MaxedOutMama
Tuesday, November 25, 2008
I Am Aunting
Big time. I'll be gone for a bit. Nergles my Niece of Reknown condescends to accept my attention in lieu of her mother's for intervals, and her mother needs sleep.
I did an interview which is probably incoherent last week for Brass Balls Radio with the gracious Girl On The Right.
Interestingly, Shrinkwrapped and Dr. M both wrote posts touching on complexity yesterday. Dr. M:
The west is entangled in complexity, and when you are entangled in complexity fighting with systems you don't understand, ADOPT THE MEDICAL MODEL of not killing the patient! Support vital organs and systems, nudge things in the right direction, but don't try to hit home runs or be revolutionary. Human beings who are amazingly sick with complex syndromes sometimes get astonishing benefits following this approach.
I did an interview which is probably incoherent last week for Brass Balls Radio with the gracious Girl On The Right.
Interestingly, Shrinkwrapped and Dr. M both wrote posts touching on complexity yesterday. Dr. M:
Part of the problem with this issue is that it’s not simple in the same way that stem cell research isn’t simple. Complex theories don’t make for simple policy solutions. That doesn’t mean the Left has a complex solution. They have simple logos and simple solutions: “Hurting the environment is bad” is simple.Shrinkwrapped:
Those who have only the most minimal understanding of science, how scientific data is evaluated, and how scientific facts are arrived at include the vast bulk of MSM reporters, often including the science reporters, and our learned legislators, who know how to be elected and disperse the public's money but share a level of (mis)understanding of science that can only horrify those who have a modicum of scientific knowledge.No kidding. A recent quote of the day at Chicago Boyz:
What is crucial to understand about science is that the scientific method is poorly designed to elucidate complexity.
Yet in the world as it really is, events are unforeseen and trends materialize overnight. Where we live, unpredictability reigns. The last thing we should do if we want to know what the future will look like is extrapolate.So much of human history really turns on human hubris.
The west is entangled in complexity, and when you are entangled in complexity fighting with systems you don't understand, ADOPT THE MEDICAL MODEL of not killing the patient! Support vital organs and systems, nudge things in the right direction, but don't try to hit home runs or be revolutionary. Human beings who are amazingly sick with complex syndromes sometimes get astonishing benefits following this approach.
Monday, November 24, 2008
Bail, Bail, Bail!
China's on "Stimulus Two" (focused on raising the population's ability to consume), the Fed is basically flooding the world with dollars, plus bailing out Citi (preferred stock to Treasury in exchange), even Canada may launch into deficit spending next year.
This is the result of a nearly global lending/borrowing bubble. Abu Dhabi is taking over Tamweel and Amlak (ME mortgage lenders) as their RE bubble bursts. It's hard to find a corner of the world which was not affected by the bubble, and even the relatively fiscally conservative countries (like Canada) are being hit hard as the bubble bursts. Most of the ME countries are pumping money into their own stock markets and/or banks, but the big realty companies are all being hit hard everywhere. Property values are falling all over Europe, in Japan, in China, India, Russia, the US, the UK, Ireland, even Canada.
China's new proposals seem to be focusing on consumption and social unrest:
The real hope of stemming the deflationary surge is that energy and commodity prices will drop enough to boost the spending power of consumers worldwide. The key to that is to make sure that consumers in the developed economies get the benefit of cheaper energy, and that consumers in the less-developed countries get the benefit of cheaper food.
Secondarily, governments should try to redress their public/private balances. In China, the government really should do more to help their poorer citizens - it's an irony, but the "Communist" country has very little in the way of social services compared to the "capitalist" developed countries. In countries like the US and much of Europe, the government sector has grown too large and needs to be rolled back.
The reason we are seeing this coordinated bust is less credit than about the global energy/commodity run up earlier in 2008, which broke millions of supply chains. However, global credit extensions had moved up so much over the last couple of years that of course that breaks credit chains. The next big whack is to European banks, and it's gonna be a heck of a ride.
The September BIS statistical supplement had some pretty intimidating numbers. (Remember, from a banking POV loans are assets and deposits are liabilities.) Table 1 (see page 7) gives you external (international) bank positions. In December, 2005 the total assets were USD 23.9 trillion. In March, 2008, total assets were USD 40.36 trillion. That's an increase of over 16 trillion USD in less than 3 years. Of course it's busting. When you get long chains of international lending, effectively you are increasing the world money supply.
And the bust will be fun. If you go to page 103, you will see Table 19 which lists OTC derivatives. Note that the market value outstanding of credit swaps went from 243 billion in December, 2005 to 2 trillion in December, 2007. The notational value (really amount covered) increased during the same period from 13.9 trillion to 57.9 trillion.
The proverbial man from Mars would look at this and guess that institutions largely substituted purchasing such contracts for the old fashioned practice of trying to figure out whether one was lending to a borrower who was able to repay, i.e. risk assessment and building loan loss reserves. In theory, one is outsourcing the risk assessment to the investment banker bozo who is writing the contract because he or she will charge you according to the risk he or she perceives. In practice, if enough investment bankers are bozos, one is swimming naked with absolutely no protection, because when you show up with the bill you find out that there is a run on the investment bank, and it turns out that investment banks are not FDIC members.
I guess I'm in favor of bailing and balancing, at least as long as the government takes interests in the institutions being bailed out. What's really happening is that the governments are stepping in to cover the shortfalls that the investment bankers can't; an ex post facto FDIC insurance program for IB Bozos is needed, but to cover the cost it's necessary to take something in return for the government guarantees/funds.
This is the result of a nearly global lending/borrowing bubble. Abu Dhabi is taking over Tamweel and Amlak (ME mortgage lenders) as their RE bubble bursts. It's hard to find a corner of the world which was not affected by the bubble, and even the relatively fiscally conservative countries (like Canada) are being hit hard as the bubble bursts. Most of the ME countries are pumping money into their own stock markets and/or banks, but the big realty companies are all being hit hard everywhere. Property values are falling all over Europe, in Japan, in China, India, Russia, the US, the UK, Ireland, even Canada.
China's new proposals seem to be focusing on consumption and social unrest:
But it said that the items being studied include raising the threshold for the payment of income tax, boosting housing subsidies and offering other direct subsidies to people with low income levels.That is key, because you can't have wealth flowing into economies that don't sustain consumption.
The state planner also plans to set up long-term subsidising mechanism for low-income group and rise salary in large scale to increase resident's income.
The real hope of stemming the deflationary surge is that energy and commodity prices will drop enough to boost the spending power of consumers worldwide. The key to that is to make sure that consumers in the developed economies get the benefit of cheaper energy, and that consumers in the less-developed countries get the benefit of cheaper food.
Secondarily, governments should try to redress their public/private balances. In China, the government really should do more to help their poorer citizens - it's an irony, but the "Communist" country has very little in the way of social services compared to the "capitalist" developed countries. In countries like the US and much of Europe, the government sector has grown too large and needs to be rolled back.
The reason we are seeing this coordinated bust is less credit than about the global energy/commodity run up earlier in 2008, which broke millions of supply chains. However, global credit extensions had moved up so much over the last couple of years that of course that breaks credit chains. The next big whack is to European banks, and it's gonna be a heck of a ride.
The September BIS statistical supplement had some pretty intimidating numbers. (Remember, from a banking POV loans are assets and deposits are liabilities.) Table 1 (see page 7) gives you external (international) bank positions. In December, 2005 the total assets were USD 23.9 trillion. In March, 2008, total assets were USD 40.36 trillion. That's an increase of over 16 trillion USD in less than 3 years. Of course it's busting. When you get long chains of international lending, effectively you are increasing the world money supply.
And the bust will be fun. If you go to page 103, you will see Table 19 which lists OTC derivatives. Note that the market value outstanding of credit swaps went from 243 billion in December, 2005 to 2 trillion in December, 2007. The notational value (really amount covered) increased during the same period from 13.9 trillion to 57.9 trillion.
The proverbial man from Mars would look at this and guess that institutions largely substituted purchasing such contracts for the old fashioned practice of trying to figure out whether one was lending to a borrower who was able to repay, i.e. risk assessment and building loan loss reserves. In theory, one is outsourcing the risk assessment to the investment banker bozo who is writing the contract because he or she will charge you according to the risk he or she perceives. In practice, if enough investment bankers are bozos, one is swimming naked with absolutely no protection, because when you show up with the bill you find out that there is a run on the investment bank, and it turns out that investment banks are not FDIC members.
I guess I'm in favor of bailing and balancing, at least as long as the government takes interests in the institutions being bailed out. What's really happening is that the governments are stepping in to cover the shortfalls that the investment bankers can't; an ex post facto FDIC insurance program for IB Bozos is needed, but to cover the cost it's necessary to take something in return for the government guarantees/funds.
Friday, November 21, 2008
Wreck The Economy Because
Wreck the economy because .... we've got to deal with a crisis that doesn't seem to be under our control:
Temperatures are falling already.
And let's look at the drivers:
PMOD TSI is total solar irradiance, which is pretty closely correlated with the sunspot cycle.
Note that CO2 is increasing more rapidly as temperature falls off. It looks like the sun/GHG race is being won by the sun. Nor is this really abnormal for the sun - what was abnormal was the recent period:
Over a scale of centuries, the 20th century had abnormally high solar activity. Solar activity varies a lot. The temperature has historically moved with the sun, and it is STILL moving with the sun. My personal guess is that CO2 is having a small effect, but obviously nothing significant.
We do have to transition away from some fuels, but that's because the supply is getting short and the cost of producing those fuels is getting too high. There's no reason to do it because of a threat to the climate!
My guess is the motto of the next populist revolution will be "First, we kill all the climate scientists." It would make a cute T-shirt, wouldn't it?
Update: Of course, if you still believe Armageddon is nigh due to CO2, you might want to apologize for killing whales. SAVE THE WHALES - BURN COAL!
Further Update: Maybe ethanol subsidies aren't such a great idea after all. Obama pressure.
Temperatures are falling already.
And let's look at the drivers:
PMOD TSI is total solar irradiance, which is pretty closely correlated with the sunspot cycle.
Note that CO2 is increasing more rapidly as temperature falls off. It looks like the sun/GHG race is being won by the sun. Nor is this really abnormal for the sun - what was abnormal was the recent period:
Over a scale of centuries, the 20th century had abnormally high solar activity. Solar activity varies a lot. The temperature has historically moved with the sun, and it is STILL moving with the sun. My personal guess is that CO2 is having a small effect, but obviously nothing significant.
We do have to transition away from some fuels, but that's because the supply is getting short and the cost of producing those fuels is getting too high. There's no reason to do it because of a threat to the climate!
My guess is the motto of the next populist revolution will be "First, we kill all the climate scientists." It would make a cute T-shirt, wouldn't it?
Update: Of course, if you still believe Armageddon is nigh due to CO2, you might want to apologize for killing whales. SAVE THE WHALES - BURN COAL!
Further Update: Maybe ethanol subsidies aren't such a great idea after all. Obama pressure.
Thursday, November 20, 2008
LaLaLaLaLa Everything's Wonderful
This FAZ article (in German) covers the new IFO projections. In this case, a graph overcomes the language barrier:
This is the world economic conditions barometer, rather than just those in Germany.
We're still in the first half of this, too. That line is going to sag further. Just for Europe:
Putin is the latest into the "whatever it takes" camp:
China has been facing higher unemployment in their manufacturing centers for a while. China's official unemployment has not changed, but China's official unemployment has nothing to do with real unemployment. The official unemployment rate is just the people who have residency permits for the area in which they are unemployed, and most of the unemployed workers don't have residency permits for the urban areas; thus they are not eligible for unemployment benefits.
Lenders in the Gulf area are beginning to show the strain. Amlak suspended mortgage loans yesterday! There are talks of a merger:
According to the Canadian Real Estate Association, the average Canadian home price has fallen almost 10%, but if you look at the weighted average, the drop is only 5%. So the price drops are really concentrated in the previous "hot" zones. These are not the sort of correlations that one likes to see.
Overnight the Swiss National Bank cut its 3 month Libor target to 1%. That's the third cut since the beginning of October. ECB is going to go down at least 50 basis points before the end of the year. It ought to be more like 200 bps, but I don't think Trichet has quite figured it out yet.
British Land cut its valuation on its Canary Wharf share by 40%. This should be interesting for other firms who also hold stakes.
The leading edge of of the financial wave is now in central Asia. Turkey cut its rate in a surprise move even as it seeks another IMF loan, and places like Kazakhstan are waking up to find their concrete economies softening by the minute. Picture melting banks. The diffusion effect across other central Asian economies from Russia, Turkey and Kazakhstan is very real.
There is another wave of pain in store for a bunch of European banks who have lent heavily to eastern European and other emerging markets. This is their subprime, and it's going to be very, very large. Austrian banks are going to take a fearful whack. US banks have relatively little exposure here.
This is the world economic conditions barometer, rather than just those in Germany.
We're still in the first half of this, too. That line is going to sag further. Just for Europe:
Putin is the latest into the "whatever it takes" camp:
Russian Prime Minister Vladimir Putin vowed tax cuts, defense of the ruble and ``everything'' needed to prevent the kind of financial crises that shook the country after the collapse of the Soviet Union.Russia's foreign reserves are supposed to have dropped about 20% already.
Among the measures unveiled by Putin today to counter the effects of the global economic crunch are corporate tax cuts, higher welfare payments and increased government spending.
China has been facing higher unemployment in their manufacturing centers for a while. China's official unemployment has not changed, but China's official unemployment has nothing to do with real unemployment. The official unemployment rate is just the people who have residency permits for the area in which they are unemployed, and most of the unemployed workers don't have residency permits for the urban areas; thus they are not eligible for unemployment benefits.
Lenders in the Gulf area are beginning to show the strain. Amlak suspended mortgage loans yesterday! There are talks of a merger:
Amlak is in talks with Tamweel PJSC, the second-largest mortgage provider, to merge operations as they seek access to retail deposits. Tamweel dropped 5.7 percent to 99 fils, bringing the decline this year to 86 percent.Sound familiar?
``Even with Tamweel, there are rumors in the market that they have bought some big apartments that they are not able to sell,'' Dwaikat said.
Amlak and Tamweel's ``business plans are not sustainable and have to be changed,'' Nasser bin Hassan Al Shaikh, Amlak's chairman, said at a bankers' lunch yesterday. ``These companies need to have access to retail deposits. They don't have to become banks but something similar to the savings and loans model in other countries.''
According to the Canadian Real Estate Association, the average Canadian home price has fallen almost 10%, but if you look at the weighted average, the drop is only 5%. So the price drops are really concentrated in the previous "hot" zones. These are not the sort of correlations that one likes to see.
Overnight the Swiss National Bank cut its 3 month Libor target to 1%. That's the third cut since the beginning of October. ECB is going to go down at least 50 basis points before the end of the year. It ought to be more like 200 bps, but I don't think Trichet has quite figured it out yet.
British Land cut its valuation on its Canary Wharf share by 40%. This should be interesting for other firms who also hold stakes.
The leading edge of of the financial wave is now in central Asia. Turkey cut its rate in a surprise move even as it seeks another IMF loan, and places like Kazakhstan are waking up to find their concrete economies softening by the minute. Picture melting banks. The diffusion effect across other central Asian economies from Russia, Turkey and Kazakhstan is very real.
There is another wave of pain in store for a bunch of European banks who have lent heavily to eastern European and other emerging markets. This is their subprime, and it's going to be very, very large. Austrian banks are going to take a fearful whack. US banks have relatively little exposure here.
Wednesday, November 19, 2008
For Those Who Said He Wouldn't
Update: And Henry Waxman gets control of the Energy Committee, ousting Dingell who realized that the economy can't survive high energy prices. The perfect political and economic storm is forecast to hit January, 2009. End update.
The governors had their climate change conference, and Obama made an appearance yesterday. The NY Times has the story:
Last week an EPA appeals board dumped another coal plant, and said the EPA should develop national rules for CO2 emissions. That ruling is widely believed to have placed about one hundred coal plants in jeopardy, at a time when the US is rapidly running out of electricity. Plants in Utah, New Mexico, Kansas and Georgia have all recently been stopped by legal action.
That leaves the US with no new drilling, no new nuclear plants, no new hydro plants and no new coal plants. In short, it leaves us with no real substantial new energy sources except perhaps plants that burn natural gas. Wind and solar will not do it, nor will biodiesel. Utility prices for electricity are expected to keep rising next year. As Grist proudly reported earlier this month:
Funny comments (and some well-informed ones) at this WSJ blog post on the coal plant ruling.
NERC (North American Electric Reliability Council) is the body that has authority over the grid. In 2006, it got statutory basis. NERC just published a report detailing its concerns about climate-related energy policy implications for reliability. That's a short little thing - the real meat is in the 300 pager Long Term Response (10 years) here, which was released in October. As you read through that, it's important to understand that "demand response" programs involve turning off power to users. Users enroll in the program in exchange for lower rates or promised payments when the lights go off. As the report explains on page 20:
The bottom line is that in 2006, about 20% of the US electricity supply came from natural gas, and about 50% from coal. There are natural gas pipeline constraints in some areas - if more is used relative to coal in the west, one would probably need to build more pipelines and storage. The west is still heavily dependent on hydropower, and a drought would produce major supply problems. The "renewable resources" place heavy demands on the grid and more high capacity, long lines need to be built. However, then you get into other balancing issues.
The governors had their climate change conference, and Obama made an appearance yesterday. The NY Times has the story:
Speaking by video to a climate conference in Los Angeles, Mr. Obama repeated his campaign vow to reduce climate-altering carbon dioxide emissions by 80 percent by 2050, and invest $150 billion in new energy-saving technologies.So there you have it. San Francisco Chronicle:
...
Some industry leaders and members of Congress have suggested that Mr. Obama’s climate proposal would impose too great a cost on an already-stressed economy — having the same effects as a tax on coal, oil and natural gas — and should await the end of the current downturn. A bill similar to Mr. Obama’s plan failed to clear the Senate earlier this year, largely because of concerns about its impact on the economy.
Mr. Obama rejected that view, saying that his plan would reduce oil imports, create jobs in energy conservation and renewable sources of energy, and reverse the warming of the atmosphere.
...President-elect Barack Obama promised Tuesday to set stringent limits on greenhouse gases, saying the need is too urgent for delay.Economically speaking, this is total lunacy. But he believes. Nor does he need Congress to act, since the EPA is already dealing with petitions to regulate CO2 as a pollutant. He simply does what he said he would do before the election, which is to regulate CO2 as a HAP. Even farms would have to go through permitting, as would large stores, etc.
...
He repeated his campaign promise to create a system that limits carbon dioxide emissions and forces companies to pay for the right to emit the gas. Using the money collected from that system, Obama plans to invest $15 billion each year in alternative energy. That investment - in solar, wind and nuclear power, as well as advanced coal technology - will create jobs at a time of economic turmoil, he said.
"It will ... help us transform our industries and steer our country out of this economic crisis by generating 5 million new green jobs that pay well and can't be outsourced," Obama said.
Last week an EPA appeals board dumped another coal plant, and said the EPA should develop national rules for CO2 emissions. That ruling is widely believed to have placed about one hundred coal plants in jeopardy, at a time when the US is rapidly running out of electricity. Plants in Utah, New Mexico, Kansas and Georgia have all recently been stopped by legal action.
That leaves the US with no new drilling, no new nuclear plants, no new hydro plants and no new coal plants. In short, it leaves us with no real substantial new energy sources except perhaps plants that burn natural gas. Wind and solar will not do it, nor will biodiesel. Utility prices for electricity are expected to keep rising next year. As Grist proudly reported earlier this month:
Of the 151 coal plants on the drawing boards as of the May 2007 report by the Energy Department, 82 have now been abandoned, blocked, or placed on hold.For your amusement, a Vermont editorial rails against the threat of carbon regulation and is sure that Obama will save us from Bush. Really!!
Funny comments (and some well-informed ones) at this WSJ blog post on the coal plant ruling.
NERC (North American Electric Reliability Council) is the body that has authority over the grid. In 2006, it got statutory basis. NERC just published a report detailing its concerns about climate-related energy policy implications for reliability. That's a short little thing - the real meat is in the 300 pager Long Term Response (10 years) here, which was released in October. As you read through that, it's important to understand that "demand response" programs involve turning off power to users. Users enroll in the program in exchange for lower rates or promised payments when the lights go off. As the report explains on page 20:
Further, demand response also has an important role to play as more variable resources (such as wind) are added to the system. Variable resources, for example wind generation, often need a “dance partner” which can provide operational flexibility to maintain reliability during resource down-ramps that can be associated with them. Demand response can provide all or a portion of the flexibility required for this integration.When they start turning off your lights all the time, you're not going to be so pleased.
As demand response is relied upon more heavily to meet firm demand in these capacities, however, more coordination between demand response programs, system operators, and system planners is needed to fully assess the resource’s availability, characteristics, and constraints. For example, as dispatchable demand response programs are increasingly used as non-emergency resources, the probability and frequency of their dispatch will also likely increase. Voluntary participation in these programs may decline as a result of this higher usage, causing the program to suffer “response fatigue.” If this occurs, system reliability could be affected as other resources may not be built or available in time to provide the ancillary services or energy required. In many cases, dispatchable demand response resources have not yet been tested to meet system reliability requirements at these potentially higher dispatch frequencies.
The bottom line is that in 2006, about 20% of the US electricity supply came from natural gas, and about 50% from coal. There are natural gas pipeline constraints in some areas - if more is used relative to coal in the west, one would probably need to build more pipelines and storage. The west is still heavily dependent on hydropower, and a drought would produce major supply problems. The "renewable resources" place heavy demands on the grid and more high capacity, long lines need to be built. However, then you get into other balancing issues.
Really Briefly
You can get Daily Treasury Statements at this link. In Table IV of the DTS you see federal tax deposits. Recent activity:
WIET = Withheld Income and Employment Tax. CIT = Corporate Income Tax. FUT = Federal Unemployment Tax.
You can use WIET as a proxy for incomes. FUT is a good forward looking barometer on employment, because it is very sensitive to changes in the number of jobs, and especially sensitive to changes in the number of part-time jobs.
Anyway, looking at WIET combined with CPI, it is obvious that employment income is falling significantly behind the cost of living. Today's CPI showed a 12 month overall CPI of 3.7%, a 12 month energy index of 11.5%, and a 12 month food index of 6.3%. However, inflation is now falling rapidly. Under normal circumstances, the consumer trough would be found roughly at the point where WIET YoY - 12 month CPI turns into a positive number! We look to be at least six months out from that.
The major factor in falling inflation is falling energy prices, which dropped 8.9% last month. One thing I noticed in the stores was that the price of food staples was dropping a bit, but the price of slightly higher-grade food immediately rose when gas prices dropped significantly. That 12 month food index may not drop that much.
Needless to say, screwing around with programs that increase the cost of energy (ethanol, carbon caps, wind subsidies) is exactly the wrong thing to do. Increase energy costs and you extend the recession. Really!!!
I also strongly question whether trying to prevent foreclosures for borrowers who are deeply underwater in their homes is worthwhile. I don't see the payback for anyone except those holding the debt. Economically speaking, those people who are very underwater will mostly be able to rent more cheaply, and therefore will recover their overall economic position more quickly.
This isn't a credit crunch. It's the bursting of a credit bubble, and the cure for that is destroying debt and recovering spending income.
Note that the WIET trends shown above will be important for the discussion of the retirement trust funds.
| Period | WIET | CIT | FUT |
| Aug 2008 | 136,464 | 5,095 | 116 |
| Sep 2008 | 142,759 | 57,889 | 53 |
| Oct 2008 | 142,514 | 9,668 | 662 |
| 08 Aug/Sep | 279,223 | 62,984 | 169 |
| 08 Sep/Oct | 285,273 | 67,557 | 715 |
| FY TD 09 | 208,673 | 11,003 | 717 |
| Aug 2007 | 140,381 | 5,430 | 139 |
| Sept 2007 | 129,269 | 77,015 | 57 |
| Oct 2007 | 144,841 | 11,081 | 714 |
| 07 Aug/Sep | 269,650 | 82,445 | 196 |
| 07 Sep/Oct | 274,110 | 88,096 | 771 |
| FY TD 08 | 206,546 | 12,381 | 776 |
| YoY Changes: | |||
| August | -2.8% | -6.2% | -16.5% |
| September | 10.4% | -24.8% | -7.0% |
| October | -1.6% | -12.8% | -7.3% |
| Aug/Sep | 3.6% | -23.6% | -13.8% |
| Oct/Sep | 4.1% | -23.3% | -7.3% |
| FY TD ** | 1.0% | -11.1% | -7.6% |
| ** Oct – Nov 14th | |||
| WIET 3 Mo | 1.7% |
WIET = Withheld Income and Employment Tax. CIT = Corporate Income Tax. FUT = Federal Unemployment Tax.
You can use WIET as a proxy for incomes. FUT is a good forward looking barometer on employment, because it is very sensitive to changes in the number of jobs, and especially sensitive to changes in the number of part-time jobs.
Anyway, looking at WIET combined with CPI, it is obvious that employment income is falling significantly behind the cost of living. Today's CPI showed a 12 month overall CPI of 3.7%, a 12 month energy index of 11.5%, and a 12 month food index of 6.3%. However, inflation is now falling rapidly. Under normal circumstances, the consumer trough would be found roughly at the point where WIET YoY - 12 month CPI turns into a positive number! We look to be at least six months out from that.
The major factor in falling inflation is falling energy prices, which dropped 8.9% last month. One thing I noticed in the stores was that the price of food staples was dropping a bit, but the price of slightly higher-grade food immediately rose when gas prices dropped significantly. That 12 month food index may not drop that much.
Needless to say, screwing around with programs that increase the cost of energy (ethanol, carbon caps, wind subsidies) is exactly the wrong thing to do. Increase energy costs and you extend the recession. Really!!!
I also strongly question whether trying to prevent foreclosures for borrowers who are deeply underwater in their homes is worthwhile. I don't see the payback for anyone except those holding the debt. Economically speaking, those people who are very underwater will mostly be able to rent more cheaply, and therefore will recover their overall economic position more quickly.
This isn't a credit crunch. It's the bursting of a credit bubble, and the cure for that is destroying debt and recovering spending income.
Note that the WIET trends shown above will be important for the discussion of the retirement trust funds.
Monday, November 17, 2008
Aunt Proposed, Baby Disposed
Sorry for the silence. My brother's first baby was born on Sunday, early, and there was nothing prepared.
That's mostly what I am doing. Baby stuff. After a short interval of being stereotypically female, I will be back.
That's mostly what I am doing. Baby stuff. After a short interval of being stereotypically female, I will be back.
Friday, November 14, 2008
Man, Oh Man
I keep trying to convince myself that this isn't happening, but it is. German GDP -0.4 Q2, now -0.5 Q3. That pretty much doomed the Euro 15 to fall into recession, and they are. Q2 -0.2, Q3 -0.2. The French did haul out a minimally positive quarter, though!
But that's old news; I've known since early this year that they'd fall. What's disturbing me are items like these:
Mitsui OSK's might be mothballing ships:
But that's old news; I've known since early this year that they'd fall. What's disturbing me are items like these:
Mitsui OSK's might be mothballing ships:
Mitsui O.S.K. Lines Ltd., Japan's most profitable shipping line, may mothball some of its largest vessels for the first time in over two decades as charter rates have fallen 98 percent over the last five months.The Indian manufacturing support businesses are in trouble:
The world's largest merchant fleet operator may also scrap seven of its capesize ships, used for transporting iron ore and coal, from a fleet of about 100, Masafumi Yasuoka, senior executive officer at the shipping line, said in an interview in Tokyo yesterday.
"The outlook is very bleak not just for third and fourth quarter of the current fiscal but also beyond. Our apprehension is that it is going to be a long drawn-out affair," Rajkot Engineering Association (RCA) president Bhavesh Patel said.China's industrial output growth continues to decelerate, and this week, Sinopec officials said they are cutting refinery processing by 10 percent from July. That's not as bad as it sounds, because they were ramping up then for the Olympics. But it's not a sign of growth. Chinese officials are getting progressively less optimistic. They can talk all they want to about increasing domestic consumption, but that's very hard to do when you have people losing jobs.
RCA has 900-odd small enterprises as its members which are engaged in the production of agricultural equipment, forgings, electric motors, alloy castings, air compressors, industrial fasteners and textile machinery.
...
The cutback in orders is to the extent of 40%. "We have never faced this kind of situation before. We are trying to assess the impact of the cutback but finding it difficult as order cuts are continuing," Patel said.
Wednesday, November 12, 2008
Rumors Of My Demise...
... are much exaggerated.
One of my brothers called me today to find out if I was all right, since I hadn't posted in a few days. The truth is, I've been in a frenzy of house-ish winterizing work, combined with regular stuff, and I haven't had time to post. Over the last few days I have discovered the difference between a middle-aged body and a young one, and the difference is PAIN. It rained most of last week so the outside stuff is really behind schedule.
On Monday I improvised a roofsweeping gizmo (leaves and roof trash were stuck in a few places on the roof, and if you don't clean them off, the water stands and rots the wood) from a telescoping pruning thingie, causing the Chief to state that I was a tomboy. It worked very well; I was able to sweep off the roof from the ground and a ladder instead of having to climb around on the roof as I did this spring. However, it turns out that swinging a twenty foot pole with your arm extended for an hour does funny things to 47 year-old shoulder sockets.... I am not destined to be a ninja. The truth is, my right shoulder hurt so badly for a few hours that I really couldn't even type, and the left one wasn't much better.
Today I spent about four hours raking (because my brother who feared I was dead borrowed the leaf blower and has not returned it). I still have another few days on that, and then there is some more drainage stuff that has to be done before the ground freezes, which requires a pickaxe, shovel (I had broken the shovel, and just got a new one this weekend) and wheelbarrow. The Chief has been helping me a lot, but there are certain jobs I don't want him to do. The Chief bought a car on eBay which is located in Florida and left yesterday to retrieve it, so I have sole responsibility for canine care, and those dogs need a lot of exercise. So I am definitely not dead or dying, although I'm fixing to crawl whimpering into bed very soon. I walked the dogs this evening until they felt comatose in order to ensure a good night's sleep. Two dramatically immobile dog carcasses are snoring loudly as I type this.
On the brighter side, the mole is no longer in the attic, I really enjoy being outside, and it is so nice to be able to do these things. Only someone else who had been paralyzed and blind could really understand why all of this makes me want to sit down and cry tears of joy or shoot off fireworks. If I had the literary gifts of a Shakespeare I couldn't adequately express my feelings in words. This pain is a righteous, normal pain, pain generated from exertion that vanishes with a night's sleep, and not the ragged, jaggedy pain caused by muscles contracting uncontrollably due to damaged nerves, or the pain I endured in those horrible, horrible years when I slowly ripped my joints up internally in order to be able to regain mobility. I have climbed Mount Everest, mostly an inch at a time, and I am now starting a controlled descent.
I probably will get the Social Security/Medicare post up tomorrow.
I realize that people are very worried about economics, but my life has taught me that the worse the problem, the greater the need to meet it head on and with your eyes wide open, and the greater the rewards for doing so. It's natural for human beings to want to avoid pain, but there are certain types of discomfort that just have to be taken on honestly if you want to be an adult and have a reasonably successful at life (which does not equate to being rich). Failure to stare your fears down leads to irrationality, as the Shrink writes.
Maybe the next few years will be rough, but if they don't kill you or me, in the end, we will probably enjoy life more later because of them, and be the wiser for having endured them. We'll have more to give others, and we'll be reminded of why it is so important to take care of other people. And those of us who are older have the opportunity to help younger people cope with and understand this time without undue fear, as well as help others through it.
Michael Adams has written several very eloquent comments here about his trials and tribulations, and I think he is an excellent example of survival with class. Melissa Clouthier lost one baby and has a child with substantial autism, and she is another person who has surmounted adversity. Viola started life in an orphanage, and has survived emotional deprivation to become a truly lovely and loving person. The Anchoress survived a broken family and sexual abuse as a child to become a wonderful mother and wise person (and she needs prayers for her husband, who is showing signs of heart trouble). Tom Stone comments here sometimes, and he, like me, is a second-lifer in the real world. Tanta of Calculated Risk was diagnosed with a very bad cancer, given a 20% chance of survival, and has endured treatment regimens that have literally taken her to the point of death, and she spends her time not whining but educating. It's true that we're all gonna die, but that doesn't mean that we have to lead bitter and useless lives. Life isn't a choice between success and failure - it's a spectrum. Success is playing the cards you are dealt reasonably well, rather than achieving riches, fame or fortune.
People endure, people manage, people figure out how to make things work. Difficulty is not a synonym for doom. I don't write this stuff because I'm a pessimist. I write this stuff because I am a pragmatic optimist. First you figure out the problem, and then you can address it. Some problems are huge, and in that case, you figure out how to nibble away at them to slowly cut them down to size. Pretending problems don't exist or aren't serious just makes them worse!
One of my brothers called me today to find out if I was all right, since I hadn't posted in a few days. The truth is, I've been in a frenzy of house-ish winterizing work, combined with regular stuff, and I haven't had time to post. Over the last few days I have discovered the difference between a middle-aged body and a young one, and the difference is PAIN. It rained most of last week so the outside stuff is really behind schedule.
On Monday I improvised a roofsweeping gizmo (leaves and roof trash were stuck in a few places on the roof, and if you don't clean them off, the water stands and rots the wood) from a telescoping pruning thingie, causing the Chief to state that I was a tomboy. It worked very well; I was able to sweep off the roof from the ground and a ladder instead of having to climb around on the roof as I did this spring. However, it turns out that swinging a twenty foot pole with your arm extended for an hour does funny things to 47 year-old shoulder sockets.... I am not destined to be a ninja. The truth is, my right shoulder hurt so badly for a few hours that I really couldn't even type, and the left one wasn't much better.
Today I spent about four hours raking (because my brother who feared I was dead borrowed the leaf blower and has not returned it). I still have another few days on that, and then there is some more drainage stuff that has to be done before the ground freezes, which requires a pickaxe, shovel (I had broken the shovel, and just got a new one this weekend) and wheelbarrow. The Chief has been helping me a lot, but there are certain jobs I don't want him to do. The Chief bought a car on eBay which is located in Florida and left yesterday to retrieve it, so I have sole responsibility for canine care, and those dogs need a lot of exercise. So I am definitely not dead or dying, although I'm fixing to crawl whimpering into bed very soon. I walked the dogs this evening until they felt comatose in order to ensure a good night's sleep. Two dramatically immobile dog carcasses are snoring loudly as I type this.
On the brighter side, the mole is no longer in the attic, I really enjoy being outside, and it is so nice to be able to do these things. Only someone else who had been paralyzed and blind could really understand why all of this makes me want to sit down and cry tears of joy or shoot off fireworks. If I had the literary gifts of a Shakespeare I couldn't adequately express my feelings in words. This pain is a righteous, normal pain, pain generated from exertion that vanishes with a night's sleep, and not the ragged, jaggedy pain caused by muscles contracting uncontrollably due to damaged nerves, or the pain I endured in those horrible, horrible years when I slowly ripped my joints up internally in order to be able to regain mobility. I have climbed Mount Everest, mostly an inch at a time, and I am now starting a controlled descent.
I probably will get the Social Security/Medicare post up tomorrow.
I realize that people are very worried about economics, but my life has taught me that the worse the problem, the greater the need to meet it head on and with your eyes wide open, and the greater the rewards for doing so. It's natural for human beings to want to avoid pain, but there are certain types of discomfort that just have to be taken on honestly if you want to be an adult and have a reasonably successful at life (which does not equate to being rich). Failure to stare your fears down leads to irrationality, as the Shrink writes.
Maybe the next few years will be rough, but if they don't kill you or me, in the end, we will probably enjoy life more later because of them, and be the wiser for having endured them. We'll have more to give others, and we'll be reminded of why it is so important to take care of other people. And those of us who are older have the opportunity to help younger people cope with and understand this time without undue fear, as well as help others through it.
Michael Adams has written several very eloquent comments here about his trials and tribulations, and I think he is an excellent example of survival with class. Melissa Clouthier lost one baby and has a child with substantial autism, and she is another person who has surmounted adversity. Viola started life in an orphanage, and has survived emotional deprivation to become a truly lovely and loving person. The Anchoress survived a broken family and sexual abuse as a child to become a wonderful mother and wise person (and she needs prayers for her husband, who is showing signs of heart trouble). Tom Stone comments here sometimes, and he, like me, is a second-lifer in the real world. Tanta of Calculated Risk was diagnosed with a very bad cancer, given a 20% chance of survival, and has endured treatment regimens that have literally taken her to the point of death, and she spends her time not whining but educating. It's true that we're all gonna die, but that doesn't mean that we have to lead bitter and useless lives. Life isn't a choice between success and failure - it's a spectrum. Success is playing the cards you are dealt reasonably well, rather than achieving riches, fame or fortune.
People endure, people manage, people figure out how to make things work. Difficulty is not a synonym for doom. I don't write this stuff because I'm a pessimist. I write this stuff because I am a pragmatic optimist. First you figure out the problem, and then you can address it. Some problems are huge, and in that case, you figure out how to nibble away at them to slowly cut them down to size. Pretending problems don't exist or aren't serious just makes them worse!
Friday, November 07, 2008
What's A Moderate Depression?
Dan asked me for my definition of a moderate depression. Here's a compressed and thus lousy-quality graph of annualized GDP changes since 1930 (you can get a better image and the data at this link):
Click on this graph for a larger image. As you can see, our worst post WWII era recession had a net annualized GDP drop of considerably less than 5% (although the quarterly decline was closer to 5%). A depression lasts longer than a recesssion and so the net drop in GDP is more; I am expecting to see that annualized drop head down around the 5% range. So it would be very severe and an unprecedented event.
Most of this is going to come from a massive drop in real incomes for the lower half of the income range, which will destroy a lot of jobs and then continue to inflict damage to higher incomes.
The key to avoiding this is to subsidize the really lower income groups, dump all the effing alternative energy crap and instead do what we can now do, not try to institute any new entitlement programs, reform bankruptcy reform to something reasonable, and control the necessary tax increases to keep them moderate and beginning around the 80K range. Doing that will be challenge enough! If Obama and the Dems could pull that off they'd be doing wonderfully. However we have got to cut federal spending pretty significantly over the next few years. It's time to cut out a lot of the fluff, and Lord knows there is a lot of it.
You get much more net economic stimulus from subsidies like unemployment and energy to low income groups. They will spend it. In a recession, the higher income groups save more because they can and because they are worried.
We can't raise much in the way of corporate taxes either.
One of the factors most people are missing is that the money crunch at the local/state level is coming at the same time as the private crunch. Part of it is due to retirements, a lot of it is due to overspending, and many local and most state governments will cut some spending and raise taxes, which leaves less room for the federal government to raise taxes.
Next up, explaining what I was saying about Social Security and retirements.
Wednesday, November 05, 2008
Sorry, Guys
There's still some hope, but I am adjusting my forecast to 75% moderate US depression by 2010, lasting for perhaps two years.
The reasons are these:
1) Obama, Pelosi and Reid have substantially similar ideas about energy. Early next year they will raise the gas tax, and under the new administration most realistic energy projects will not be approved. Instead, the unrealistic stuff will get a heavy economic subsidy. I looked into three countries that have done this (Germany, Denmark, and the UK). In each country, the result was much higher energy costs to consumers and businesses, and that's without figuring in the subsidy. The strongest upside in the current economy is declining energy prices, which would have, within a year, helped many consumers to repair their household finances somewhat. The offset to the direct costs was the lag in utility price increases, and between that and such measures I expect energy costs to consumers and businesses to rise again by sometime next year. The Democratic Congress will substantially reinstitute the offshore drilling ban. Crude oil prices will begin to rise almost immediately on speculation over these policies. As a direct result of Obama's election, I am expecting crude prices to move from the $60s to the $80s by the end of the year.
2) Protectionism. (See CarTrade roundup, Balita's coverage of Powell's Hong Kong speech today.) China is already making noises about this. Carbon cap and trade are either domestic economic suicide or protectionism. I think the new administration will opt for protectionism. There appears to me to be an exceedingly sharp correction taking place in China right now. The effects of protectionist policies on world trade will be ugly.
3) There is no way that taxes can be cut significantly for most households. Capital gains taxes and taxes on dividends and interest will be raised next year. Since a lot of those proceeds are tied up in 401Ks, those taxes won't raise that much. Corporate tax increases are very possible, but corporate profits are dropping rapidly enough that total corporate tax revenue will continue to drop. Thus the pressure to raise revenue for other projects will be fierce. That's the reason for the Democratic proposal to basically raid the 401Ks. I don't think this is viable, but I do think that they will figure out some way to get a percentage off them. Probably the minimum would be something like the proposal to eliminate the tax break on contributions, but that would only bring in about 40 billion in new revenue a year. If Congress were to tax interest and dividends on those 401Ks, they'd make much more, and I expect an attempt to do this somehow.
4) The plight of older workers now losing their jobs is pretty dire. Many more of them will be taking early Social Security than would otherwise, because if you are a 63 year old who has lost your job, you have very little chance (perhaps 1 in 10) of getting another which carries health insurance in this climate. If you had health insurance you have to pay the full cost. This is going to be a terrible problem for older workers. This movement will bring forward the Social Security crunch. Thus the budgetary position will worsen more rapidly than expected, which is why I do expect some form of number 3 to pass. Medicare is already in the red; by 2012 Social Security will be in the red unless the income cap for taxation is removed, which would add 3.65% to taxes for higher income workers. They will probably do this in two years. The only other alternative is to somehow tax no AMT munis.
5) The result of energy proposals will be to sharply raise inflation in the US again.
6) The high inflation rate (much higher for lower-income individuals than the official rates) has eroded the standards of living of lower-income people very rapidly over the last three years. The food banks are running out of food, and utility cut-offs keep moving higher. Therefore we will need to spend ever-increasing amounts to subsidize lower-income retirees and workers. We're not going to get it from corporations, so we are going to have to get it from individuals.
7) FHA is going to go broke pretty quickly! What happens then?
The reasons are these:
1) Obama, Pelosi and Reid have substantially similar ideas about energy. Early next year they will raise the gas tax, and under the new administration most realistic energy projects will not be approved. Instead, the unrealistic stuff will get a heavy economic subsidy. I looked into three countries that have done this (Germany, Denmark, and the UK). In each country, the result was much higher energy costs to consumers and businesses, and that's without figuring in the subsidy. The strongest upside in the current economy is declining energy prices, which would have, within a year, helped many consumers to repair their household finances somewhat. The offset to the direct costs was the lag in utility price increases, and between that and such measures I expect energy costs to consumers and businesses to rise again by sometime next year. The Democratic Congress will substantially reinstitute the offshore drilling ban. Crude oil prices will begin to rise almost immediately on speculation over these policies. As a direct result of Obama's election, I am expecting crude prices to move from the $60s to the $80s by the end of the year.
2) Protectionism. (See CarTrade roundup, Balita's coverage of Powell's Hong Kong speech today.) China is already making noises about this. Carbon cap and trade are either domestic economic suicide or protectionism. I think the new administration will opt for protectionism. There appears to me to be an exceedingly sharp correction taking place in China right now. The effects of protectionist policies on world trade will be ugly.
3) There is no way that taxes can be cut significantly for most households. Capital gains taxes and taxes on dividends and interest will be raised next year. Since a lot of those proceeds are tied up in 401Ks, those taxes won't raise that much. Corporate tax increases are very possible, but corporate profits are dropping rapidly enough that total corporate tax revenue will continue to drop. Thus the pressure to raise revenue for other projects will be fierce. That's the reason for the Democratic proposal to basically raid the 401Ks. I don't think this is viable, but I do think that they will figure out some way to get a percentage off them. Probably the minimum would be something like the proposal to eliminate the tax break on contributions, but that would only bring in about 40 billion in new revenue a year. If Congress were to tax interest and dividends on those 401Ks, they'd make much more, and I expect an attempt to do this somehow.
4) The plight of older workers now losing their jobs is pretty dire. Many more of them will be taking early Social Security than would otherwise, because if you are a 63 year old who has lost your job, you have very little chance (perhaps 1 in 10) of getting another which carries health insurance in this climate. If you had health insurance you have to pay the full cost. This is going to be a terrible problem for older workers. This movement will bring forward the Social Security crunch. Thus the budgetary position will worsen more rapidly than expected, which is why I do expect some form of number 3 to pass. Medicare is already in the red; by 2012 Social Security will be in the red unless the income cap for taxation is removed, which would add 3.65% to taxes for higher income workers. They will probably do this in two years. The only other alternative is to somehow tax no AMT munis.
5) The result of energy proposals will be to sharply raise inflation in the US again.
6) The high inflation rate (much higher for lower-income individuals than the official rates) has eroded the standards of living of lower-income people very rapidly over the last three years. The food banks are running out of food, and utility cut-offs keep moving higher. Therefore we will need to spend ever-increasing amounts to subsidize lower-income retirees and workers. We're not going to get it from corporations, so we are going to have to get it from individuals.
7) FHA is going to go broke pretty quickly! What happens then?
Tuesday, November 04, 2008
Election Day Lunchtime Diversion
There was a game called "Logical" for the Amiga, and an aficionado of the game has created a modern version, which you can find here.
A short description: Balls of different colors will roll across the top. They will fall into the first empty slot they find. You can click on the center of the round plates to rotate them to present an open slot. To explode a plate, fill it with balls of the same color. To win the level, explode all the plates.
You can also shunt balls down the rails to another plate by aligning the ball and clicking on it. There is a time limit. A surprisingly challenging game which reminds me very much of the election rhetoric - but in this case the rules of the game are obvious. If you can win all the levels you are probably disgusted by our current politics!
A short description: Balls of different colors will roll across the top. They will fall into the first empty slot they find. You can click on the center of the round plates to rotate them to present an open slot. To explode a plate, fill it with balls of the same color. To win the level, explode all the plates.
You can also shunt balls down the rails to another plate by aligning the ball and clicking on it. There is a time limit. A surprisingly challenging game which reminds me very much of the election rhetoric - but in this case the rules of the game are obvious. If you can win all the levels you are probably disgusted by our current politics!
YIPPEEYAYA
Okay, okay, I realize that a lot of US citizens will end up disappointed later tonight or tomorrow morning, but look at it this way - this election will finally be over! Over! That will be a blessing to all of us!
I'm more interested in the congressional races than the presidential race, because most of the burning domestic questions are constitutionally the responsibility of Congress, not the President. My hope is that a lot of moderately conservative Dems get in who can fight the Pelosi wing of the party.
I'm more interested in the congressional races than the presidential race, because most of the burning domestic questions are constitutionally the responsibility of Congress, not the President. My hope is that a lot of moderately conservative Dems get in who can fight the Pelosi wing of the party.
