first dollar you spend. Affects every dollar of profit as well as all the other money associated with your business and your personal life.
Earnings vs savings Only takes from your earnings. Does not hurt your savings. Robs from your earnings and cash savings. Forces you to make risky investments with your savings if you want to outpace inflation.

Chris Martenson has a great video on inflation.

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September 22nd, 2008 at 7:47 am

Posted in credit,economics

Every 20 Years Wall Street Loses its Mind

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I was talking to a friend last night about the economy, and he stated the above quote…noting that the market has a short memory. Every bubble in history is built on the thought that this time is different, but opportunity leads to opportunism leads to corruption leads to collapse. Trade away the future until there is nothing left, and then start over again.

The Daily Show offers a humorous look at the economy and you

With the recent worries on Wall Street leading to government bailout after bailout deregulation failed badly.

We now see that the grand experiment of deregulation has ended, and ended badly. The deregulation movement is now an historical footnote, just another interest group, and once in power they turned into socialists. Indeed, judging by the actions of the conservatives in power, and not the empty rhetoric that comes out of think tanks, the conservative movement has effectively turned the United States into a massive Socialist state.

The problem is not regulation, but short term opportunism. People will always work within the limits of the loopholes that exist. Regulators can at best be one step behind.

Unless corporations have a real opportunity cost that prohibits them from fudging the numbers the standard will be fraud, or step away from it…every time there is a bubble we can expect the whole market to chase it, especially if the government undermines moral hazard and saves these companies that should no longer exist.

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September 19th, 2008 at 8:55 am

Posted in bubbles,economics