"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister
"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."
- Daenerys Targaryen
"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"
- Tyrion Lannister
"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."
- Jorah Mormont
"These bad people are what I'm good at. Out talking them. Out thinking them."
- Tyrion Lannister
"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."
- Michael Barone
"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker
Friday, December 09, 2011
"Tinker, Tailor, Soldier, Spy" got thumbs-up from the Ebert show and a "fresh" rating from Rotten Tomatoes. Like many Americans, I'm a sucker for a British accent and it has some of my favorite actors from the UK such as John Hurt, Gary Oldman, Mark Strong, Colin Firth, Ciarán Hinds, Toby Jones, Benedict Cumberbatch, and Tom Hardy.
Larry Summers, who was Treasury Secretary under President Clinton and a top Obama economic advisor, apparently has forgotten the IMF's role in the world economy. In an oped column he told readers that:
"From the problems of Britain and Italy in the 1970s, through the Latin American debt crisis of the 1980s and the Mexican, Asian and Russian financial crises of the 1990s, the IMF has operated by twinning the provision of liquidity with strong requirements that those involved do what is necessary to restore their financial positions to sustainability. There is ample room for debate about precise policy choices the fund has made. But the IMF has consistently stood for the proposition that the laws of economics do not and will not give way to political considerations."
This is arguably wrong as a general proposition, but it is certainly wrong in reference to the East Asian bailouts in 1990s that were largely engineered by Larry Summers and the U.S. Treasury Department, which controls the IMF. The conditions demanded in the East Asian bailouts required the countries in crisis in repay loans to western banks in full.
It allowed them to get the money needed to make the repayments by having the dollar rise in value against the currencies of the region (i.e. Robert Rubin's strong dollar policy).It was not only the East Asian countries that deliberately lowered the value of their currency against the dollar, developing countries throughout the world adopted a policy of accumulating massive amounts of reserves in order to avoid ever being in the same situation as the East Asian countries.
This led to the enormous trade deficits that the U.S. has incurred in subsequent years. This situation was not sustainable, contrary to Summers' assertion that the IMF puts countries on a sustainable course.
In fact, the trade deficit between the United States and the rest of the world was the major imbalance in the global economy in the last decade. It created the gap in demand that was filled by the stock bubble in the 90s and the housing bubble in the last decade. It is striking that the Post's opinion pages are only open to people who try to conceal this fact rather than economists who try to explain this history to readers.Italy was already letting the IMF look at its books and there were rumors of a deal. Summers is saying the IMF should apply a structural adjustment program to Italy if the ECB is accommodating. Summers writes,
Third, when engaging individual members of a monetary union, the IMF cannot assess the prospects of one member in isolation. If some countries are to enjoy reduced trade deficits, others, most notably Germany, must face reduced surpluses. If there is no clear path to reduced surpluses there is no clear path to reduced deficits and hence to solvency. More generally, the sustainability of any program must be assessed in the context of realistic projections of the economic environment. The IMF must not approve adjustment programs that are unrealistic.Twice, he emphasizes the point that European banks need to be recapitalized.
Thursday, December 08, 2011
The Federal Reserve released the Q3 2011 Flow of Funds report today: Flow of Funds.
The Fed estimated that household net worth declined $2.4 trillion in Q3. Household net worth peaked at $66.8 trillion in Q2 2007, and then net worth fell to $50.4 trillion in Q1 2009 (a loss of $16.4 trillion). Household net worth was at $57.4 trillion in Q3 2011 (up $7.0 trillion from the trough, but down $2.4 trillion in Q3).
The Fed estimated that the value of household fell $98 billion to $16.1 trillion in Q3 2011. The value of household real estate has fallen $6.6 trillion from the peak - and is still falling in 2011.
This is the Households and Nonprofit net worth as a percent of
This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.
This ratio was relatively stable for almost 50 years, and then we saw the stock market and housing bubbles.
The last time I blogged on this subject, our astute commenter Bennett Haselton raised a very good question: Bear Stearns is presumably not just sitting on Fidelity’s money; they’re investing it somewhere. Why can’t that investment serve as Fidelity’s collateral? The answer, if I understand Gorton correctly, is that the repo market is a very short-term market, typically 24 hours. For Fidelity to verify the quality of Bear Stearn’s investment project would take a week or so, by which time it’s too late for the information to be of any use. Fidelity’s ongoing concern is that Bear Stearns is pawning off its shakiest investments; to allay that concern requires due diligence; due diligence takes time; the repo market is all about getting things done NOW.(via Thoma)
So what should we do about all this? Gorton, along with his colleague Andrew Metrick, argues that the repo market, like any banking market, is inherently susceptible to runs and therefore ought to be regulated. In this case, the regulations should focus on insuring the availability of sufficient high-quality collateral to keep depositors calm. Gorton observes that the existing policy responses to the crisis (e.g. the Dodd-Frank bill) do pretty much nothing to address this fundamental need. The Gordon/Metrick paper contains some specific proposals, which unfortunately Gorton never got to in yesterday’s talk.
(or maybe the Mayans were right)
From a NYTimes article on White House concerns over the European Feedback Cycle of Doom:
“It is absolutely an important assumption that if the economy really tanks, really tanks, as the result of strong headwinds coming from Europe, it would be a more challenging environment,” said Representative Steve Israel of New York, the chairman of the Democratic Congressional Campaign Committee.
While political analysts say Mr. Obama, as the incumbent, would bear the brunt of the political fallout of another economic crisis, some Republicans are fretting as well. At a Washington dinner party two weeks ago, David Smick, a Republican financial consultant, approached Karl Rove, the Republican strategist, with a provocative question. “What if I told you that given what’s happening in Europe, that whoever is president in 2013 might not see his party elected for another 30 years,” Mr. Smick told Mr. Rove, according to guests who were present. Mr. Rove, one guest said, “just listened.”
In an interview, Mr. Smick said that the European crisis, in his view, could eventually make another huge government bailout like the controversial bank rescue program of late 2008 and 2009 necessary. But most political analysts say that could be political suicide for the country’s leaders. On Wednesday afternoon, Mr. Obama was on the phone with Mrs. Merkel again. “As usual,” the White House said in a statement afterward, “the president expressed his appreciation for the efforts the chancellor and other European leaders are making to resolve the crisis.”
In the Hitchens article from yesterday, he discusses Nietzsche's episode in Turin where he had a nervous breakdown/psychotic break:
Eventually, and in miserable circumstances in the Italian city of Turin, Nietzsche was overwhelmed at the sight of a horse being cruelly beaten in the street. Rushing to throw his arms around the animal’s neck, he suffered some terrible seizure and seems for the rest of his pain-racked and haunted life to have been under the care of his mother and sister. The date of the Turin trauma is potentially interesting. It occurred in 1889, and we know that in 1887 Nietzsche had been powerfully influenced by his discovery of the works of Dostoyevsky. There appears to be an almost eerie correspondence between the episode in the street and the awful graphic dream experienced by Raskolnikov on the night before he commits the decisive murders in Crime and Punishment. The nightmare, which is quite impossible to forget once you have read it, involves the terribly prolonged beating to death of a horse. Its owner scourges it across the eyes, smashes its spine with a pole, calls on bystanders to help with the flogging … we are spared nothing. If the gruesome coincidence was enough to bring about Nietzsche’s final unhingement, then he must have been tremendously weakened, or made appallingly vulnerable, by his other, unrelated sufferings. These, then, by no means served to make him stronger. The most he could have meant, I now think, is that he made the most of his few intervals from pain and madness to set down his collections of penetrating aphorism and paradox. This may have given him the euphoric impression that he was triumphing, and making use of the Will to Power. Twilight of the Idols was actually published almost simultaneously with the horror in Turin, so the coincidence was pushed as far as it could reasonably go.This reminded me of the opening scene in Amazing Grace, a film about William Wilberforce, the religious friend of William Pitt who ended the the British transatlantic slave-trade. In the movie, Wilberforce, played by the kindly and sympathetic Ioan Gruffudd, halts his carriage to stop the beating of a horse and soon after has a similar "unhingement" and becomes a religious fanatic or fundamentalist. He also endeavors to end the British slave trade against great odds.
To me the idea of a horse being beaten for some reason always brings to mind Orwell's Boxer, who represented the Russian working class in his book Animal Farm. Loyal and hardworking, worked to death in fact.
John Brown was a religious fanatic too. In AMC's "Hell on Wheels," the preacher in the railroad camp road with John Brown during "Bloody Kansas." It's very interesting that Obama chose to give a speech in Osawatomie.
As I understand it, Nietzsche and Mencken had a very negative of religion as a sort of a slave mentality. On the Internets someone wrote:
[Nietzsche] thought Christian morals and asceticism rejected life. The good for him is only that which asserts his aristocratic, elitist ideal. Christian morals defend the opposite - the meek, impoverished, and lower class. He was also skeptical of the Platonic rejection of the material world common in Christianity.Hitchens writes Mencken believed in a sort of Social Darwinism. Christianity began as a slave religion under the Roman Empire. I share Hitchens's and Marx's view of it as an opiate. It's a less condescending, more sympathetic view, although maybe pity is ultimately condescending.
Religious suffering is, at one and the same time, the expression of real suffering and a protest against real suffering. Religion is the sigh of the oppressed creature, the heart of a heartless world, and the soul of soulless conditions. It is the opium of the people. The abolition of religion as the illusory happiness of the people is the demand for their real happiness. To call on them to give up their illusions about their condition is to call on them to give up a condition that requires illusions. The criticism of religion is, therefore, in embryo, the criticism of that vale of tears of which religion is the halo.
Wednesday, December 07, 2011
Trial of the Will by Hitchens
(I take a slight interest in this, because not long ago I was invited onto a Christian radio station in deepest Dixie to debate religion. My interviewer maintained a careful southern courtesy throughout, always allowing me enough time to make my points, and then surprised me by inquiring if I regarded myself as in any sense a Nietzschean. I replied in the negative, saying that I had agreed with some arguments put forward by the great man but didn’t owe any large insight to him and found his contempt for democracy to be somewhat off-putting. H. L. Mencken and others, I tried to add, had also used him to argue some crude social-Darwinist points about the pointlessness of aiding the “unfit.” And his frightful sister, Elisabeth, had exploited his decline to misuse his work as if it had been written in support of the German anti-Semitic nationalist movement. This had perhaps given Nietzsche an undeserved posthumous reputation as a fanatic. The questioner pressed on, asking if I knew that much of Nietzsche’s work had been produced while he was decaying from terminal syphilis. I again responded that I had heard this and knew of no reason to doubt it, though knew of no confirmation either. Just as it became too late, and I heard the strains of music and the words that this would be all we would have time for, my host stole a march and said he wondered how much of my own writing on god had perhaps been influenced by a similar malady! I should have seen this “gotcha” coming, but was left wordless.)
The Most Important Economic Speech of His Presidency by Robert Reich
Obama gave a speech in Osawatomie, Kansas — where Teddy Roosevelt gave his “New Nationalism” speech in 1910. Roosevelt gave his speech at John Brown Memorial Park. I know Obama liked The Wire and his favorite character was Omar.
A similar show "Hell on Wheels" with many characters and plotlines is on AMC and stars Common.* I wonder if Obama's watching it - I doubt it but who knows?
On last week's episode John Brown was mentioned. One character is a preacher at the railroad camp. He used to ride with John Brown during Bloody Kansas. He tells the main character, a southerner bent on revenge against those who killed his wife, that in Kansas they used swords and axes on slave owners because they didn't deserve bullets, hence the "bloody" in "Bloody Kansas."
I wish the Obama administration wouldn't oppose a financial transactions tax.
The Robin Hood Tax.
Driven by populist anger at bankers as well as government needs for more revenue, the idea of a tax on trades of stocks, bonds and other financial instruments has attracted an array of influential champions, including the leaders of France and Germany, the billionaire philanthropists Bill Gates and George Soros, former Vice President Al Gore, the consumer activist Ralph Nader, Pope Benedict XVI and the archbishop of Canterbury.
“We all agree that a financial transaction tax would be the right signal to show that we have understood that financial markets have to contribute their share to the recovery of economies,” the chancellor of Germany, Angela Merkel, told her Parliament recently.
On Sunday, Mario Monti, the new prime minister of Italy, announced plans to impose a tax on certain financial transactions as part of a far-reaching plan to fix his country’s budgetary problems, and he endorsed the idea of a Europewide transactions tax.
So far, the broader debt crisis engulfing the euro zone nations has pushed discussion of the tax into the background. But if European leaders can agree on a plan that calms the financial markets, they would be in a stronger position to enact a levy, analysts said.
“There is some momentum behind this,” said Simon Tilford, chief economist of the Center for European Reform in London. “If they keep the show on the road, they probably will attempt to run with this.”
And Glenn Hubbard, who was chairman of the Council of Economic Advisers under President George W. Bush, said the Robin Hood tax is a “monstrously bad idea.”
“Such a tax isn’t really going to get at the banks,” added Mr. Hubbard, who is now an adviser to the Republican presidential candidate Mitt Romney. “It’s going to hit the people who own the assets that are traded,” like investors.
Supporters of a financial transactions tax note that Britain already imposes a levy of $50 per $10,000 of stocks traded, while Hong Kong and Singapore, with fast-growing financial markets, impose fees of $10 to $20 per $10,000 of the value of certain transactions.
The United States imposed a tiny tax on stock trades from 1914 to 1966.
The British actor Bill Nighy, who has made online videos promoting the tax, calls it a beautiful idea. “It would raise enough money to solve problems at home and overseas, and it could do it without hurting ordinary people,” he said.---------------------------------
*Common is from Chicago and belongs to Jeremy Wright's church. He sang at Obama's Inaugural Ball.
Tuesday, December 06, 2011
No, not Dianetics.
When asked his favorite novel in an interview shown yesterday on the Fox News Channel, Mitt Romney pointed to “Battlefield Earth,” a novel by L. Ron Hubbard, the founder of Scientology. That book was turned into a film by John Travolta, a Scientologist.
A spokesman said later it was one of Mr. Romney’s favorite novels.
“I’m not in favor of his religion by any means,” Mr. Romney, a Mormon, said. “But he wrote a book called ‘Battlefield Earth’ that was a very fun science-fiction book.” Asked about his favorite book, Mr. Romney cited the Bible.(via DeLong)
Fed must act now to boost economy, Evans says
While 3-percent inflation may sound "shocking," he said, research shows that central banks should fight liquidity traps by allowing inflation to run above target over the medium term.
Since high U.S. unemployment is probably due to the effect of a liquidity trap rather than a structural shift in the economy, Evans said, added monetary stimulus is justified.
And if it turns out, he said, that the real problem was indeed structural and easier monetary policy sparks a rise in inflation, the Fed can simply tighten policy before it threatens to reach the hyperinflationary levels of the 1970s.
(Via DeLong twitterstorm)
The audience of several hundred entered the large convention center where Evans spoke under the watchful eyes of half a dozen armed members of the county sheriff's department, who were on site because of a threatened demonstration by Occupy Muncie.
Evans had previously suggested setting the unemployment trigger for monetary policy tightening at 7 percent but did not mention any specific figure in his prepared remarks on Monday.
The Fed's policy-setting panel meets next week to discuss what, if any, action to take to boost the economy. While many Fed officials appear to support some change in Fed communications, only a few have said they would support Evans' proposal.
Next week will be the last time Evans votes on the panel until 2013.