Tuesday, August 30, 2011

- That Bitch Irene: Off The Air Day 3

We're coming up on the end of day 3 with no power at RFNJ. We had a 15,000 watt Generac generator ready to handle such emergencies and it ran for exactly 5 minutes and then died - cause still unknown. And since we believed we were prepared, we had tons of stuff in the basement which has all now been destroyed by water.

I eventually pumped the water out of the basement using a pool pump and the 150w outlet in the backseat of my Jeep. And when it got down low enough, my wife and I lied down in the muck on the floor of my basement to light my hot water heater manually. (It's natural gas, but the igniter for the pilot is electric.)

We are both exhausted having carried much of the basement contents out into the back yard to dry, and much of the dry stuff to the curb to be carted away. (you know... one day) A dry box of books weighs about 50lbs, a wet box, about 60lbs, and a wet box of old baby clothes about 150 lbs. We had a lot of old baby clothes. I'll follow up with some photos of the sequoia sized tree that snapped in two to cause all this trouble, but not today. The only way to connect is by using a laptop with Blackberry tether, so the connection is too slow for such antics.

They tell us it will be another 5 days before we get power, so you can imagine how happy I am with the Generac family of companies. But at least we have our useless local government calling us every couple of hours to tell us which websites to go to to get emergency information. If there is a do not call list for our local government you can damned well bet we're getting on it before this is over.

Anyway, got to go. We discovered a 1/2 case of old wine we had forgotten about and we need to use it up before I go crazy and set fire to the local town hall. It's only about a 4 mile hike each way... and I'll bet I can carry the gasoline that far....

Friday, August 26, 2011

- Our Retarded Older Brother

Britain's anti-gun policy is well known. Equally well known (but much less discussed in the media) is the gun crime rate that has persisted in spite of the policy. But London's mayor Boris Johnson has a plan for taking on that issue. He's going to save Britain by preventing children from watching any shooting sports during the 2012 London Olympics.

The restriction is designed to help stem London’s rising gun-crime rate, and to prevent the “glorification” of firearms. But it is predicated upon a farcical misconception, best characterized by the secretary of the British Shooting Sports Council, David Penn. “There is no link between Olympic-level shooting and crime,” he argued. “It is like saying that a thief would use a Formula One car as a getaway car.”

Very clever statement of the laughably obvious made by Charles C. W. Cooke at the link.

Thursday, August 25, 2011

- My Earthquake Damage

It turns out that we had some earthquake damage. The wooden gate which leads from the driveway to the backyard was damaged. As you know, a gate has to have perpendicular columns for it to swing properly. My gate was on the old side and on the top it only have a few millimeters of clearance.

Well it seems the earthquake effected the posts so that they are no longer perpendicular. This eliminated the clearance, and caused my gate to rub when you tried to open it. I took a saw and cut about an inch off the post that was rubbing, and that seems to have fixed it.

It was close there for a minute (I'm hell on wheels with a saw), but there were no serious injuries involved, and I've received no further reports of damage. But in order to remain in keeping with the political sentiment of the day, we will be filing for a relief grant from FEMA, and are drafting our petition for economic relief through the 2010 stimulus plan. As you know, I'm not actually in the carpenter's union, but I think that problem can be ... ahem... "addressed separately"... if you know what I mean. This is NJ after all.

In order to dedicate the time necessary to complete the required paperwork my business is going to suffer a bit. So I'm going to have to lay off one employee (my wife) and cancel the plans I had for hiring one more. But by the time we get done with our federal government checks, we should be about $190,000 ahead of the game.

I wonder if I can get them to pay me in silver bullion?

- The New Face Of Terrorism


- The Cult Of Personality

OK... it's a story, but since I don't own any Apple Stock I find my reaction to it as very... "Derbyshire" like.

"Who ?... what? Oh is he not well? Oh that's a shame... wish him the best.... what did the waitress say the specials are again?"

- The Hollow Threat Of China

The following comment was put up on my post about the euro from ‘Hell Is Like Newark’, a frequent contributor. It raises an issue that I think is important enough to reproduce here, to make sure you all see it. Here it is unedited:

Its not only in Europe that things are getting interesting...

Some posts back you stated concerns that China might have a hard landing. My wife job requires her to deal with China based firms on a daily basis. Observations she has made:

The company she works for stopped ordering textiles from China. The prices are getting very high and the factories are having additional difficulty guaranteeing deliveries as pricing pressures (inflation)sometimes means a factory cannot deliver the final product at the price quoted a year earlier.

Garment manufacturers in China are under major wage pressures as the can no longer keep workers with low wages. This has caused major problems with the factories missing delivery dates. Production is now being shifted to India, Vietnam, and Indonesia.

China has been instituting currency controls which has made it at times, impossible for a mainland based factory to pay for materials made outside of China. The factories my wife deals with have now setup shell companies in Hong Kong (which special status makes it exempt from the controls). All payable and receivables are now going through the shell companies.

I am starting to believe China is much more economically fragile than she appears.

The Chinese economic threat is another one of those issues that some in the political class are making much hay from, but few are seeing it as it really is. The problem of course is that all the statistics they release are lies, or at the very least… wild distortions. No one knows what’s really going on in China except the Chinese, and given the level of efficiency typical of communist systems, the Chinese probably don’t know either. But one thing is pretty clear – hard landing or no, they are by no means the great threat to American sovereignty that many depict them as.

To Discover the truth about China you need to do what some might think of as forensic accounting. You need to look for the things that don’t show up anywhere. I have an old friend who is an Economist with a major Swiss bank, and is a frequent guest on CNBC’s Squawk Box. He’s put some work into it and one thing he found was that much of the Chinese banking system is supported by nothing more than IOU’s from the PLA (People’s Liberation Army). That's not the kind of thing that leads to a solid balance sheet. There have been many other stories about the vast empty cities that China has used it’s mercantile policies to build, but no one can affords to live in. There is one linked to the photo above.

My point is, once you open the hood China does not seem to be the vast economic powerhouse that it seems from a greater distance.

Some, Mark Steyn comes immediately to mind, have raised the spectre of China doing to us what we did to the British during the Suez crisis – using finance to drive foreign policy. I don’t deny that they might try it, but we are not the British. I think it’s entirely possible that if they tried to force our political hand in that way we would ‘selectively default’. And even if we didn’t, the Fed would be more than capable of buying up the entire portfolio of Chinese held US debt. Since the Chinese know that, I think they're unlikely to try it - in the near term at the very least.

Anyway – comments like the one above are very important where China is concerned because they tell you something real. They give you a window into what’s really going on there that can’t be hidden by government statistics. My experience has been that these small stories scale much better than you would expect. If one person is having this experience, then many others are too. And if it turns out that the experience above is typical, then we should see confirmation of it on the macro scale in short order.

Wednesday, August 24, 2011

- A Little Protest Music

When I was younger I used to say that the only time I would ever run was if someone was chasing me. Well it turns out someone has been. Its father time; and he’s starting to gain some ground. As I approach the big 5 - 0, I find I need to pick up the pace a little if I expect to keep my distance ahead of him.

The good news is, my doctor tells me that I’m not only in perfect health, but I have the best cholesterol numbers he’s ever seen in someone my age. (He's a reader of this blog so I can't lie about it) I’m still on the thin side, and I have all my hair, or at least enough so that I can fake it. And people still react to my true age by saying “Get out! You look X years younger than that!” So in the interest of keeping it that way I've started running 16 miles a week, at roughly 10 minutes per mile. Not exactly a record breaking pace, but enough to make up the difference in my metabolism between age 35 and 50.

Anyway, the upshot of all this is, I’ve been trolling around itunes filling my phone with some music to listen to while I run. And in the process, I stumbled across a well known but little played gem.

Bob Seger (His 1970's "Jesus of Saginaw" look notwithstanding) is an American institution – a midwestern Elvis of his age. And I think this song is perfect for all those guys who are currently enjoying the top down policies of the Obama administration. We on the right talk about those people sometimes as if they are the problem, but they aren’t. The vast majority of them would rather have a job than a handout – no matter what the Obama administration says.

Given the choice, they’d rather be treated like men. And they can’t be happy that the Obama administration refuses to give them that choice.

So this one is for you guys.

- A Word On The 'Overnight' Market

In response to a frithguild request, I started writing a primer on the impact of political risk on counterparty and repo issues and overnight lending markets, but about a page and a half into it I realized that everything I had written was too pretentious to publish. I have that problem sometimes. But I've learned never to take 100 words to say what I could otherwise say in 10. Anyway, the last thing you need to spend your time on is me explaining how smart I am, so I trashed the whole primer. I’m sure you have better things to do.

Besides, you all know what political risk does. It gives some people a benefit who don’t deserve it, and penalizes everyone else. But what’s worse is that whatever effect it causes can go away in an instant. A CEO accidentally offends the wife of a political leader at a fundraiser and there goes his competitive advantage... POOF – like a puff of smoke. You can’t invest in anything so fleeting; not in any size anyway. And that's very much the situation in the developed world today.

The current economic winners are only winning because they’ve been chosen by a large government. Level the playing field and none of the big money center banks would still be in business. You could say that they’re being systematically mismanaged, but since the Fed is supporting them, it doesn’t matter. So if you want to get compensated for both the political risk and the counterparty risk of losers being treated as winners, when the government is manipulating long term rates, short term rates, the value of the currency, and the value of risk assets (equities and commodities), where do you go?

The answer is the overnight market – repos. You offer a lower value for bonds offered as collateral, and demand a higher yield from counterparties. The technical explanations for this are many, but unimportant. Call it a change in the return distribution, or greater tail risk, or whatever. What it means is, when a policy changes happens it will have a dramatic effect on the markets lowering the value of debt (which is artificially high) and raising the yield on loans (which are artificially low). The overnight market is simply pricing that in now. It’s a reflection of the gap between the objective reality of the financial markets and the ‘make believe’ reality of politics.

That’s it. That’s really all there is to know about the overnight risk issues. The banks are being systematically mismanaged as are the balance sheets of virtually every nation state in the developed world. And since you won’t be compensated for the extra risk in those markets directly, you’re getting the return where you can.

As I’ve said a number of times before, risk cannot be eliminated, only distilled. Right now, it’s being distilled to the last market where government is allowing freedom of motion. And when the ECB, the Fed and the other policy makers once again allow the markets to price in reality, my bet is the rest of the market will look more like Repos do now than the other way around.

Tuesday, August 23, 2011

- The End Of The Euro

Let me break this down very simply for those who don’t follow the perturbations of Europe.

We all know that Greece, Spain, Italy, Portugal and Ireland have been spending money like drunken Democrats (not to insult any sailors) and have been borrowing heavily to make up the difference. They have borrowed so much that they cannot hope to ever pay it all back under the current monetary regime. So either the bond holders must take a haircut, or the currency must devalue.

Regrettably, the bond holders aren’t in a position to take a haircut because if they do, their own balance sheets will leave them insolvent. So that’s out. But the euro can’t be devalued either because the Germans live in mortal fear of inflation, and will flay alive any politician who brings it to them. So that’s out too. that means that something structural about European governance will need to change in order to address this issue.

One option that’s been proposed is that the European Union will strengthen its constitutional charter, and structure its own debt to ‘buy out’ the debt of the troubled countries, spreading the loss. (A Euro driven 'Tarp' program) But the Euro was of dubious democratic charter in the first place (remember all those votes where if the people voted no, they would simply hold another vote?) And strengthening the union's charter is probably not going to be possible if it requires the participation of the people. Certainly not in anything like a timely fashion.

So this limits the possible options greatly. Choice one is that the European political elite tell ‘the people’ to get stuffed, and impose upon them a Belgian seated European superstate which is dominated by the Germans. This will be monumentally unpopular, but it might not matter. I think there is a legitimate question as to whether the European people still have the will to push back when their elites command them.

Choice two is that the ‘the people’ get their way (probably by tossing out the current crop of political leaders) and the Euro subsequently breaks in two. The way that works best is if Germany leaves the Euro, brings back the Deutschemark and allows Greece, Spain, Italy, Portugal, and Ireland to devalue the Euro to a level that allows them to pay their debts. This is wildly unpopular with European political elites who each imagine themselves as a sort of bureaucratic Charlemagne, with nothing standing in the way of that but the unwashed masses.

This will likely all play out by the end of the year (some key moments come mid September), and the way it falls will tell the story of the future of Europe for the next several decades.

My bet… it’s a close one, but I think the Euro breaks. I can’t see the Germans surrendering even partial sovereignty to the Mediterranean countries especially since it’s the latter’s unwillingness to cope with reality that caused all this trouble in the first place. for me, the cultural difference is simply too great to reconcile. The cultural difference between Texas and Illinois is much less than the one between Germany and Greece. How much do you think Texas would pay to bail out Illinois? How about surrendering control over local tax policy in the process? How do you think folks in Lubbock would take to Rahm Emanuel and Blago setting local tax policy?

And keep in mind, even though they are all but insolvent, the Greeks, Spanish and Italians won’t be so terribly thrilled about surrendering their sovereignty to German domination under the Euro either. I'm quite sure there is someone right now saying that he'd prefer an Italian (Greek/Spanish/Irish/Portuguese) failure to a German success. The question is, do they feel strongly enough about to compel their politicians to obey them?

The political elite want greater centralization, but I believe its greater distribution of authority that will best keep the peace.

I’d bet that the tribe still matters in Europe, but I’ve got to tell you I’m not thoroughly convinced. In fact, I’m as close to the line about it as any call I’ve ever made. It all revolves around whether the common European still has the will to command their politicians, or if they are no more than cannon fodder for the political elite. It may just be wishful thinking on my part to hope for the former.

I’d be very interested in any informed input on this.


I've consulted with my brother who lived in Germany for two years with the US Second Cavalry, speaks the language fluently (or at least did once - with a slight Nuremberg accent) and has an excellent sense of the people and their politics. He qualified his comments by saying that he hasn't been there in some time, and they may be more 'socialized' now than they were back then.

In his view, there is a 65/35 chance that they will accept what the political elites tell them to, and allow the PIIGs to be bailed out, saving the Euro, and taking the inflation on the chin.

He also said that there is a 100% chance that most German bar conversation for the next year will revolve around why they should have gone the other way.

Monday, August 22, 2011

- The Anti Bernanke Rhetoric

You know the populist anti-Bernanke rhetoric is getting too hot when people (however empty headed they may be) start using the word treason.

This is stupid. It smells to me like the thoughtlessness of an angry mob and I have a problem with the angry mob whether it started it's rampage in the union hall, or the prayer meeting. I'd love to be in a position to say that "I'm only gonna say this once", but I know I'll probably have to say it more than that. So here it is:


Right now things are bad. But for Bernanke's actions they would be worse... maybe much worse. If you think he's the problem, or if the things he's doing are permanent and can't be undone, then you need to read up a little because you're making a mistake.

Even someone like Ron Paul who talks about abolishing the Federal reserve would have to have a facility in place to adjust the money supply (just like Bernanke is doing) or the consequences would be grave. What's that? you haven't heard him talk about that? Really? How strange. It's very unusual for a politician to only talk about one side of a story isn't it? I'm sure he must have mentioned it and you didn't see the story? No? Hmmm. How strange.

The talking heads say that Bernanke's actions are 'stimulus' but that's the wrong way to think about it. While congress is arguing about our long term destination, and dithering back and forth about whether we should detour around the storm clouds to the left or right, Bernanke is taking such action as he can to prevent the plane from crashing. His actions are temporary and can be undone as soon as fiscal policy takes the boot off the neck of private industry.

Congress and the President have failed utterly to do their jobs. They have charted a fiscal course which is irreconcilable with reality. But if they were to quit punishing productivity and rewarding sloth, they would create the conditions for producing real economic growth. If they did that, Bernanke's actions could be (and I believe would be) undone in an instant.

And the really horrible thing is that if and when this happens, all you principled visionaries will be getting on his back raising rates to quickly and stifling growth.

Seriously...grow up people. You're acting like liberals for god's sake.

Sunday, August 21, 2011

- Post Vacation Notes

- Boy, you just can’t beat the Gulf of Mexico in August. The beaches are empty, the water is 90 degrees, it's crystal clear, and if you’re polite about it you can drink beer on the beach without getting hassled by anyone. The dolphins will swim to within about 20 yards of the beach as will the bait fish schools they're chasing, but I don't have a problem with that.

- The beach we go to not only has no ‘”buttinsky” lifeguards blowing their whistles every three seconds, but it also has no restrictions on trans-fats, no public smoking bans and no A-hole "know it all" liberals anywhere that I could detect. It was like getting in a time machine and going back to ‘free America’. I wasn't drinking and I don't smoke, but knowing I could was like lifting a weight off my shoulders.

- If you’re going to drive to the Gulf from NJ, figure out how long you’ll be on the road and leave early enough to arrive at your destination about sundown if you drive straight through. If that means you have to leave at midnight, do it. Driving two days seems easier at first, but it’s actually much worse. Better to either be at your destination or back at home than in some bedbug ridden motel in North Carolina.

- If you plan on keeping up with your exercise while on vacation, get out there and do your running (or whatever) before the sun clears the trees. At those latitudes the shade is about 15 degrees cooler, even at 7 in the morning. And at dawn in the Gulf coast area the humidity is almost always 100%. So a few degrees cooler makes a big difference.

- Some sunblocks are apparently more ‘water resistant’ than others.

- Don’t expect to be able to buy decent shellfish anywhere in Florida. Apparently they’ve never seen a little-neck clam more than ½ an inch across. Several people were amazed to learn they come in larger sizes and one man told me that I was out and out mistaken about it. I’m sure they have them someplace, but it’s like shopping in Manhattan. If you don’t already know where to go, you’ll waste so much time that it won’t be worth it when you finally get them.

- I’m told Virginia is really tough for speeding tickets, but that doesn’t match my experience. I zipped through Virginia at an average speed of about 90mph. In fact, I managed to get to the gulf and back with no police interaction whatsoever. But in Georgia, it was only by pure luck.

- In rural northern Florida during an Egg McMuffin stop, a guy about my age knocked on my window and asked permission to take a picture of my ‘Honk If I’m Paying Your Mortgage’ bumper sticker. It was fine with me of course. But things must move really slowly in rural Florida.

- There was an accident on I95 in North Carolina Saturday which left us stuck behind a 1.5 hour traffic jam, and then sent on a scenic but otherwise infuriating hour long detour through the strawberry fields of greater Nash County – all of it traveled at about .4 miles per hour. We later learned that three people were killed in the crash that had caused our inconvenience. Which brings me to my final tip:

- Wear those seat belts at all times. Especially if you're going to drive as fast as I do.

Friday, August 19, 2011

- It's Not Illegal, But That Won't Stop Bernie

Bernie Sanders Socialist Senator from Vermont, has released the names and positions of speculators in the oil market, in the hope that the public outcry will do...something. It's not illegal to speculate in the oil market. But Bernie Sanders, dimwitted nutjob that he is, believes it should be, and a substantial portion of the illiterate public agree with him. So I suppose he imagines people publicly ostracizing those evil bastards who had the traitorous temerity to speculate on rising prices of oil. Maybe there will even be a riot or two - maybe someone will get killed. won't that be great?!

I don't know for certain that my name isn't on his list. It's certainly possible, although given my relatively small size I doubt it. But again it's absolutely possible. I won't hesitate to be a speculator in the oil market when I feel it suits me. And if you asked me so, I'd happily have told you myself. Being economically literate, I know that speculators don't have any long term effect on pricing. So I don't feel like I have anything to hide on that score - whatever A-Hole Bernie Sanders thinks.

But I think it's important that we recognize what this piece of Socialist excrement has done. He's used his position as a US Senator to obtain private commercial data, and then released it to the press for publication, at his own discretion absent any legislation authorizing him to do so. He's fighting a private war on capitalism, and in the process, he's materially harmed the future business prospects of the institution that was forced to release the data to him, and bolstered the competitive positions of the 12 gazillion other places that you can speculate on oil without having to answer to an idiot like him. Ice or Nymex or CME group or whoever it was that was forced to hand the data over to him must be livid.

Rule of law is an important part of capitalism. And wholly unauthorized action like this weakens it significantly. Bernie Sanders doesn't think we should be ruled by laws, he thinks we should be ruled by men... him specifically. He has a personal problem with speculation, and doesn't care that there isn't any law against it.

So now if you want to speculate in the oil market, on top of all the other risks, you have to add in the risk that Bernie Sanders will take it upon himself, to make your positions public. This may be important to you or it may not. But if it is, you had better find somewhere else to trade where you don't have to worry about the exchange handing the data over to Bernie.

To me this seems an outright abuse of his authority, and frankly I think he should be thrown in jail for it. Contracts are supposed to matter, and shouldn't be subject to the extra-legal whims of socialist Senators from Vermont, or anyone else for that matter.

- My Post-Vacation Take On The World

My vacation technically ends tomorrow, but we're going slow today. So this is just a few short comments on the things I've been ignoring all week while my daughter and I bobbed around in the 90 degree gulf of Mexico.

There is no deal that will save them. There is no meeting and no magic. There is no rabbit left in the hat. Europe's political leaders will dither and delay in the hope that some opportunity will be revealed but it won't be. They've run out of rope. All they have left is lies and deceit. They have to make a choice. The Germans have to choose between inflation (a Germany funded bailout to save the Euro) or the collapse of their export sector (Euro abandonment and the return of the D-mark.)

That's it. Choose something and spare the rest of us the grief.

The US Stock market:
Currently being driven by Europe. As they stall deceive and delay, we suffer.

At 1050 for the S&P, QE3 is all but guaranteed. We aren't there yet. And because that's so, I'm betting that Bernanke does not provide any stronger indication of QE3 at Jackson Hole. The market will respond to that by running south. When it gets to 1050, he'll be in a better position to change his mind.

HF Tax:
A buddy of mine who is a fairly big commodity trader, is telling me that there is some substantive talk about the financial transactions tax. He likes it because it will kill HF trading, but I personally think it's economic suicide - especially for the Europeans. Like a short sale ban, it's a desperate act of 'know nothing' politicians who are trying to trick their markets into rising without any meaningful policy change. Honestly, I'm not sure this 'substantive talk' is real. If so, I'll comment further next week.

I think it's still cheap. All of this gain has been due to the Euro collapse, and only a little based on QE3. I would expect at least another $100 per oz when QE3 becomes real, followed by a pullback which will provide a real buying opportunity. Remember, the real inflation will happen after we start growing again.

- This Is Going Too Far...Even For Liberals

I'll bet that I could dig up dirt on your wife. I can find at least a dozen men who claimed to have slept with her, and assuming I provide the right incentives, at least three who will happily proclaim that she gave them crabs. Did your wife actually do those things? I doubt it. But that doesn't have anything to do with what I can assert.

The problem with this ad is not the fact that Rick Perry may or may not have had a sexual past, but that anyone - ANYONE - would think that has a bearing on his ability to be an effective president. And even worse than that, is assuming that the rest of us would care one way or the other. The left thinks this is revelaing a great 'hypocricy', but all it does is show what shallow people they are.

In the cult classic "idiocracy" the president of the United States (500 years in the future) is Ex Porn Star and professional wrestler "Dwayne Elizondo Mountain Dew Herbert Camacho". Rather than being reviled for having a sexual past of any kind, he is revered for it. Personally I think an ad like this is the first step toward a president Camacho. It's another symptom of the complete moral bankruptcy of the left.

(I know this Ad is coming from a Ron Paul supporter, but anyone who is looking for 'sexual hypocrisy' is a member of the political left as far as I'm concerned. The rest of us know better.)

Behold our future under the political left:

Wednesday, August 17, 2011

- No Foot Dangling Allowed

My 11 year old daughter took this picture under the dock no more than 40 feet from my father in law's back door. My father in law's place is on the inter-coastal waterway about a mile from the bay - so the brackish water is perfect for gators. This is just a little one. There is a much bigger one hovering around someplace, but he must have been able to smell my affinity for cajun food, and hasn't shown his face since the day we arrived.

Another much bigger one crawled up onto the back lawn last year and spent 1/2 an hour hissing at my father in law while he tried to tend his garden. He was fresh from hip surgery at the time and was still using a walker to get around. And since his limited mobility was making him feel kind of threatend by the 300 pound predator that had camped out along side his tomatoes, he did what most men would do. He took his .22 rifle out into the back yard, carefully shot the thing, and lacking my recipe for gator creole, pushed its carcass into the bay.

This brings us to the point in the story where he found out that it's illegal to be a man in 21st century Florida.

I won't go into the drama that ensued when his A-hole environmentalist neighbor called the police. My wife will probably already be angry at me for telling you all this much. But the long and short of the story is that the state of Florida is not in the business of sending 77 year old geriatrics with no criminal record to the slammer for protecting themsevles in their own gardens. After much courtroom fuss and some johhny on the spot 'mis-translation' from Hungarian to English by my wife (the hungarian equivalent of "Go F yourself" was magically transformed into "I respectfully disagree") he got a 300 dollar fine instead of the three years in prison that he might have gotten.

So this guy under the dock will live to see another day, even if my gastornomic tendencies say he shouldn't. But I will confess that while we were sitting there fishing for tilapia away from the girls, my father in law did suggest that I bring my 'bow' next year.

Friday, August 12, 2011

- Still Free To Choose

Since I'm still technically unemployed, it may seem redundant to say that I'm going on vacation, but that's how I look at it. We're off to the gulf coast for a week or so to catch a few fish, tease the gators, and bring a little joy to the heart of my father in law. It might slow down my blog posting and it might not. But I'd bet the former.

If your business is as slow in August as mine usually is, you can probably use something to help fill the time. So in the interest of keeping the intellectual river flowing in the proper direction, (and providing you with a first rate means of slacking off in the office) here is another link to that brilliant piece of broadcasting, Milton Friedman's groundbreaking 1980 program, "Free To Choose".

The truth is, I was on the phone with my brother and it came up in our conversation. But I figured, that's no reason I can't link it here as well. Part two is above (because I think it speaks best to the post Obama era), but if you've never seen the original I cannot tell you how much you will enjoy and maybe even be changed by going to this link, and watching the whole thing. Even if you've seen it before, it's worth watching again.

You'll get to see Thomas Sowell in his cantankerous youth, Donald Rumsfeld before he went really grey, and Walter Williams and Frances Fox Piven duke it out in a three round, no holds barred, steel cage match, complete with turnbuckle pounces. Ok that last one might be a stretch - but it's the way I remember it.

If you go to the link and watch it (and maybe send it to a few of your slacker leftists friends as well) you all will end up thanking me.

- London Burning

My stepfather, a devoted lefty from the Frank Lautenberg school, was serving on the British coal board when Margaret Thatcher made her first real push for economic liberty in Britain. The coal board at the time was a rubber stamp. It would approve whatever the powerful, openly Marxist coal miners union would ask them to. Thatcher shut it down along with the union. But he remains very proud that at the end, it was he who was holding the rubber stamp. A little sliver of family history.

He and I disagree almost completely when it comes to politics. (My brother is actually better at coping with him because he holds his temper better than I.) But for all my talk about economic liberty, and all the Sowell and Friedman quotes I throw at him, he is really only horrified by one of my political views; my view on public unrest and mob violence. I totally blew his mind one day when he was explaining to me how the brave Palestinians were simply standing up to the evil Israelis, and in a moment of pique I responded:

“Nothing disburses a violent mob like live ammunition.”

He was utterly horrified but I meant it. I’m all for free speech, but looting a department store doesn’t strike me as something that should have constitutional protection. When someone throws the rule book of civil society out the window (or through it as the case may be) I think everyone else involved in the disturbance should be allowed to do the same. It will either be the marquis of Queensbury/parliamentary procedure or it won’t. So I think the minute a mob becomes violent, it’s perfectly appropriate for the forces of law and order to fire on the crowd.

If they can manage to maintain order with tear gas and plastic bullets I have no objection. But as soon as the mob starts lighting cars on fire, protecting their physical well being should become a secondary concern. Maybe if I hadn’t been raised in the 60’s and seen the way the counterculture idealizes those who commit the most crime and violence in the name of politics, I’d feel differently. But there it is.

The thing is, it will eventually come to that anyway. The gap between a riot and revolution is smaller than most people think. When the rioters set fire to Bloomingdales it’s looting, when they set fire to the Supreme Court building its open revolt. And don’t you believe for a minute that Obama won’t send the troops in to suppress the rage, if it’s him and his people their raging against.

But in Britain, that may not actually be possible. By any account I can see, it looks to me like the British government has ceased to rule. They have been going in the direction of liberal least resistance for so long, that they now lack the facility to control the populace even if they want to. What’s worse, after a generation raised entirely in the entitlement society, they have all but completely lost the internal self direction to live any other way.

To my eyes it looks like they have all become clients of the state; they are no longer free men and women. They are a generation of slaves – and the master has just cut their ration. They don’t understand why the 'free stuff' can’t keep flowing, and they're responding violently.

They think the government can simply 'tax the rich' more. This error is principally due to an education system that’s been hollowed out by the same liberal ideals that have ruined the rest of British society. Even the basic math involved is too much for them now. All they know at this point is that someone has more than them, and they feel it’s the government’s job to even things out in their behalf. It would never occur to them that it might be their responsibility to improve their own lives.

Like I said, they’re no longer free men.

I don’t have any grand prescriptions for Britain. I have a hard enough time keeping the problems of my own country straight, so I won’t presume to tell them how to fix theirs. Jonah Goldberg has half jokingly suggested building enough prisons to lock up that entire generation. Sounds OK to me. But I think it’s clear that thanks to our own hard left, we are on a path that’s all too similar to theirs, so we're going to need some more prisons too.

Charles Murray has done some very interesting work documenting the decline of American culture. In the interest of removing the word ‘racist’ from liberal criticism of his work, he specifically addressed the trends among whites in America, but as he says in this video, the trends hold true for other races as well. His work clearly points to us building a new "government dependent underclass" like the one that’s been rioting in Britain. I highly recommend you follow the link and listen to what he says.

There is little doubt in my mind that the violence they’re seeing in Britain will be part of our future too unless we change our ways. By adopting the liberal ideal of allowing the state to replace the family and politics to replace religion, we’re left with a fairly large group of sub-citizens who can’t figure out that their life is their own problem. All they know is that the state provides... and when it stops, they will be rising up violently too.

For us, a better solution would probably be to pull the plug now before it becomes too deeply ingrained in the culture, and we end up having to cope with it in the same way that the British have. If we do, we might only need 1 new prison where the British need three.

Thursday, August 11, 2011

- The Boring Republican Debate

I don’t think Michelle Bachman is electable. But even if she were, I think she lacks the kind of economic sophistication it will take to keep our country from the abyss. A while back I wrote a piece about how Sarah Palin can ruin everything. All of that applies to Bachman as well. And I don’t like the gaggle of ‘also rans’ who will be telling us tonight whether they prefer Coke or Pepsi. I just don’t see it as a compelling reason to vote for any of them.

As for Romney, the ostensible leader, I find it tough to get firmly behind a guy who has firmly chosen every side of every issue.

Personally I hope Ron Paul pulls out a debate win. I don’t’ think he’s electable either, but everyone knows where he stands and I think a win by him will firm up the view that abolishing the departments of commerce, education, and HHS isn’t such a crazy idea after all. In a rational world, it really wouldn’t be.

My bigger point is that I’m hoping that the actual republican presidential candidate isn’t in the debate, or for that matter the race yet. As for those who aren’t, I don’t like Christy’s anti-gun position, or Perry’s past as an Al gore Democrat. I guess I’m still hoping against home, that someone talks Paul Ryan into running. But I know it’s a long shot. Short of that I’ll support whoever stands the best chance of beating Obama, in my estimation.

I wish I could say that Obama is an easy candidate to beat. God knows with a record like his he should be. He’s been a stratospheric failure on any objective measure. But the press is still willing to lie and distort the facts to keep him in office. And to be frank, he has a fairly big ‘client class’ who will support more free stuff, whoever promises it to them.

The Democrats will be spending a billion dollars on character assassination as soon as we choose a candidate. So I think it’s in our interests to wait as long as we can. The weak tea I’m seeing in Iowa only supports that conclusion in my view.

Wednesday, August 10, 2011

- QE4?!

Early risers like me know that CNBC's show Worldwide Exchange tends to be better than the shows they've designed for their American audience. But I heard something today which gave me a start.

One guest (I didn't get his name) suggested that the inevitable plan for QE4 will be to forgive the 1.4 Trillion in debt that the Treasury has issued and the Fed owns. This would be a disaster because it would make permanent the excess capital that the Fed has pumped into the system, and eliminate the option of removing it later. I don't think that would help anything. Even if it's done as a last ditch effort to preserve fiscal solvency, I think the result will be a collapse of the dollar and an implosion of the US economy.

This idea is apparently predicated on the idea that Fed Chairman Ben Bernanke is doing something horrible to the US economy by increasing liquidity. I disagree. I think the effects may be pernicious, but Bernanke is only doing what he's allowed to do to try to keep the ship of state from sinking entirely. And without action from him, I believe that's exactly what would happen.

He's not fixing the leaks - it's not his job to fix the leaks. That's congress's job. It's his job to keep the water level low, and he's doing it. As a result, we have not fallen into a deflation death spiral which would feature charming things like 25% unemployment and a cessation of all economic growth.

Either Bernanke does what he does, or we implode. But his efforts are temporary. In order to right this ship we need to change things - specifically our tax code and government spending. We need to quit pumping vast capital and resources into activities which generate zero (or negative) economic growth. Once we do that, I'm convinced Bernanke will step back and raise rates again.

I'm convinced that this form of QE is not on the table. There's no upside in it, and if I know it, Ben Bernanke knows it.

Tuesday, August 9, 2011

- A Note On Perry

I don't have a lot to say yet about Texas governor Rick Perry except this:

If I'm a single issue voter, then my issue is guns. Perry is strongly pro-second amendment, and shot a coyote with his Ruger LCP while jogging. So he's made more of a first impression on me than many of the other potential 'R column' candidates.

But with that said, I just can't bring myself to give a full throated endorsement of a man who once managed Al Gore's campaign... at least until he shows me something.

- Finally Seeing Obama For What He Is

This Wall Street Journal piece reminded me of what I wrote the day after the 2008 election about the future of the Obama presidency in a piece titled "Hail Ants":

The inevitable shattering of liberal ideals as they collide with the inescapable facts of reality is never pretty. But it’s a lesson I suppose we need to learn every generation or so. Obama was elected by the young; the most na├»ve portion of our electorate. And it’s in the disappointment of liberal children that conservatives are usually born. Carter’s malaise speech brought the Reagan conservatives to the fore, and Obama’s future version of it will no doubt do the same. Eventually everyone gets tired of making the same mistakes over and over. And when Obama starts raising taxes on those who would otherwise create jobs, driving businesses overseas, and massively increasing the cost of energy, the young will begin to get the point.

- Another Day In Obama-land

Rioting in London and Athens, Gold topping out at 1,781 an oz. Unemployment on it's third year above 9%, the stock market falling like a stone, and his wafer thin plan for fixing it all is really just a campaign speech. What do we do now?

what else.... blame George Bush.

Really NYTimes? Really?! This is all you can manage to contribute art this point in the conversation? How pathetic. I'm a guy writing a blog that's read by 8,000 to 10,000 people a month, and I have more substantial and productive ideas on how to fix things than the entire staff at the NYTimes? Honestly?

You can't even recommend a blue ribbon committee or some special panel to generate ideas? Is the 'top down' well so dry that you can't even draw a little more of that muddy slop? I know you people think we private citizens are too stupid to run our own lives. So where are your big ideas? Let's here em (you arrogant condescending A-holes).

At this point I have nothing but open contempt for you all. These chains that you've all put on me and my kind (for our benefit of course) aren't actually helping anything.

Monday, August 8, 2011

- Impotent Truculence...

Michael Walsh with a take more optimistic than most of my friends today:

It’s hard to effect fundamental change when the thing you’re trying to change suddenly if belatedly wakes up to the mortal danger it’s in and starts fighting back. In Bush and McCain, Axelrod had two stationary targets to diminish, and Obama gained in stature as they degraded. But the Tea Party crew is made of sterner stuff, which means Obama and Axelrod have a big problem: For the first time in Obama’s national political career, they have an opponent who can fight back.

Read the rest at the link.

- Calling The Top In Gold

I heard two people 'call the top' on gold today. But that makes no sense to me.
The only way you can believe that gold won't continue it's march north is if you either believe that there will be no further policy measures from the fed, or that you're short gold already and you're talking up your book.

The first person I heard call the top was Jim Kramer. Kramer's lack of insight is legendary in my business, and we think he's usually good for a laugh. The 'Kramer' effect is well known and a subject of frequent humor (hows that Bears Stearns buy reccomendation working out for you Jim?) That Kramer called the top seems like a buy signal if anyhting to me.

The second guy was some ex J Aron drone that MAria Bartiromo had sidled up next to on the exchange floor this afternoon. He seemed to be pretty clearly tryign to talk up his book.

Meanwhile JPMorgan came out today and said that they believe gold can go as high as $2,500 by year end. That seems ambitious to me, and if it's true, then I mourn in advance for what the world will look like. I'm sticking with my previous forecasts. But I do think I should add that I find it very difficult to believe that this is the top.

- Playing The Part Of Barak Obama....

Obama came out today and explained how the downgrade wasn't his fault. Geithner also said that it wasn't their fault, and now Jay Carney is saying the same thing.

Just as a point of reference fellas, I don't think this is what the markets are looking to hear from you. While Obama was saying it, the market fell 140 points.

- Woman On Fire

Compliments of my buddy Craig. This woman is saying what we all say, with the same sort of desperation that we say it.

The longer you listen to her, the better it gets.

- The Liberal Downgrade Mythology

You can almost understand why Democrat politicians believe that politics should always trump reality. Especially in those moments like this one where reality says that they've failed... again. But if you're a normal citizen instead of a politician, and you're the kind of person who looks to someone like Tim Geithner for 'the truth' about America's fiscal solvency, then you have bigger problems than I can solve.

This is the core political debate in our country. the Tea Party believes reality should always trump politics, liberals believe politics should always trump reality, and 'independents' believe they'll have another beer and let the 'extremists' duke it out, then go along with the winners.

Then you come to someone like Krugman. I won't add to his embarrassment by linking his piece, but it's a low point in Democrat water carrying, even for him.

What a sad and tragic figure this man has become.

Sunday, August 7, 2011

- What Sublime Stupidity

David Axelrod, providing perfect evidence of liberal detachment from reality, is joining that paragon of credibility John Kerry in blaming the Tea Party for the USA's credit downgrade.

It's hard to find a better example of how liberals continually get cause and effect totally backwards. This is exactly like blaming the firemen for all those fires.

- What The Bond Market Tells Us

I've got to tell ya, I'm getting pretty sick of reading all the 'insightful' comments from journalists who think the low Treasury bond yields are telling us something meaningful. The usual water carriers are saying that it's really an indictment of S&P etc, but that's simply ridiculous. So let me tell you once and for all what those low rates are really saying.

Right now, the largest holder of US debt (by far) is the federal reserve bank. The fed has unlimited resources for bond purchases, so no one dares bet against them. This means that the 'price' of Treasury debt does not reflect any information except that there is an actor in the market who has no need to generate a profit, has unlimited resources, and is placing all their bets one way in order to achieve a political goal. That's it.

The 'market' for treasuries is no market at all. It hasn't done the thing that markets are supposed to do for some time now. It no longer discounts relevant information, so there are no other conclusions you can draw from it. That's it. That's all it tells us. There is no great mystery. That market is simply broken.

Saturday, August 6, 2011

- It's Not Obama's Fault

I'm only going to say this once. The truth of the matter is, this credit downgrade is not Obama's fault. He's just the guy who's been left holding the bag. He hasn't done anything to improve the situation, but neither (really) has anyone else we've elected before 2010.

Nor is it the fault of who the Democrats still blame for every ill wind since the Pleistocene era, that evil super villain George W. Bush. Bush spent money like water, as has Obama. But neither of them was deviating much from the longer trend. That's simply the way things have been done in Washington for more then a generation.

In reality this is our fault. We elected these useless hacks. We encouraged them to pick everyone else's pockets, and we let them get away with treating socialism as a moral imperative. There was already plenty of evidence that they were economic illiterates long before we elected them. So we are who is to blame. Only us.

And here's the thing, if we don't change our ways now, I believe it's entirely possible that the republic is finished. Either we turn our backs on the old way of doing things in Washington which is so effectively epitomized (almost caricatured) by Obama, or we may very well see the end of the United States. If we are so wedded to our socialist fantasies that we can re-elect someone like him, who has more than demonstrated that he's completely divorced from economic reality, then we deserve to be finished.

The path the left would have us take leads only to the rioting we're seeing in Athens, and eventual default. Nowhere else. There isn't any real 'third way'. We can't even afford to elect a Republican who isn't absolutely dedicated to economic liberty. The things we need to do will be too difficult for anyone who is going to worry about his standing in the polls. It requires a man, and a congress, who can allow the NYTimes and the liberal press to call them horrid villains every day, and still do what must be done. In a word, they need to be Tea Partiers.

If we don't, then my 11 year old daughter may very well graduate from college in another country, even if she never leaves NJ.

How To fix Our Credit Rating

So who do you think has a firmer grip on reality, Nancy Pelosi, or Paul Ryan? Since reality has now come calling for Washington, I think the answer is pretty clear, and completely relevant. The fact that people want lots of free stuff from the government and that there are polls which reflect that, doesn’t necessarily make it a good idea to give it to them. It doesn’t even make it possible to give it to them. As an old friend of mine used to say “People in hell want ice water… but that don’t mean they gonna get it.”

By now you certainly know that S&P has downgrade the credit of the United States of America to AA+. This is the same rating they give to Belgium. There's a "change" for you. In response to the enormous political pressure which was brought to bear by the Whitehouse, Moody’s and Fitch have not followed suit. At least not yet. I think they still will. So long as progressives still have influence in our government things will get worse for our finances not better. And Moody's and Fitch may be very political, but they are still financial companies. In finance (and everywhere else outside the beltway), politics doesn’t trump reality.

Which brings us back to Nancy and Paul. Do you think Nancy’s alternate universe where there is a rainbow in every pot and a unicorn in every garage is a good model for a society? If so, have a long look at the situation in Greece. That’s the only thing the future now holds for Nancy and her like minded progressives. Paul’s view is a much more sober one where we are all forced to get by on no more than we have. That’s what the future holds in the real world.

Scarcity is tragic, but inevitable. It would be great if everyone had all they wanted, of everything, all the time, but that is not how the world works. There aren’t so many Ferrari’s or private jets, or supermodels that everyone can have one. Instead we need to find a way to either content ourselves with what we can afford, or to make the sacrifices necessary to get something more. But we need to make those decisions ourselves. No matter how smart the people who run the government are, they’ll never know better than you do what you want for dinner.

What we need to solve our fiscal problems is not some magical government panel empowered to do to MRI’s and retirement checks what Jesus did for loaves and fishes. All we really need to get our fiscal house in order is rapid economic growth. But we won’t get that from a president and an administration that want to make all the decisions about who will grow, who won’t, and how and where that growth will take place.

There is no secret to generating economic growth, it’s just that the progressives don’t really want to generate any. They’d rather have green energy than coal even though it costs more. They want everyone to be in a union even though that means lower productivity and higher unemployment. And they want to shrink the gap between rich and poor even if the only way to accomplish it is to make the rich guy unemployed for a few years, and everyone gets poorer. But what they really want most of all, is to be the people who make all the decisions about what happens in the economy. They want it all directed from the top down, and they want to be at the top directing it. That never works.

It’s time now to send all the progressives back to the teacher’s lounge and to let those of us who actually know how to generate economic growth do so. It’s time for the government to quit the experimentation and the BS "investment in the future" where they squander money based on politics rather than the return the spending brings. What they really need to do now is to get out of the way and allow more economic liberty.

We need to change the tax code to a transparent consumption tax. Not a VAT where the government still gets to pick the winners and losers and to hide who is paying the tax and who isn’t. Instead it should be a simple and straightforward consumption tax like a national sales tax or an income tax that exempts investment and savings. We should also cut capital gains and corporate income taxes to zero - permanently. It would be better to increase the other taxes to compensate for the lost revenue since they distort economic decision making less.

If the progressives are really up in arms about all the "unfairness" (and when aren't they), implement a reverse income tax like the one Dr. Freidman was always taking about. If you make less than X, you get a check from the government to bring you to that level. Simple, uncomplicated, and it doesn’t involve much government control. What level is X? I don't know... let congress decide. They can even change it every year for all I care. But it has to apply to every citizen the same way. Any benefit which is targeted, is a benefits which is a mistake.

Those changes alone if implemented today, may very well give us double digit growth for 2014. By 2016 the economic growth would be so powerful and unemployment so low, that the Fed would have to raise rates dramatically. But if we all have jobs again, no one will mind. The best social welfare program in the world is a job. And tax reform like this will give us more jobs than we can handle, as fast as we can handle them.

That won’t be soon enough to save Obama, but to paraphrase my brother, I think his coffin has enough nails in it now anyway. There probably isn’t any saving him or history’s view of his legacy. You won't here this from the NYTimes or NBC, but the truth is, it hasn't really all been George Bush’s fault. Obama has been fabulously inept at running the country, and has listened to all the wrong people. But that’s what you get when you hire someone from the faculty lounge.

And here’s the real kicker – if Nancy and her far left companions don’t like the changes proposed above, make all the same plans anyway. Because after November 2012, it's very likely that Nancy is going to be replaced by a gay libertarian who will vote like Ron Paul (or someone like him) so there is no need to pay any more attention to her or her ilk. They are completely divorced from reality, and since reality has finally come calling for Washington DC, that will soon become apparent to the American voter.

The Obama presidency always felt like the last gasp of a movement that knew it was on borrowed time. At this point the only thing left for them is the riots of Athens, or to step down and let other call the tune. But rioting won't supersede scarcity any better here than it has in Athens. It’s time for them to step back and let the grownups to figure out how to keep the ship from sinking before it’s too late.

We need to quit running the government by ‘political connections’. No more special cases. No more waivers or exceptions. We need simple straightforward rules that apply to everyone in the same way. Everyone should run on the same track, and start at the same gun. No more playing favorites. And when one person runs harder than the rest and wins, he should be allowed to. He shouldn’t be pushed back because he’s not in a preferred race, political class, or has good political connections.

That’s what will save America now. We need to end the ‘government thumb on the scales’ version of fairness that the progressives so love, and go back to ‘actual’ fairness once again.

And S&P has certainly signaled that it’s time to finally make that change.

Friday, August 5, 2011

- USA Downgrade to AA+ By S&P

I got a call from a friend this afternoon asking about the rumor that S&P was going to downgrade the US after the close. I called around but no one could confirm anything; one guy even told me that S&P had denied it, although he was unable to produce evidence of that. Now it seems it was true. The USA under president Barak Obama has just lost it's AAA credit rating.

Moody's and Fitch both responded to the very substantial political pressure that was put on them by the Whitehouse and have decided not to downgrade at this time. S&P would rather care for their credibility.

- ETrabe Baby Lost Everything

- The 'Fundamental Transformation' Has Now Happened

How do you value the risk that EPA head Lisa Jackson, will come up with some new and arbitrary rule which increases your energy costs dramatically? How much should you hold back to account for the risk that government will make an ‘investment’ in one of your principle competitors? What do you do to prepare for the impact of increased healthcare costs when the rules for those costs haven’t been completely written yet?

How do you prepare for government instituted ‘fairness’ when that term means whatever the current crop of politicians think it should mean? How do you hedge against the risk that some leftist 'social engineer' will 'fundamentally transform' things to conform with what they believe is 'fair'?

What businesses need is objectivity. They need the rules to be based on something external to government that they can verify. This is the main reason why leftist ‘fundamental transformations’ have unexpected consequences which overwhelm their primary goals. A world where the bureaucracy has triumphed, and all economic activity is directed by a government which places the political goals of politicians ahead of economic goals of the people, simply doesn’t achieve what leftists want it to.

The single most effective criticism of the leftist world view is that it fails every time. It never works. A top down, command and control economy like the one Obama has tried to implement will never be as efficient as one that is directed from the bottom up. The bureaucrat will never be as good at directing a business as the business owner. The politician cannot invest as efficiently or effectively as a professional investor. It will never be any different.

The only thing that will help us now is economic liberty. And that economic liberty needs to be defined by deregulation, tax reform which is based on consumption (rather than a progressive “punish the rich” vision of fairness) and an economic climate which allows people to keep as much as possible of what they earn. Anything else is simply a waste of time – as the ‘stimulus package’ has been. We need to bring an end to all the ‘special cases’ and ‘directed benefits’ that Democrat love so well. The government needs to stop trying to pick all the winners and losers, and allow consumers to do it on their own.

Slashing the public sector will bring short term pain; especially for those who work in it. But the more severely we attack the problem, the sooner the long term benefit will arrive to compensate for it.

If we want to a strong economy it’s now our only option.

Thursday, August 4, 2011

- Fall Of Rome 2: The Sequel

the markets were ugly today, and it doesn't look like it's over yet. At a minimum there will have to be a bit more delevering in Europe to make up for the way their collateral was aggressively sold off after their markets closed.

The very worst of the possible options is that there is talk of an Italian bank run tomorrow. If it's true, then I doubt the euro will survive it.

But you can't say we weren't warned.

- Placing QE3 In Context

I continue to believe that QE3 is absolutely inevitable. Politicians love monetary stimulus because it doesn't cost them politically. It's so much easier for them to smile for the cameras when they've put it all off on the Fed. What we really need is tax and regulatory reform, but as much as politicians love changes in monetary policy, they hate changes in fiscal policy. Because for fiscal policy changes, there is no one to blame but them.

Ben Bernanke takes a lot of abuse among my non financial friends, but I for one am not sure he deserves it. He's a smart guy who is doing his best in an all but impossible situation. In a 'normal' environment the kind of monetary stimulus he's offered might have been enough to set things aright. But with both the Whitehouse and the Congress taking profoundly anti-growth positions in fiscal policy, it's not near enough.

I have a great analogy for this, but it's a little complicated. It has to do with airplanes.

When you're flying a plane, the flaps are what you use to control the amount of lift you generate. Flaps are big surfaces that run much of the length of a wing, and are controlled by pulling back or pushing forward on the controls. "Pull up" is the quote that's come from what I'm talking about here.

In non-emergency situations, flap changes don't have to happen very often or very quickly. During normal flight you're either increasing your altitude, flying level or lowering your altitude. Except for changes due to weather, you really only do each of those things once per flight.

Since the flap changes don't happen very often, you really don't want to have to put constant pressure on them. Even just holding them steady would be a little tricky for an extended period anyway, and you have more than a few other things to worry about while you're flying a plane. So ideally, you want to set the flaps in place for the portion of the flight your in (ascent - cruise - descent), and not touch them again until it's time to make the next major change in altitude.

But here's the problem... as you change altitude, or fly into colder or warmer air, the effectiveness of your flap changes. The same angle on your flaps at 20,000 feet will be very different than it is at 8,000 or 2,000. So you need a little fine tuning to keep things going the direction you wanted them to. In order to handle those smaller changes, modern planes have something called 'trim tabs'. These are a smaller surface - a sort of flap for your flap. They allow you to fine tune their effectiveness and keep things going as you intended them.

So with all that said, fiscal policy is the flap, and monetary policy is the tab. So long as the flaps are at close to the right angle, you can fly the plane with the tabs; using them for all altitude changes. They won't send things too far in either direction or do it too quickly, but if your flaps are set right and you've planned your flight to allow for slow changes, that's probably all you need. But if your flaps are set to send you in the wrong direction, then even setting your tabs entirely the other way probably won't be enough to save you. And that's the situation we have now.

Right now America's flaps are set for economic descent. Our tax policy, our regulatory policy, and the general 'punish the successful' climate coming from Washington have all aimed America's economy for the pavement. The Tea Party and the Republicans are trying to change that, but they're being called 'terrorists' by the left and the media for their trouble. And while they might have managed to slow the plane down a touch, they have not yet managed to wrench the economic controls away from the unions and the far left.

Ben Bernanke doesn't control the flaps, only the tabs. He has glanced out the window and given the breathtaking speed at which he's seeing the ground approach, he's set our monetary tabs at absolute full ascent. Given his charter, this is the right thing to do. It's not working; mainly because it isn't enough on it's own. But that's not really his fault. He's doing the right thing from his end.

I have friends who know Bernanke personally. I respect them greatly, and they respect him. They don't doubt for a minute that when the fiscal situation allows, he'll suck the excess money supply out of the economy with the same vigor that he's injected it in the first place. So I'm convinced that when we finally see some action on the flaps (assuming we don't crash first) Bernanke will set the tabs to a more reasonable level.

So the long and short of all this is that I don't think we'll get anything like QE3 soon - certainly not at the next meeting. But I do think we'll get some 'big talk'. Talk in Washington isn't cheap, it's free. So there is no reason the Fed can't use a little jawboning to try to persuade the markets to lift things a little further for them.

In principle though, we need the threat of inflation to fall somewhat before we can have full blown QE3, and I believe we'll get that very thing. Japan is intervening in the currency markets, so if we simply have the Euro stabilize a bit and allow commodities to pull back a little, it will open the door for fed action. So far all of our inflation has been commodity driven so Crude oil is the thing to watch I think. And a rallying dollar with the kind of weak economic data we've been seeing will bring that on. All this will be accelerated if we see further economic cooling in China.

When they get to it, they won't call a new monetary expansion QE3. But it will be a policy which involves expanding the Fed balance sheet to apply further easing. I wouldn't expect Treasury buying - rather something more 'outside the box'. Maybe more direct mortgage support where the spread between mortgages and treasuries is forced negative with a thought toward driving real estate purchasing. I don't know.

That's not a firm prediction mind you, just a characterization of the type of idea I'd look for. Something that is relatively unconventional, and that doesn't look like an organized plan for debasement. There are legal constraints on those kinds of solutions too, so not really being a Fed expert, I'm not the best guy to identify something specific. I'll poll my 'Fed' guys and see what they think.

We're way off in the weeds already as far as 'traditional' policy. And while that lowers the effectiveness of any future efforts, it greatly expands the number and variety of potential options as well.

Bernanke is a smart guy who I believe understands his job and the risks inherent in it. He started as very much an academic, but I think he's grown into the role. And he's managed to keep us from collapsing in an environment where many lesser men would have been unable to prevent it. He's in the deep water, slipping between the icebergs at full speed. It may not be possible to avoid them all, but if it isn't - I don't believe it's his fault.

He works for a guy who based upon the results he achieves, seems intent on destroying the US economy. And he's taking lip from guys like Ron Paul for doing the very thing that's keeping us from blowing up. I say give the man a chance. There is no upside in it for him in active currency debasement - so I believe he'll raise rates when he can.

But with Team Obama aiming the plane for the pavement, I believe he has no choice but to do all he can to keep us in the air a little longer.

Wednesday, August 3, 2011

- Where Are Those Animal Rights Nuts Now?

As I've... said... before, this was inevitable.

Two pre-teens attacked by Bear in Sussex County NJ.

For those of you in Sussex country remember, you don't need to run faster than the bear, you only need to run faster than the animal rights activists between you and the bear.

- On the Debt Monster

A Brilliant Comment on the Debt Monster and the hyperbole of the left:

At the root of the attitude that has got us into this mess is a perverted conception of morality, in which spending without limit, advocating short-term gain at the expense of long-term solvency, and imposing mountainous debt on our children and grandchildren is Good, but living within our means and, you know, not precipitating the decline of our civilization is Bad. It is a morality in which intentions are the only thing that matter, and reality must bend to meet our indulgences. Never mind that we can’t afford it, do you want it? You don’t? You’re a monster.

- Collapse Is One Left Turn Away

The problem for the Democrats is that the policies they prefer don’t lead to economic growth. They should, according to them – but reality has continually failed to perform as Democrats think it should. Regrettably this is typical. And the central problem for them is that they believe that the economy works best when the brilliant (cough) people in Washington direct who succeeds and who loses, rather than leaving important decisions like that to the whims of the market and the free choice of consumers.

As a basic rule, Democrats prefer an economy where they tax those who make smart economic choices and give that money to people who are making less intelligent economic choices. They call this principle ‘investing for the future’ or ‘spreading the wealth’. But taking money away from winners and giving it to losers isn’t exactly a formula for investment success. What’s worse, what they’re really doing is sending a signal to the people making successful choices and telling them that they need to act more like the people who are making unsuccessful choices – otherwise, they (the folks in Washington) will put their thumb’s on the scale to ‘even things out’.

If the Democrats really want growth, then they need to focus on economic liberty. If the private sector is free to keep more of what they earn, there is a powerful incentive created to do more of what works best. And when this incentive is felt by everyone, the result is vigorous economic growth. But for Democrats, this simply won’t do. If people were free to keep what they legally earn, this would result in what they call ‘exploitation’, where one person makes more than another, and those in government aren’t involved in the process at all.

At this point though, we’re out of options. Only economic growth can fix our fiscal problems. And vigorous economic growth cannot be provided by the political left without abandoning their principles of ‘top down’ economic direction and control. So there is the choice for Democrat pols the next election. They can either abandon their leftist ideology and embrace economic liberty to encourage growth, or they can ‘carry on’ and preside over the fall or Rome.

As for the voter’s, their choice is pretty clear too. No one seriously believes that someone like Nancy Pelosi or those lunatics on MSNBC can figure out how to encourage economic growth. So if the voters want to send the country over the economic waterfall, they really only need to turn to the political left one final time. That’s it. That’s all that’s required. If they really believe that ‘top down’, ‘command and control’, socialist economics really is the best direction for the country, then we are looking at the beginning of the end. We will follow in the footsteps of Greece Spain and Italy, on the road to default and economic collapse.

Even if the voters turn to the right, salvation is hardly assured; but at least it leaves us one final chance. We are in a deep hole, and it will involve many years of hard climbing. But economic liberty will at least make it possible. The only other alternative is the economic abyss.

I've written before that the whole purpose of a recession is to teach leftists that it won't actually be 'different this time'. It teaches them what works and what doesn't. But the stakes are much higher now than they usually are. So this next election is our final exam. There will be no other chances. Either we get it right in 2012 and continue on, or we continue to believe that it will be 'different this time' and we head for the economic abyss.

Tuesday, August 2, 2011

- Slandering The Tea Party

Not only is this piece little more than a slander, the man who wrote it is clearly deranged. As someone who for the last 20 years has made his living accurately assessing the consequences of US economic and monetary policy, I can say with absolutely certainty that everything he thinks he knows about how an economy works is 100% incorrect.

I'm all for free speech - and this imbecile is absolutely entitled to make any ridiculous analogy he likes. I would never run to the government and demand that a law be put in place to silence him no matter how preposterous his claims. But I think it says something awful about this country that in what many people feel is a serious publication, a person can have such a completely wrongheaded view of our public finances and still be taken seriously.

This isn't an example of the pot calling the kettle black. This is more like a serial killer looking out from between the bars of his death row cell and calling the prison guards immoral for keeping him there. It's the psychotic thief claiming that the people he steals from are the evil ones for wanting to keep their own belongings. It's a perfect example of how liberalism makes a moral act seem immoral and an evil actor a hero.

Look... even if you don't think we're teetering near the brink, it's obvious things are pretty bad. If you understand this issue as well as I and my peers, it quickly becomes clear that the only real chance we have of saving the Republic from fiscal collapse is the Tea Party. They are forcing politicians to address the situation in what many people feel is the very last possible second before we go over the waterfall. Those informed few who disagree with that assessment, only do so because they believe it's already too late.

Meanwhile the path this idiot charts for America would result in it's immediate ruin. It's deeply tragic that anyone listens to him.


I just get done writing the little temper tantrum above and one of the very first words I read immediately after that is none other than Jonah Goldberg having a similar tantrum and finally giving in to his desire to tell the 'mainstream media' to go to hell.

God Bless you Jonah. Thanks for saying what oh so many of us have wanted to say (and in fact do say ... often and loudly). It has spared me physical pain to read your words.

- The Mystery Of Rising Healthcare Costs

The WSJ is up in arms about the rapidly rising cost of public health. This touches on the broader issue of the laws concerning our healthcare system. Medicare, which is really what the debt ceiling debate was about, is all but bankrupting the country. We dither and fret and push and pull trying to find a solution to the great mystery of rapidly rising health care costs. Our great minds are stymied, and our leaders distressed.

Oh for goodness sake...

There is no mystery to the reason that healthcare costs are rising. Let me explain it in terms even Paul Krugman could understand.

Medicare and the broader issue of our laws concerning the entire medical industry, basically give unlimited free medical care to any human who can manage to present themselves at the door of a US emergency room. They don’t have to be a US citizen. They don’t have to be in the country legally. They don’t have to meet any threshold of criticality or financial desperation. Show up by hook or by crook, and the US taxpayer will pick up the tab for your medical needs.

That makes virtually every one of the 6.7 Billion people on the planet eligible for free medical care in the US, provided they can present themselves to be treated. Now maybe I’ve been operating under a mistaken impression, but back when I was learning about economics it worked this way. If you leave supply of a product unchanged and expand demand to include 6.7 Billion people, all the while assuring them that they will be treated without any direct cost whatsoever; you’re going to have a modest(stratospheric) increase in price.

But even if you were giving 'free' stuff to only 300 million people, you'll still end up broke eventually. When you give the service to one person and the bill to another, the person who is getting the service will find an excuse to get much more of it. Why not? It's not like it costs them anything. And without market forces to let the caregivers know what services should be increased or decreased, nothing ever improves.

Progressives will tell you that this is a highly complex problem to solve, but it really isn't. In my life I've found it universal that complex solutions only benefit the people who create them, while real solutions are in fact very simple. If you don’t understand it that way, then it means that you aren’t actually seeing the real problem.

Which would be absolutely on trend for progressives.

Monday, August 1, 2011

- Time To Eat The Minstrels

I don’t think the debt deal will help anything. And the reason I don’t is that the problem with government spending is not the fact that it’s spending, but what it’s spending on. Had the Tea Party folk been able to slash spending the way they wanted to, it would have been a VERY short term negative economic impact while all those federal workers from the then non-existent commerce, education, and energy departments went on unemployment. But as soon as the economy understood that those people wouldn’t be around to prevent economic growth anymore, the economy would have roared back more than enough to make up the difference.

Instead we’ve eliminated a couple of interns, and canceled a study or two on the effect of hip hop music on the mating habits of brine shrimp, but the infrastructure of large government remains in place. And it’s just as fully capable of obstructing economic activity as it ever was. This is what the Democrats and Obama won’t tell you. The reason we have such slow growth and high unemployment is that Democrats view them as a necessary and perfectly acceptable evil. They view them as the price you have to pay for properly chastised oil companies, and for keeping those ‘private jet owners’ from increasing the gap between rich and poor.

Democrats don’t think economic growth is important. They say they do, but that’s really just for the rubes at election time. If you look at the things they do instead of the things they say, it’s obvious that they don’t care about it. But you know who does care about economic growth? Moody’s, S&P and all those foreign holders of US debt...they care plenty. They didn’t buy a bond which pays more if the greenhouse gas emissions fall. They don’t do better if coal miners are driven out of business or if more Americans drive electric cars. How ‘organized’ their community is means nothing to them.

But those are all things that Democrats do care about. In fact, they care about them so much, that they would sooner preserve a billion in funding for ACORN voter registration drives than use that same billion for law enforcement. They want to accomplish ‘purely political’ goals rather than economic ones. In fact, many of them understand economics so poorly that they can’t tell the difference between the two. As an example, somewhere there is an idiot Democrat staffer right now saying something like “Well higher mileage makes people feel good about the planet, and since they feel good they’ll spend more money right?”

Achieving higher economic growth is not a mystery. The trick is to spend money in ways that give you higher growth not lower growth. If we eliminate those things that government does which actually inhibit growth instead of encourage it, then we’ll get a ‘double whammy’. And since those practice also do a great deal to unnerve CEO’s, it might even be a triple whammy. With the kind of economic numbers we've been posting lately, that's exactly what we need.

But the ultimate irony is that radically increased economic growth would also increase tax revenues, making it possible for Democrats to spend more money on the kind of economically useless things they think are important. We can have it all, so long as we treat vigorous economic growth as a first priority, and all the feel good 'rainbow and unicorn' regulation as a second. But that’s not where we are. Instead, we've left all of the economic obstruction of government in place, and only trimmed its budget around the edges a little - making it as capable of preventing growth as ever, but doing it more inefficiently. That won’t help.

When the folks at Monty Python went after their Holy Grail, sir Robin went forth into the wilderness with a team of minstrels. They were useless of course, but when the things got harsh, they ate them... "And there was much rejoicing." That’s where we are now.

Sir Barak has ridden forth into the wilderness with his full retinue of minstrels. They're slowing us down, consuming vast resources, and contributing nothing toward reaching our holy grail of low unemployment. All they do is sing about how much sir Barak is healing the planet, punishing the "corporate jet owners", and keeping those evil oil companies in line. They’re singing about how he’s dismantling the racist imperialist tradition in America, and spreading free medical care and Pell grants for everyone. But none of that is helping us achieve stronger economic growth.

We've entered that harsh winter. And what we should really do is eat his regulation generating, waiver issuing, employer suing, tax increasing minstrels. Every step they take or note they sing makes things worse not better. And if we eliminated their jobs (we don't actually have to eat them), then we’d all be much better off.