Too bad it won't matter. This is not what the Strategic Reserve was meant for.

http://www.econbrowser.com/archives/2011/06/the_strategic_p.htmlhttp://www.blogger.com/img/blank.gif

I have no interest in debating abortion. These demographic facts are stunningly sad. A world without women is not one worth living in.

Listen to the discussion...some parts of China have 150 boys for every 100 girls? Sociologists and Anthropologists should have a field day with this research agenda.

Will the last person in Providence please turn out the light?

Read this and then weep for the peeps of Providence. It says that public employee pensions are 50% of the city budget. Steve Malanga is the top analyst for these things.

http://online.wsj.com/article/SB10001424052702304070104576399530309071422.html?mod=WSJ_Opinion_LEADTop

Put the "Vancouver Kiss" just one notch below the "WWII Victory Kiss" in iconinc photos.

Not such a hot idea.

http://www.econbrowser.com/archives/2011/06/a_game_of_chick.html

The president and dangerous ideas.

As if collectivism isn't bad enough, now the president has verbalized his trepidation regarding innovation and technological advancement. I remember Cynthia Tucker saying the same type of clap trap years ago. She being a columnist with the Atlanta Journal-Constitution once remarked that technology was the enemy of the working class. I still have not caught my breath from the shocking nature of that statement. Apparently the president has the same thread of Luddite thought running through his economic mental calculus.


He claims innovation is one reason why workers are displaced and that is no doubt true...and quite wonderful. For you see, economic growth and advancement is a never ending fight between the stinginess of nature and the ingenuity of man, between technological progress and the law of diminishing returns. Without innovation we all lose. The only way we can cope with scarcity is to continually do better and better with less and less (unless of course you are the government).

From history we know people did not want the telephone to be developed since it would displace all those poor telegraph operators. Don't develop the car since mule breeders would lose out. Computers would destroy jobs for filing clerks. Imagine your life without the telephone, auto or computer and how much poorer we would all be. Cyrus McCormick invented the mechanical reaper that would cut the corn of 10 men. What happened? Farmers would get together vandal parties and destroy these machines since it would throw 9 farmers out of work, according to their thinking. And if you remember the long shoremans' union strike in California several years ago, one of the sticking points was that the union wanted to continue forbidding management from using the forward button on their computer to send messages. I'm not making this up. They wanted to preserve secretarial jobs by making people have messages re-typed by a person instead of forwarded via email. Email destroys jobs, you see? That is the mindset. And nothing could wed us to serfdom faster than this type of thinking.

I am reminded of a quote from Milton Friedman contained in the attached article: The story goes that Milton Friedman was once taken to see a massive government project somewhere in Asia. Thousands of workers using shovels were building a canal. Friedman was puzzled. Why weren't there any excavators or any mechanized earth-moving equipment? A government official explained that using shovels created more jobs. Friedman's response: "Then why not use spoons instead of shovels?"


Read more about the joy of technological innovation here.

This is a wonderful idea! We don't want no stink'in Svengalis.

Bank capital, and the lack thereof, is one of the reasons we are where we are. Bank capital is what is left over after liabilities on a bank's balance sheet are subtracted from assets. The rest of the world calls it net worth but bankers have their own pet terms I suppose. Banks need capital to be able to absorb losses on their balance sheet from buying bad assets, like making loans to poor investors or buying mortgage-backed securities. When the bank's assets are worth less than their liabilities, then they have negative bank capital and are indeed bankrupt. Sounding familiar yet? Bank capital is also related to the leverage ratio of a bank. This ratio indicates how much bank capital, a.k.a. owner's equity, a.k.a. "skin in the game" a bank has to put up for, say, every $100 it borrows to buy assets. So, for example, a 2-to-1 leverage ratio would mean a bank must put $50 equity for every $100 it borrows. If it puts up $50 billion in equity to have assets of $100 billion and makes $5 billion in after-tax profit then it has a return on equity of 10%. Now, Presto-Changeo! What if a bank had a leverage ratio of 57-to-1? That means it could borrow $114 billion dollars for every $2 billion of its own skin in the game. If it made $5 billion in after-tax profit it would have a 250% return on equity. Ahhh, now we are talking baby! But wait...it could only absorb $2 billion + $1 in loan and asset losses before it went bankrupt, kaput and insolvent. And here you see the danger. Low equity and high leverage raise the return on equity but make the financial institution vulnerable to even the slightest downturns in asset values. High equity and low leverage lower the return on equity but provide safety against insolvency because banks have the capital to absorb losses. And remember, capital cannot be had nor can you re-capitalize by borrowing.

Well, Citibank was leveraged at 57-to-1 when it all went so terribly wrong. Madness in my book. When the losses started to pile up who did Citibank call for a capital infusion? Underdog? Super Chicken? No, they called the Arabs in Dubai. The Arabs cut a check for $7 billion in exchange for equity positions in Citibank. Bad bet. Citibank failed and got bailed out for the third time by the US government. But equity holders got nothing. And please remember that when US banks purchased Fannie and Freddie MBS they only had to put up $1.67 skin in the game for every $100 they borrowed to buy these securities. Still wondering why our banking system went KABOOM?

The way our financial system is now structured with the 2300 page Dodd-Frank bill, banks are heavily regulated with 2300 pages of what they can't do but yet the law still allows larger leverage ratios and lower equity. The implication is we will bailout again when your bets go bad and your capital is inadequate. What if we turned this on its head somewhat and said...go to it. Invest freely, well mostly, BUT we are going to make sure you have the adequate capital to absorb the losses and remain solvent. Note the implication is that leverage ratios would be on a short leash. And I think this is a great idea. Asset bubbles and leverage are our economic Svengalis. Get rid of whacko levels of leverage and you can stop most asset bubbles. The internet bubble still happened without leverage, and bubbles will still come around. But banks are forbidden from holding stocks and the internet craze was not fed with leverage, see? The result of that bubble popping was a very mild recession and a bunch of IT dweebs and tools looking for work. It did not bring the world's financial markets to the brink.

Read more about these bright ideas here.

Greece on the brink.

One wonders how long Greece can hold on? When they are borrowing ten-year money at 17% and two-year money is approaching 30% (not a misprint) one thinks the end has to be near. Here's the problem...the Eurozone will never work as long as there is not also a fiscal zone as well. Think of it like this...here in the US when some poor regular guy loses his construction job in Vegas because the housing bubble was the worst there and thus popped the biggest, we help the poor Joe six pack out. You and I both write this guy checks for unemployment compensation and assist him so he can hopefully find a new job and get back on his feet. So, money flows from North Carolina and from wherever you are reading this to help out in Nevada. That is how our federal fiscal system works in our social contract with our fellow Americans and our government. Now, can Europe do this too? It will take nothing less to ultimately allow the Eurozone to survive in long-run equilibrium. That is, will the Germans write checks to help the Greeks and will the cheese eat'in surrender monkeys in Paris come off their three-hour lunch break and scratch checks to help out the good folks in Portugal when they hit the wall? I don't know but I'm not so sure about that. And that is the problem in a nut shell. A collection of countries on the same medium of exchange is not the same entity as the United States of America, one nation, indivisible. We do it for sure. The Euros, probably not so much. It would mean giving up national sovereignty and I don't see that as likely.

BTW, lest you think the US is off the hook I wish to point out that many of the credit default swaps held by French and German banks on Greek debt are backed by US banks. Have a great day.

Read more about it from two of the best economists walking or running here.

Why not raise the top marginal tax rate back to 94%?

I have always been befuddled by the burning passion to raise taxes on the "rich" so they can pay their fair share. Whenever you hear the word "fairness" hold on to your wallet because someone is coming after it. Now folks in Washington and Academia (Robert Reich for example) are floating the idea of jacking up the top marginal tax rate back to 1960s levels, in the 70% range or so. Why stop there? Why not put it back to 94% like it was in the Second World War? And make it for all incomes above $250,000. The graph above of Hauser's Law is a historical fact that is perpetually ignored by all the social engineers of the world who want to sock it to the American people to pay for their vision of what America should be (think France here). Revenues to pay for that are not going to come from tinkering with the tax code. If you doubled everyone's income tax bill today, and made everyone who pays income taxes stroke a check for twice what they paid last April, you would collect $1.2T and would not balance the budget for even one year. If you confiscated all incomes over and above the $100,000 threshold, you would collect $1.5T, and obviously you could only do that once. What really matters is what you squeeze out of the economy as a percentage of GDP and it is clear that we have never gone much beyond 20% no matter how you want to re-arrange the furniture, so to speak.

The real cash cow would be to keep the tax code as it is and slap on a Value Added Tax (VAT, think national sales tax), that would certainly be a revenue whopper. But when that money is spent then what do you do? There will always be the call for more taxes even after that. Don't believe me? Look at the UK. They have high income taxes and a VAT, they are broke too and in deficit spending and what were they screaming? You got it, "we need to raise taxes to do something about the deficit"! They raised the VAT from 17.5% to 20% in January of this year. That is a bunch of Bullocks mate! Count me out.

Most if not all of the deficit and debt reform we should be looking at should come from spending reduction and the elimination of so-called tax expenditures. So let's start there...you have a special tax subsidy or deduction because you are some favored political class or bought some special item, say your prayers varmint. Kill it. Then let's talk about entitlements for all you young folks under age 55.

Until we are willing to put government spending at 20% of GDP or choke the living hell out of our economy with a European-style VAT (that will never be enough), we will have the ongoing deficit and debt saga for as long as financial markets will allow it.

For further explanation of such nonsense look here.

More wine with the great Paul Draper.

http://jamessuckling.com/three-questions-paul-draper.htmlhttp://www.blogger.com/img/blank.gif

An interactive fly over of the Ridge Vineyard. If you love wine like I do, this is cool!

http://www.ridgewine.com/vineyards/vineyards_flash.tmlhttp://www.blogger.com/img/blank.gif

Chris Christie a Nazi? One should not say such words. I am proud the NC state constitution forbids collective bargaining by public employees.

Explicit Inflation targeting??? Count me IN!

http://blogs.wsj.com/economics/2011/06/15/http://www.blogger.com/img/blank.gifinflation-targeting-has-fans-at-the-fed-but-obstacles-unresolved/

And make it explicit like the President of the Atlanta Fed argues here.

Thanks to Dr. Rothman for forwarding this...Lawrence Kotlikoff takes on Krugman.

This much is for sure:
1. Either a government panel is going to tell you what you can't have or
2. An insurance company is going to tell you what you can't have or
3. If you can't pay for it yourself you can't have it.

Belly up to the bar big boy...which one is it?

http://www.bloomberg.com/news/2011-06-15http://www.blogger.com/img/blank.gif/-vouchercare-is-the-right-name-for-medicare-laurence-kotlikoff.html

It ain't easy being an economist.

Economists have known for generations how destructive the minimum wage is. Yet no one listens. And we get sick of repeating ourselves. So here is one more definitive try to show the minimum wage is destructive, thumb-sucking social policy and wretched economics.



http://newsroom.uhttp://www.blogger.com/img/blank.gifnr.edu/2011/06/03/university-of-nevada-reno-economist-refutes-conventional-wisdom-about-minimum-wage-earners/

The Japanese eat up anything published on the Great Depression for obvious reasons.

You can see the advertisement for the Japanese market of my upcoming reference volumes The Seminal Works of the Great Depression by clicking here.

From the San Francisco Fed by way of the venerable Dr. Rothman. This is a must read!

http://www.frbsf.org/publications/economics/letter/2011/el2011-17.htmlhttp://www.blogger.com/img/blank.gif

Saw this sign recently on a trip back to Chicago. Travel the world...Amish style!

Secretariat and the Belmont...enough said.

My recent column for the ECU Economics Alumni Newsletter.

Macro Corner 2011

Drifting Along…Going Sideways

Hello once again as I greet you from hot and steamy North Carolina. Not only is the heat inescapable, but so is the feeling of drift. The economic currents slowly push the stream toward the sea and yet lead us nowhere for no good reason. You row your boat and pull the oars and the dock is no further away than when you launched the boat. It seems we are caught in the frozen years and perhaps even in the middle of a Japanese “lost decade”. In times like these a little historical perspective is just the thing we need to try and understand not necessarily why we are here (much has been said regarding that) or where we are going (that’s hard to know), but rather how long it may take to get there.
To this end there is a remarkable book published in 2009 titled This Time is Different by Reinhart and Rogoff. This masterpiece of historical economic analysis takes a sample of 800 years of financial and economic data and examines trends that occurred after every financial crisis we have had during that time period. Note the sarcasm in the title. Every boom and bubble has people repeating the same mantras: “all the old rules no longer apply”, “this is a new world with different fundamental principles of valuation”, “this time is different!” But it never is. The only thing new in the world is the history you forgot or never knew in the first place. All asset bubbles fed by leverage and cheap credit end up splattered on the wall of economic history... every single one without exception. And the story is always the same in someone’s sick macroeconomic replay of Groundhog Day… leverage + asset bubbles + believing “this time is different” = SPLAT. Hey but why fret. It is going to happen again, trust me. It is only a question of when.
Anyway, the findings of Rhinehart and Rogoff are juicy gems. Their research reveals:
1. In the aftermath of financial crises there is a 35.5% average decrease in real housing prices with an average duration of 6 years. So want to know when housing might recover? Probably not before 2013 if then, on average of course.
2. In the aftermath of financial crises there is a 55.9% decrease in real equity prices with an average duration of 3.4 years.
3. In the aftermath of financial crises there is a 7% average increase in the unemployment rate with an average duration of 4.8 years. We just about made this and I would bet we beat that duration.
4. Real public debt increases 86% in the three years following the crisis.
5. When the privately held government debt-to-GDP ratio crosses the 90% threshold, there is a reduction, on average, of 1% in the long-run trend growth rate of GDP of that country. This statistic should make you lose sleep at night. We are fast approaching this important benchmark.

So I guess the upshot is we are not out of the woods and have years to go to get out of the fever swamp we went through in 2008. Just remember, if we lose 1% on our long-run growth trend, there is not a chance in this world we will meet all the promises we have made over the next 50 years…and even less chance your children will have a better economic life than you. Let’s swear off asset bubbles and leverage. That would be a great start.

Have a great day,
Dr. Doom, I mean Dr. Parker.

John Taylor: Credible commitment and the debt ceiling. Is the US a serious country?

http://online.wsj.com/article/SB10001424052702303745304576359811624639374.html?mod=WSJ_Opinion_LEADTop

Indoctrination and stories of my youth.

Today you will find an old US history test I took as a young lad in high school. You see, my 83 year old mother took a terrible fall in April and is not doing well at all. She can no longer live alone nor care for herself. It is not a very happy story. So, I had to go home to clean out my childhood home and prepare to sell it since my mother will not be returning there. Of necessity I had to go through every drawer of every desk, chest and dresser to make sure all valuable family items were accounted for. My mother saved everything of value but was not a hoarder. But she even saved this history test. Note my third answer (don't remember the question): "I favor deflation and hard money." This shows how critical it is to not let the tripe that is taught in high school be the last word in your mind on things (assuming one graduates from high school) and then how important it is to let people grow to be free thinking individuals. Thank God I have lived to disavow these scribblings. I would sooner lick the phlegm from Flipper's blow hole than sign up for this nonsense.


Click on this to view ancient history:

I wish there was something here I disagreed with....alas I don't so more sideways drift I fear.

http://online.wsj.com/article/SB10001424052702303657404576363984173620692.html?mod=djemEditorialPage_t

The smartest woman in the world.

http://online.wsj.com/article/SB10001424052702303745304576359841146126376.html?mod=WSJ_Opinion_LEADTop

You are not going to get this genie back in the bottle and this is going to get UGLY.

Just remember what his father did to Hama Syria in the 1980s...bombed it, killed over 10,000 people...and then paved it over. A fresh start you see?

http://online.wsj.com/article/SB10001424052702304432304576369542058503196.html?mod=WSJ_World_LeadStory#project%3DSYRIAMAP1104%26articleTabs%3Darticle

D-Day was one of the most important days in history...and a simple farm boy from Kansas was the Supreme Leader, Eisenhower, West Point Class of 1915.

Dogs vs. Women: Part I

Why are dogs better than women?......

It is hotter than two minks mating in a wool sock...and all I can think about is ducks. Viewer discretion is advised.

Here I am...it is I.

Yikes! Mao-Marx-Lenin make a comeback!

http://www.blogger.com/img/blank.gifhttp://online.wsj.com/article/SB10001424052702303745304576357084047903862.html?mod=WSJ_Opinion_LEADTop

Why is he still in office?

http://gregmankiw.blogspot.com/2011/05/perhaps-because-barney-http://www.blogger.com/img/blank.giffrank-is-my.html