Ben Bernanke on Deflation

Speech, Bernanke --Deflation-- November 21, 2002:

"Although deflation and the zero bound on nominal interest rates create a significant problem for those seeking to borrow, they impose an even greater burden on households and firms that had accumulated substantial debt before the onset of the deflation."

Strangely, Ben failed to explicitly mention the burden on governments and banks that have accumulated substantial debt, which is what the current problems are about. I suspect he secretly refers to these entities when he refers to "firms" but I think he should have been a little more explicit about his own self interest in the matter.

Each day I am more and more convinced that if the banking system collapsed the only people that would notice are the bankers; and those banks with crazy loan portfolios are not going to be repaid anyway, so what's the big deal? The bankers need a good smack on the side of the head that bankruptcy would provide.

Obama, God bless his ignorant soul, keeps repeating the mantra that "credit is the lifeblood of our financial system." "Banks are not lending," he says. But in fact, banks are lending - they are lending to entities that are qualified. Does Obama want a return to the crazy-ass loan-making fever we just went through? Nobody is loaning GM money because it's a bad idea - not because they don't have the money to lend out.

Maybe the problem isn't supply but demand - there isn't demand for loans because the previous demand was from people that should never have qualified for a loan. Therefore you can give banks as much money as you want but the only way to get credit flowing is to return to making bad loans.

This does not strike me as a good idea!
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The Problems with Inflation

The Case for Natural Money - George F. Smith - Mises Institute:

"Inflation's standard definition is too narrow to provide an appreciation of the extent of its harm; it is far more than a deterioration of the currency's purchasing power. It's also much more than a 'hidden tax.' Government's perennial fiat inflation is a subtle WMD. Consider the following:

1. In funding wars, it allows government to ignore the fiscal resistance of its citizens.
2. It benefits the central government at the expense of secondary and tertiary governments.
3. It turns moral hazard and irresponsibility into an institution, and guarantees recurring economic crises.
4. By making credit cheap, it encourages businesses to finance their ventures through borrowing rather than equity. Because of market competition, few firms can resist the offer of low credit, making them more dependent on banks. As Pius XI noted in 1931, it puts a dictatorship in the hands of lenders who regulate the lifeblood of the entire economic system.
5. Fiat inflation drives people to invest in capital markets where few will have the expertise, time, and inclination to monitor their investments properly. In former times people could save simply by holding gold and silver coins.
6. Under a perennially increasing price level, the average citizen finds his best strategy is personal debt, which weakens self-reliance and independence.
7. Under chronic fiat inflation, people will tend to choose their employment based on monetary returns. Money then becomes the prime or only consideration for personal happiness.
8. Perennial inflation deteriorates product quality. Industries that cannot compensate for inflation with technological innovation turn to other means, such as producing an inferior product under the same name. Lying, which is bound up with fractional-reserve banking, tends to spread like a cancer over the rest of society.
9. By fueling the exponential growth of the welfare state, fiat inflation fosters the decline of the family. Families become degraded into 'small production units that share utility bills, cars, refrigerators, and especially the tax bill.' The welfare state drives the family and private charities out of the 'welfare market.'"

I hope people come to understand the printing money is bad - let alone printing extra money.
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Mish's Global Economic Trend Analysis: Dear Mr. President, With All Due Respect ....

Mish's Global Economic Trend Analysis: Dear Mr. President, With All Due Respect ....:

"With all due respect Mr. President, Tim Geithner and Ben Bernanke are offering the same policies as President Bush and Secretary Paulson. Those policies are to bail out banks regardless of cost to taxpayers. Mr. President, it's hard enough to overlook Geithner's tax indiscretions. Mr. President, it is harder still. if not impossible, to ignore the fact that neither Geithner nor Bernanke saw this coming. Yet amazingly they are both cock sure of the solution. Even more amazing is the fact that solution changes every day."

Indeed.

The reasoning by the central bankers, who are, after all, bankers, is that whatever is bad for bankers is bad for America.

They say that if the big banks fail, there will be no more credit.

And so they are going to buy all the bad assets.

You just watch.


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The Crash and The Real Bailout

I think the stock market will eventually crash to 10% of it's old high, so to about 1300 (Dow).

I base that on this picture:





(Click to see original big chart from dshort.com.)

Maybe even down to 5%. I dunno. Maybe things will rebound! Nobody knows anything. Which is why everyone is hording cash (or things they think are cash, like treasury bonds).

All banks are insolvent. BTW, the current crisis can be easily averted (for now) if the government buys any mortgage that any bank wants to sell, and then doesn't collect any interest for at least five years. And the government has to pay the FULL PRICE! All this crap about getting a "good deal" for the taxpayers is baloney. It's only by paying full price that the banks can at least claim to be solvent.

The current economic problem is hugely magnified by the ripple effect from the bad mortgages and all the secondary goofy paper like credit default swaps based on them.

If you (and by you, I mean the government, which means you) buy out those mortgages, then the ripple effect is fixed. Of course, everyone will still unwind many of the crappy other outstanding loans which will deflate the currency for awhile but this wholesale buyout would remove a big hunk of uncertainty from the markets. w00t.

There isn't the political will power to do that right now but that could change, especially if the government makes some "special" investment in BofA and Citigroup; that would give them the staff power they need to actually do all the paperwork to buy all of those mortgages.

Undoubtedly the mortgages would then be handed off to the "bad bank."

I'm pretty sure this will happen eventually, although things need to get even worse before that happens - governments never act proactively but only after things are so obviously bad that no one can argue that "immediate action must be taken."

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What does a Hollywood producer do, exactly? - By Ian Crouch - Slate Magazine

What does a Hollywood producer do, exactly? - By Ian Crouch - Slate Magazine

You probably won't recognize the men or women who pick up the award for best picture at this Sunday's 81^st annual Academy Awards. The trophy doesn't go to the winning film's director or to its on-screen stars. Rather, it's handed to the "producers." What does a producer do, exactly?

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Jobs!

Jobs!

[ Follow the link above for more information. ]

Jobs with ArenaNet - Bellevue, WA


We are actively looking for motivated people to join our team – if you’re looking to work with a talented group of game developers, we’d love to hear from you. Here are a few reasons why working at ArenaNet could be your dream job:

• Complete creative autonomy; we make games we want to play.
• Sustained, long-term financial backing; no “funding milestones”.
• No suits; we are a company of passionate gamers and you can see it the moment you walk into the studio.
• No “B” titles; we are ambitious and our games reflect it.
• Laid-back, open air studio culture; no offices, no cubes, no halls.
• A collaborative design environment; work shoulder to shoulder with the development leads from Guild Wars, StarCraft, Diablo and Battle.net.
• People who work here are actually happy; if you know someone who works here, ask!
• Strong engineering discipline; our code base is exceptionally clean, well structured, and stable.
• No egos, no prima donnas, no rock stars; just people you respect and enjoy working with.
• True work-life balance; we don’t just say it, we live it every day.
• A firm goal to dominate the online gaming industry, and the expertise and resources to do it.

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Obama Stumps for Stimulus in a City Hit Hard by Downturn - NYTimes.com

Obama Stumps for Stimulus in a City Hit Hard by Downturn - NYTimes.com:

"Wrapping himself in the mandate of his election last November, Mr. Obama sounded like a candidate all over again, scolding greedy Wall Street bankers and pointedly rejecting Republican critics for sticking with what he called a failed philosophy. At one point, he spoke about people with as many as five homes, which sounded like a reference to his opponent last fall, Senator John McCain."

So ... you want those people to sell their homes, thus depressing the market further? I thought you wanted people to buy homes, Mr. President.

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Calculated Risk: Affordability "Products" Lead to Higher Defaults in the O.C.

Calculated Risk: Affordability "Products" Lead to Higher Defaults in the O.C.:

"To me, the failure of Alt-A is the failure to represent reality of the view that people who have a track record of successfully managing modest amounts of debt will therefore do fine with very high amounts of debt. Obviously the whole thing was ultimately built on the assumption that house prices would rise forever and there would always be another refi."

I would add, "it is not necessarily true that governments that have a track record of successfully managing modest amounts of debt will therefore do fine with very large amounts of debt."

(BTW, I grew up in the OC. Remember, the OC is the county that went bankrupt awhile back.)
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Managing the Economy

I read somewhere that Keynes hoped that someday the job of economist would be quite boring and quite normal. Basically, this guy, with his good understanding of macroeconomics would go to work (I guess at the Federal Reserve or other central bank) and adjust the appropriate knobs to manage the economy and then go home to his wife and kids.

Here's a list of Federal Reserve Chairman from Wikipedia:

1. Charles S. Hamlin (August 10, 1914 — August 10, 1916) -- Chairman of the Board of Directors of the Federal Reserve System
2. William P. G. Harding (August 10, 1916 – August 9, 1922)
3. Daniel R. Crissinger (May 1, 1923 – September 15, 1927)
4. Roy A. Young (October 4, 1927 – August 31, 1930)
5. Eugene I. Meyer (September 16, 1930 – May 10, 1933)
6. Eugene R. Black (May 19, 1933 – August 15, 1934)
7. Marriner S. Eccles¹ (November 15, 1934 – February 3, 1948) -- first Chairman of the Board of Governors of the Federal Reserve System^[2]
8. Thomas B. McCabe (April 15, 1948 – April 2, 1951)
9. William McChesney Martin, Jr. (April 2, 1951 – February 1, 1970)
10. Arthur F. Burns (February 1, 1970 – January 31, 1978)
11. G. William Miller (March 8, 1978 – August 6, 1979)
12. Paul A. Volcker (August 6, 1979 – August 11, 1987)
13. Alan Greenspan² (August 11, 1987 – January 31, 2006)
14. Ben S. Bernanke (February 1, 2006 – )

So as you can see, Greenspan and Bernanke have been the Chief Economists of the United States (and by implication the world, I guess), since August 1987. Things were beginning to collapse a bit in 2006 but under Bernanke's management they have really tanked.

So ... if the Chief Economist's job is to move some knobs and manage the economy, and that's all they have to do, can't we say pretty definitively that both Greenspan and Bernanke have been horrible managers?

I mean, suppose they blame China for saving too much money, as they like to do. Well, isn't the chief economist's job to move the knobs to fix that? They can blame whomever they want but those two guys had their hands on the knobs. They must have moved them the wrong way - otherwise, according to their macroeconomic theories, all would be well, because that's all it takes to manage the economy.

Of course, I don't believe in their macroeconomic nonsense, but, I think, by their own standards, they should fire themselves, and then walk around in shame, because of the horrible job both of them have done. Don't you think?

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Spending

Obama et.al. want to increase spending in order to stimulate the economy.

So a big corporation decides to buy a $50M corporate jet and they get in big trouble and have to cancel the order!

And the reason the big corporation got in trouble was because they received government bailout money specifically for the purpose of increasing spending. I would consider buying a jet as spending.

That is government management in a nutshell.

What's worse, there was a company on the other end of that canceled deal that employed people, that ordered raw materials, and so on; and all of that was canceled too.

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Consumers Increase Savings While Spending Less - NYTimes.com

Consumers Increase Savings While Spending Less - NYTimes.com:

"“If households are shying away from spending, what’s going to cause businesses to start spending again?” asked Aaron Smith, senior economist at Moody’s Economy.com."

Gee I don't know. Ah, maybe if business try to make something worth buying?

And that guy is a senior economist?
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