Saturday, July 28, 2012

SAR #12209

We are living in a dystopian novel.

All Over But The Shouting: Now that ECB president Mario Draghi has painted himself into a corner, how long do we have to wait to see if he's really got a a rabbit in his hat?

Our Leaders: Republican Eric Cantor, the House Majority Leader, refused to criticize Michelle Bachmann claiming that Hillary Clinton’s deputy chief of staff was a terrorist who had infiltrated the US government on behalf of radical Islamists. “I’ve always said we need to be a party of inclusion not exclusion,” Cantor explained. “We need to include all the paranoid nuts and certifiable idiots."

Poll Taxes: If in order to vote you are required to have a PennDOT ID and they charge $13.50 for the ID card, is this not a poll tax and are such taxes not forbidden?

Profits And Losses: During the Fukushima melt-down, a TEPCO subcontractor supplied its workers with dosimeters to monitor their radiation exposure, and – to prevent damage to them – encased them in protective lead sleeves. It was a safety measure – intended to save the company money while literally risking the lives of their employees. No, I don't know why I thought this was news.

Low Hurdle: US GDP growth in the second quarter slowed to 1.5%, beating expectations. And that's the good news.

Waiting, Waiting... A lot of politicians (and their pet economists and bloggers) warn that if the federal government keeps racking up deficits, inflation if not hyperinflation will crawl out from under the bed and eat the children. Yet the markets keep driving down the interest rates on government bonds. So what's going on? Deleveraging. Maybe the wise men don't have any pants on.

Act Surprised: The ECB (and other public creditors) may have to accept losses on the Greek debt they hold. May? Is reality just setting in?

Good Question: What sort of recoveryTM is housing having when it is taking builders a median eight months to find a buyer for their completed houses?

Quoted: “You can't have capitalism if the capital markets are dead.” David Stockman

Eurothanasia? If the euro is doomed, why not get it over with? What's the advantage – and to whom – that accrues from dragging it out? The people will suffer while the rich plunder the ruins, no matter if the euro zone falls apart this weekend of on some random date in the future.

Bio-terror: The US devotes 40% of its corn crop to ethanol production, feeding cars not people.

The Iron, Being Hot: Where did all these people saying we shouldn't consider banning automatic weapons now leave their brains. When better to talk about the godawful carnage committed with automatic weapons if not now, now while the blood is still wet, now while we're still revolted by the damage they allow a crazy person to do? “We should not be willing to be so passive in the face of what is obviously a fucked up system.” This was not an act of nature and God will not be mad at us if we do something about it. More likely the reverse.

It's Not Just Me: Most people waiting up to 10 years to buy a new car. Well, in my case it's more than 10 years. Way more.

The Parting Shot:


Taking it easy.


Demetrius said...

Oh dear, "Taking It Easy" started up the song "April Showers" in my head, as in "Bambi". Watch it on Youtube and see if you get bitten as well!

Anonymous said...

CKMIII -- I always enjoy your posts. Thanks.
Being picky, I would argue that it is not the "markets" that keep driving down the interest rates . . . it is the Fed. Without Fed intervention (excess money creation), the markets would have U.S. interest rates racing the Italians, no?

Charles Kingsley Michaelson, III said...

Not so sure about that, Anony 4.24. Interest is the price of money and the price of a good depends on the demand as well as supply. The Fed's created money - the excess supply - is hidden away in 'excess reserves' (for now). There is no significant demand from corporations to drive up the price (interest) - most of which are sitting on piles of cash already - and the consumer isn't over-eager to pile on debt either, so demand is pretty low. So my non-economist view would be that it is the market, not the Fed, that is holding rates down. Low rates are the Fed's aim, but the dead economy is holding the corporations and consumers from bidding for loans.


OkieLawyer said...

This "flight to safety" is the essence of why Keynesian economics works. Recessions (or depressions) are marked by low interest rates and ample supplies of labor. The time to focus on paying off debt is during times of plenty when labor is tight and interest rates are high.

This is not that much rocket science.

The real problem is the second part of the Keynesian model (as usual) is not being implemented now: namely, putting the unemployed back to work. However, what Ben Bernanke could not tell Congress was: this is your job (you dolts!). Labor, having lots of supply, is relatively cheap right now. There is plenty of work to do (repairing, replacing, refurbishing, replanting, recycling and building renewable energy). Unlike what the dominant message on most of the financial networks, media, periodicals and blogs are telling you, we are not broke. There is plenty of money, we just have a problem with tight-fisted misers who want to make money off of it rather than help the country. The problem is that when you already own 93% of the assets of an economy, there is not much left you can take. What we need is for them to give back to supply the country with the capital needed to implement a massive rebuilding effort.

We can borrow in the short term; but we need to get the economy moving to make it useful.

Anthony said...

It is the Fed that's holding down interest rates, but not in the way most people think. In a fiat money system, money is not a commodity because it is not scarce. It is simply a number on a balance sheet, and can be multiplied by simply typing in different numbers. So, theoretically, it is always possible to have as much money in an economy as that economy needs. (The opposite of scarcity is adequacy, not infinity.) It is absurd even to speak of "debt" when the supposed debtor is the monopoly creator of the thing it "owes" and can create that thing out of thin air with virtually zero marginal cost.

Since fiat money is not scarce, its price is not determined by supply and demand, as is the case with commodity money. Rather, in a fiat system, interest rates also ultimately are set by fiat. This is not done directly in the U.S. but rather indirectly via constant Fed intervention in the interbank reserve market. Specifically, the Fed adjusts the quantity of reserves in the banking system to whatever it needs to be to produce the interest rate the Fed wants.

People fearing inflation are using the wrong model. They are thinking in commodity money terms, which would have been applicable in the U.S. before 1971. Those models still are applicable to governments that have to use another government's currency, such as U.S. states and EU countries, because to those governments, the currency they use effectively IS a commodity since they cannot create it and have to obtain it from someone else.