Every time Obama speaks, it aggravates me. It's not because of his method of speaking or speech itself: he's a great public speaker who's clear, eloquent, and polished. It's also not because he uses a teleprompter obsessively, is very good at not straying from whatever canned message or pitch has been written for him, and dodges answering any probing questions with real information: most politicians have perfected these arts, and they have become so ingrained in our political process that they are as expected as they are unhelpful in conveying actual information. It's obviously also not because he lies: most politicians lie, usually very well, and Obama can state even laughable, preposterous fallacies without even breaking stride, but again, that's expected, normal, and uniform in today's politicians. No, none of these things are the reason Obama's speeches really get to me.
See, Obama comes across as a smart guy, and every once in a while you get a semi unscripted remark which seems to imply an understanding of what's actually going on, or what the actual correct course of action would be. Then, in his speeches, you get peppered remarks targeted directly at his detractors and their objections, assuring the American public that Obama stands for things which would actually be good for the country (smaller government, private industry, freedom from government control) which he is clearly and obviously opposed to in his actions. Then, behind these statements, he very clearly and methodically advances his own agenda, seemingly entirely disjointed from his statements and personal observations and insights. This is why I really hate his dishonesty, while the dishonesty of his predecessors and colleges is more tolerable.
Take, for example, today's GM announcement. In it, Obama stated the government would back GM warranties, the current leadership is being removed and replaced with government leadership, contracts will be renegotiated, and the government will preserve the US auto industry (by implication, GM) at any cost. Then, in the same speech, he assured the American people that the government has no interest in running GM, and shouldn't be running private businesses! In the same speech! Now, obviously the second part is correct: it would likely be an unmitigated disaster having the government trying to run GM while wasting billions every month in perpetuity, and the government absolutely should not be running private businesses in a non-socialist country. However, it's equally obvious that that's exactly what is happening, it's exactly what they just announced, and you've have to be a brain-dead moron to see that's not exactly what the Obama administration is doing with multiple industries: banking, auto, energy, etc, etc, etc. It's the gall of saying something which is blatantly false, and just inserted into the speech to counter critics, while at the same time doing the exact opposite thing in plain sight, which is just like a slap in the face to every thinking person in the entire country.
You can see the same pattern in most of Obama's speeches, from banking regulation, to foreign policy, to bailouts, to social policy initiatives. Over and over, it's "pay attention to what I'm saying not what I'm doing, and don't think about it." It's insulting, it's aggravating, it's arguably fundamentally more dangerous to America than any other threats, foreign or domestic, and it's why I despise Obama-speak more than that any other politician.
Monday, March 30, 2009
Sunday, March 29, 2009
Bailouts and Gambling
So much of the problems in the current economy were caused by banks placing large bets on uncertain propositions with high risk on the chance of an upside while the bubble lasted, so it's with a certain amount of irony that the government is pushing its new "public/private partnership" plan as the latest effort to pump more taxpayers money into the zombie banks while they continue shoveling it out the back door to their executives while they still can. See, the plan relies on private investors taking a gamble, hoping that the "bubble" will hold long enough for them to realize a profit, but potentially risking their long-term viability if it doesn't.
But wait, you say, aren't they getting heavily subsidized by the government, so much so that it's practically a no-brainer to participate, since the government is taking all the risk (with taxpayer money, of course, not their own personal money or anything crazy like that) and giving the private investors all the potential reward? Well, yes, the numbers do work out that way, and any idiot can see this is another thinly veiled effort to funnel more money to zombie banks and their executives. However, the premise that there's no downside assumes the bubble state holds, kinda like leveraged investments in CDO's were a no-brainer during the housing bubble: you got rich from bonuses for making millions for the bank, as long as the bubble held. So what's the bubble now?
Well, the bubble now is the concept of a free market for the investors, specifically an environment where the government doesn't just decide how much you're going to make, what you're going to do, and how all your investments are going to fare. Make no mistake: we're in a bubble right now, left over from when we had a capitalist economy; but it is only a matter of time before that bubble goes away and the government takes over all private investment. The Treasury has already asked for broad oversight powers, the public is ready to let Obama and the socialists punish the evil capitalist bankers, AIG bonuses were the canary, and the writing is on the wall. When the bubble bursts, you really don't want to be in the front row (or anywhere in the country for that matter, but front row will get hosed first); in this case, that means as far away from "public/private partnership" investments as possible. After all, a partnership is give and take, and when the socialists are really hitting their policy stride, they're going to be taking all your money and giving you public condemnation (if not jail time, or worse).
It will be interesting to see how much up-take their is with the latest plan. Of course the large banks will likely participate if allowed, since they're already neck-deep in TARP manure, and they'll be gambling with your money anyway. As they say: in for a dime, in for a trillion dollars. However, if I were a hedge fund manager I'm not sure I'd be rushing into the gas chamber, no matter how sweet the money inside looks... when the bubble bursts, you're going to want to have an exit strategy, monetarily and physically, and getting in bed with maniacal homicidal uncle Sam just doesn't seem like a good idea, even if he's throwing out money like a printing press hooked to a leaf-blower. Like the song goes: the times, they are a-chang'in.
But wait, you say, aren't they getting heavily subsidized by the government, so much so that it's practically a no-brainer to participate, since the government is taking all the risk (with taxpayer money, of course, not their own personal money or anything crazy like that) and giving the private investors all the potential reward? Well, yes, the numbers do work out that way, and any idiot can see this is another thinly veiled effort to funnel more money to zombie banks and their executives. However, the premise that there's no downside assumes the bubble state holds, kinda like leveraged investments in CDO's were a no-brainer during the housing bubble: you got rich from bonuses for making millions for the bank, as long as the bubble held. So what's the bubble now?
Well, the bubble now is the concept of a free market for the investors, specifically an environment where the government doesn't just decide how much you're going to make, what you're going to do, and how all your investments are going to fare. Make no mistake: we're in a bubble right now, left over from when we had a capitalist economy; but it is only a matter of time before that bubble goes away and the government takes over all private investment. The Treasury has already asked for broad oversight powers, the public is ready to let Obama and the socialists punish the evil capitalist bankers, AIG bonuses were the canary, and the writing is on the wall. When the bubble bursts, you really don't want to be in the front row (or anywhere in the country for that matter, but front row will get hosed first); in this case, that means as far away from "public/private partnership" investments as possible. After all, a partnership is give and take, and when the socialists are really hitting their policy stride, they're going to be taking all your money and giving you public condemnation (if not jail time, or worse).
It will be interesting to see how much up-take their is with the latest plan. Of course the large banks will likely participate if allowed, since they're already neck-deep in TARP manure, and they'll be gambling with your money anyway. As they say: in for a dime, in for a trillion dollars. However, if I were a hedge fund manager I'm not sure I'd be rushing into the gas chamber, no matter how sweet the money inside looks... when the bubble bursts, you're going to want to have an exit strategy, monetarily and physically, and getting in bed with maniacal homicidal uncle Sam just doesn't seem like a good idea, even if he's throwing out money like a printing press hooked to a leaf-blower. Like the song goes: the times, they are a-chang'in.
Wednesday, March 25, 2009
Man, I hate the political process
A small blog post, was listening to the Senate budget committee meeting on the budget debate, opening remarks, and listening to some asshole Democrat saying the budget reconciliation process was intended to be used to bypass debate and compromise, and get the "right" [partisan agenda] policies into the budget without abiding by the rules of the process. Then, at the same time, he had the utter gall to say that obviously the same tactics were wrong when the Republicans used them to decrease taxes [and spending]. Now the next retard is also arguing that reconciliation is supposed to be used to circumvent the debate process and push a partisan agenda outside of the normal process.
I hate these people; there a obvious reasons why our country is in the toilet, and they are in Congress.
I hate these people; there a obvious reasons why our country is in the toilet, and they are in Congress.
Monday, March 23, 2009
How to fix social security
Ok, how's that for a bold and over-ambitious title? I mean, the US government has been struggling for years to figure out a way to unwind the enormous, underfunded, Ponzi scheme entitlement program ever since it was enacted, back in the 30's. There have been numerous proposals, even more numerous criticisms of proposals without offering any substantive alternatives, a heaping helping of denial, and a general inability of the US government to do anything whatsoever to fix the impending problem. Well, I have a solution to add to the pile, and while I'm almost certain it'll never even be read by anyone with the slightest ability to take any meaningful action, in the spirit of Obama's fake encouragement of other people to come up with good ideas to help the US economy, here's another of mine.
The facets:
- The government should create private accounts for social security. These should be owned by the people paying in, and contain all the money paid into the accounts by the workers (at least).
- The government should contract with one or more private management firms to manage the accounts. Said management should consist of sending out statements, maintaining balances and accounting, handling distributions, and support. These contracts should be bid on every x years (eg: 10 years), and the account data should be stored in a generic, well-defined format (mandated by the government) to allow easy transition and allocation of accounts to management companies.
- The money will be borrowed by the government, which will pay a well-defined rate of return, not below the inflation level. All amounts in the accounts will be explicitly guaranteed by the government.
- There will still be mandatory SS tax, most of which will be deposited into each worker's account. A certain percentage of this (fixed, probably around 5%) will be diverted into a separate account to support early SS payouts (disabled, etc.). This money can be used immediately, per whatever Ponzi scheme accounting the social security office wants to use). Shortfalls will be paid by the government from general tax revenue, and any extra money will be rolled forward.
- When you reach the retirement age, your monthly benefit from SS will be calculated based on the total amount in your account, as follows: total amount, divided by a fixed number equal to the months until a expected death age (eg: 90). The "death age" number should be approximately where people, on average, die from natural causes, and can be adjusted annually per a similar formula (but benefits are fixed for each person once he/she retires). The monthly amount will increase by inflation every year.
- The government will guarantee that monthly payment for as long as you live (even if it depletes your account entirely). In exchange for this, the government is entitled to up to 20% of your retirement-time balance if you die early from natural causes. Any remaining money at the time of your death will pass tax-free to the SS accounts of your spouse (if applicable) or immediate dependents.
What does this give us?
- No immediate disruption: government can continue to operate as it has (still effectively getting all the money from SS tax), and still needs to fix the shortfall, however...
- Social security becomes no longer a "will go away" lie, and instead is guaranteed based on the money paid in, fulfilling the original intent of the program. In addition, each person gets benefits proportional to the amount they paid in, removing the wealth-redistribution aspect.
- Early death is covered, and the government recoups some of those account amounts, to offset the cost of paying for people who "outlive" their accounts.
- Late death is covered with the same payments, no worry about outliving benefits.
- Early benefits are still covered, and the money going to support them is more explicitly differentiated from individuals' personal retirement accounts.
- The shortfall is more explicitly accounted for in the government budget and accounting, since they would be borrowing from individual accounts, and would show all the borrowing as explicit realized liabilities on their balance sheet. This would allow Congress to better account and plan for shortfalls (or at least make them more transparent).
That's my opinion / plan proposal.
The facets:
- The government should create private accounts for social security. These should be owned by the people paying in, and contain all the money paid into the accounts by the workers (at least).
- The government should contract with one or more private management firms to manage the accounts. Said management should consist of sending out statements, maintaining balances and accounting, handling distributions, and support. These contracts should be bid on every x years (eg: 10 years), and the account data should be stored in a generic, well-defined format (mandated by the government) to allow easy transition and allocation of accounts to management companies.
- The money will be borrowed by the government, which will pay a well-defined rate of return, not below the inflation level. All amounts in the accounts will be explicitly guaranteed by the government.
- There will still be mandatory SS tax, most of which will be deposited into each worker's account. A certain percentage of this (fixed, probably around 5%) will be diverted into a separate account to support early SS payouts (disabled, etc.). This money can be used immediately, per whatever Ponzi scheme accounting the social security office wants to use). Shortfalls will be paid by the government from general tax revenue, and any extra money will be rolled forward.
- When you reach the retirement age, your monthly benefit from SS will be calculated based on the total amount in your account, as follows: total amount, divided by a fixed number equal to the months until a expected death age (eg: 90). The "death age" number should be approximately where people, on average, die from natural causes, and can be adjusted annually per a similar formula (but benefits are fixed for each person once he/she retires). The monthly amount will increase by inflation every year.
- The government will guarantee that monthly payment for as long as you live (even if it depletes your account entirely). In exchange for this, the government is entitled to up to 20% of your retirement-time balance if you die early from natural causes. Any remaining money at the time of your death will pass tax-free to the SS accounts of your spouse (if applicable) or immediate dependents.
What does this give us?
- No immediate disruption: government can continue to operate as it has (still effectively getting all the money from SS tax), and still needs to fix the shortfall, however...
- Social security becomes no longer a "will go away" lie, and instead is guaranteed based on the money paid in, fulfilling the original intent of the program. In addition, each person gets benefits proportional to the amount they paid in, removing the wealth-redistribution aspect.
- Early death is covered, and the government recoups some of those account amounts, to offset the cost of paying for people who "outlive" their accounts.
- Late death is covered with the same payments, no worry about outliving benefits.
- Early benefits are still covered, and the money going to support them is more explicitly differentiated from individuals' personal retirement accounts.
- The shortfall is more explicitly accounted for in the government budget and accounting, since they would be borrowing from individual accounts, and would show all the borrowing as explicit realized liabilities on their balance sheet. This would allow Congress to better account and plan for shortfalls (or at least make them more transparent).
That's my opinion / plan proposal.
Thursday, March 19, 2009
AIG bonus scandal fallout
The AIG $200 million "bonuses" has been all the talk recently, but rather than add to the condemnation, I'm going to offer sort of a counter-point view. This is not to say that I'm a fan of the bonuses, their size, or bailing out failed companies in the first place, but it's important to look at the whole picture, not just the topic of outrage of the week.
First, this was $200 million ish in compensation, compared to $170 Billion in "loans", TARP handouts, and government guarantees given to AIG by Congress. If giving out the bonuses was bad, then handing out the bailout money was 1000 times worse; where's the 1000x outrage at Congress for wasting 1000x the money in the failed company which is AIG? Which, of course, in turn paid most of that money to counter-parties, which are other failed banks, many of which are also already getting bailout money, Trillions more in fact counting guarantees. The outrage may be justified, but let's have some perspective.
Second, what an unfortunate choice of language "bonus" is to describe what essentially were "contractual payments on completion of specified services in service of winding down business units using specialized knowledge and experience". "Bonus" sounds like a profit-sharing kind of arrangement, and "retention bonus" sounds like you wanted the people to stick around when their particular services were complete, neither of which were the case here. Also, the people contracted to clean up the mess were mostly not the people who created the mess, even though that distinction has been blurred or ignored by the mass media. How much of the outrage is based on distortions and mis-information, I wonder?
Third, as Liddy pointed out, most of the "bonus" money will probably be returned, now that there's public outrage, tax law changes to confiscate it being debated, death threats, etc. However, it will likely come with people's resignations, as you would expect: how would you feel if you were contracted to do a long and complicated job, for a failing company, where you were likely to have a hard time finding another job after and you were being compensated well for taking that career risk, and feared for your life if your job was revealed publicly, only to have the government take your pay after you were done? Yeah, I'd be pretty pissed too. I know I sure as hell wouldn't do specialized work for a failing bank under any sort of deferred compensation any more, and probably not under up-front compensation either: the tax man undoubtedly cometh for both, if you're on the wrong side of public opinion. Good luck unwinding the other $1.6 Trillion in contracts at AIG, and untold Trillions at other failed banks; if you're anyone in that industry, it's time to get the hell out and get somewhere safe: the lynch mob is coming.
The nice thing that might come out of this, as Mish points out, is that it might eventually lead to Dodd and the other corrupt politicians who were complacent or participatory in the bank bailouts going down in flames. I'm not going to hold me breath, but as the economy gets ever worse, you would hope that eventually the rage is directed at the right proximate causes of the root problems.
First, this was $200 million ish in compensation, compared to $170 Billion in "loans", TARP handouts, and government guarantees given to AIG by Congress. If giving out the bonuses was bad, then handing out the bailout money was 1000 times worse; where's the 1000x outrage at Congress for wasting 1000x the money in the failed company which is AIG? Which, of course, in turn paid most of that money to counter-parties, which are other failed banks, many of which are also already getting bailout money, Trillions more in fact counting guarantees. The outrage may be justified, but let's have some perspective.
Second, what an unfortunate choice of language "bonus" is to describe what essentially were "contractual payments on completion of specified services in service of winding down business units using specialized knowledge and experience". "Bonus" sounds like a profit-sharing kind of arrangement, and "retention bonus" sounds like you wanted the people to stick around when their particular services were complete, neither of which were the case here. Also, the people contracted to clean up the mess were mostly not the people who created the mess, even though that distinction has been blurred or ignored by the mass media. How much of the outrage is based on distortions and mis-information, I wonder?
Third, as Liddy pointed out, most of the "bonus" money will probably be returned, now that there's public outrage, tax law changes to confiscate it being debated, death threats, etc. However, it will likely come with people's resignations, as you would expect: how would you feel if you were contracted to do a long and complicated job, for a failing company, where you were likely to have a hard time finding another job after and you were being compensated well for taking that career risk, and feared for your life if your job was revealed publicly, only to have the government take your pay after you were done? Yeah, I'd be pretty pissed too. I know I sure as hell wouldn't do specialized work for a failing bank under any sort of deferred compensation any more, and probably not under up-front compensation either: the tax man undoubtedly cometh for both, if you're on the wrong side of public opinion. Good luck unwinding the other $1.6 Trillion in contracts at AIG, and untold Trillions at other failed banks; if you're anyone in that industry, it's time to get the hell out and get somewhere safe: the lynch mob is coming.
The nice thing that might come out of this, as Mish points out, is that it might eventually lead to Dodd and the other corrupt politicians who were complacent or participatory in the bank bailouts going down in flames. I'm not going to hold me breath, but as the economy gets ever worse, you would hope that eventually the rage is directed at the right proximate causes of the root problems.
Saturday, March 14, 2009
Thoughts on univeral currency
This article about a Nobel-prize winner backing a call for a global currency reminded me that I've been meaning to blog about kinda the same idea (although I'm sure it differs in actual substance, since I haven't read his actual proposal which wasn't linked in the article). I've been thinking a bit about this in light of the US financial meltdown and subsequent heating up of the US dollar printing press, and how you could have a stable global currency with which to measure objective wealth, as opposed to individual currencies which are all fiat-based and readily manipulated by their controlling governments (usually to the detriment of holders of the currency, or debt denominated in the currency).
First, the problems that this idea would address. Currently, as mentioned, there's no good way to objectively track wealth. There are several bad ways which people use, for example: tracking currency relative to a "basket" of other currencies, holding precious metals, comparing currency exchange rates, etc. A second "issue" in global commerce is a trade agreement which makes the US dollar the settlement currency for international trade, something which has caused the US dollar to enjoy an advantage over other currencies, and to some extent distorted the effects of US currency policies. Finally, there's the inherent problem of fiat currency collapse, such as is seen in countries experiencing hyper-inflation, or where the government collapses due to currency devaluation.
Now, the classical proposal to fix the problems with fiat currencies is to adhere to a gold standard (or some other hard commodity-based currency), but I see that as fundamentally untenable, for several reasons. First, it's harder to exchange than most fiat currencies, especially in large quantities. Second, the supply is mostly fixed, but it creates an artificial demand for producing more of it (through mining, etc.), which is an economic waste of production. Third, there are legitimate policy reasons why countries may wish to manipulate the supply of their currency, and having a fixed-supply currency removes that ability (which is nominally why all countries have gone to fiat currencies). Forth, it would be rare for a country to give up its fiat currency ability, and likely impossible to convince all countries to do so. Lastly, there are alternative legitimate uses for most precious metals, and turning them into currency makes utilizing them for other purposes much more costly, which is bad for innovation and development. Which leads us to the next potential solution...
Another proposal is a universal fiat currency (as proposed in the article), but I think that is equally untenable as traditionally envisioned. You would have to subjugate individual country's currency manipulation to a global policy body of some sort, and judging by the extent of the nearly complete and unmitigated failure the UN has been in accomplishing any of its directives in that regard, I see that as unlikely. Furthermore, even if you could, there's the issue of printing and distributing actual money, handling security against counterfeiting, setting maximum money-creation ratios (through fractional reserves), etc.
What I would propose, instead, would be a global fiat currency controlled by a global body (eg: under the auspices of the UN), with a fixed amount in existence, but only used as the international settlement currency, and only held by nations to settle international trade. It can exist all electronically; there's no need to print or secure any physical representation. It would be held by all nations participating in international trade, and each nation holding any amount of the currency would be required on a daily basis to specify a price, in their native currency, at which they would be willing to sell their trade currency to any other nation, which will be honored for at least that day (or until their supply is gone). In addition, there should be a rule that no country is allowed to hold more than a fixed percentage of the world's supply at any point, to prevent hording to stall trade. The last part is that international trades would be priced and settled in units of the trade currency, instead of any country's currency.
How would trade work? The country selling would set a price in the trade currency. The buying country would then purchase trade currency on the global market, using the cheapest offered counter-party nation, based on national currency exchange rates and the prices for the trade currency set by the nations. In essence, the buying country would trade its currency for a third-party nation's currency, then buy trade currency from the third-party nation with its currency, then pay the seller in trade currency.
Why would countries not set trade currency prices as high as possible? Well, there would be disincentive to colluding with other countries to do so, because that would slow international trade. However, the stronger reason would be the trade price for the trade currency would implicitly value the country's currency relative to other nations: the higher the trade price, the less you country's currency is worth. Also, because of the fixed percentage limit, a country cannot hold that percentage and run a trade surplus (ie: keeping your currency pegged below trading value to keep your exports high); you would need to sell your trade currency in order to accept more (the only want to sell internationally), which would mean reducing the price until another country purchased some, which means your currency value implicitly floats.
Does it solve the problems as stated? Well, it certainly provides a reference for relative wealth with is not subject to changes in currency (you can value your wealth relative to the trade currency, for which there is a fixed amount). The US dollar would no longer have special status, removing the imbalances resulting from it. In the case of currency collapse, the presence of a stable international currency would hasten the process of establishing a new currency. It would keep nations happy and cause minimal disruption to normal people, as everyone could continue using and trading national currencies as is currently done, and nations would preserve their ability to manipulate their own money supply. A win all around.
Anyway, that was my thought on the subject; probably a little deep compared to my usual ranting, but I'm sure there will be more simple ranting in the near future. Thanks for reading, hope it was interesting. :)
First, the problems that this idea would address. Currently, as mentioned, there's no good way to objectively track wealth. There are several bad ways which people use, for example: tracking currency relative to a "basket" of other currencies, holding precious metals, comparing currency exchange rates, etc. A second "issue" in global commerce is a trade agreement which makes the US dollar the settlement currency for international trade, something which has caused the US dollar to enjoy an advantage over other currencies, and to some extent distorted the effects of US currency policies. Finally, there's the inherent problem of fiat currency collapse, such as is seen in countries experiencing hyper-inflation, or where the government collapses due to currency devaluation.
Now, the classical proposal to fix the problems with fiat currencies is to adhere to a gold standard (or some other hard commodity-based currency), but I see that as fundamentally untenable, for several reasons. First, it's harder to exchange than most fiat currencies, especially in large quantities. Second, the supply is mostly fixed, but it creates an artificial demand for producing more of it (through mining, etc.), which is an economic waste of production. Third, there are legitimate policy reasons why countries may wish to manipulate the supply of their currency, and having a fixed-supply currency removes that ability (which is nominally why all countries have gone to fiat currencies). Forth, it would be rare for a country to give up its fiat currency ability, and likely impossible to convince all countries to do so. Lastly, there are alternative legitimate uses for most precious metals, and turning them into currency makes utilizing them for other purposes much more costly, which is bad for innovation and development. Which leads us to the next potential solution...
Another proposal is a universal fiat currency (as proposed in the article), but I think that is equally untenable as traditionally envisioned. You would have to subjugate individual country's currency manipulation to a global policy body of some sort, and judging by the extent of the nearly complete and unmitigated failure the UN has been in accomplishing any of its directives in that regard, I see that as unlikely. Furthermore, even if you could, there's the issue of printing and distributing actual money, handling security against counterfeiting, setting maximum money-creation ratios (through fractional reserves), etc.
What I would propose, instead, would be a global fiat currency controlled by a global body (eg: under the auspices of the UN), with a fixed amount in existence, but only used as the international settlement currency, and only held by nations to settle international trade. It can exist all electronically; there's no need to print or secure any physical representation. It would be held by all nations participating in international trade, and each nation holding any amount of the currency would be required on a daily basis to specify a price, in their native currency, at which they would be willing to sell their trade currency to any other nation, which will be honored for at least that day (or until their supply is gone). In addition, there should be a rule that no country is allowed to hold more than a fixed percentage of the world's supply at any point, to prevent hording to stall trade. The last part is that international trades would be priced and settled in units of the trade currency, instead of any country's currency.
How would trade work? The country selling would set a price in the trade currency. The buying country would then purchase trade currency on the global market, using the cheapest offered counter-party nation, based on national currency exchange rates and the prices for the trade currency set by the nations. In essence, the buying country would trade its currency for a third-party nation's currency, then buy trade currency from the third-party nation with its currency, then pay the seller in trade currency.
Why would countries not set trade currency prices as high as possible? Well, there would be disincentive to colluding with other countries to do so, because that would slow international trade. However, the stronger reason would be the trade price for the trade currency would implicitly value the country's currency relative to other nations: the higher the trade price, the less you country's currency is worth. Also, because of the fixed percentage limit, a country cannot hold that percentage and run a trade surplus (ie: keeping your currency pegged below trading value to keep your exports high); you would need to sell your trade currency in order to accept more (the only want to sell internationally), which would mean reducing the price until another country purchased some, which means your currency value implicitly floats.
Does it solve the problems as stated? Well, it certainly provides a reference for relative wealth with is not subject to changes in currency (you can value your wealth relative to the trade currency, for which there is a fixed amount). The US dollar would no longer have special status, removing the imbalances resulting from it. In the case of currency collapse, the presence of a stable international currency would hasten the process of establishing a new currency. It would keep nations happy and cause minimal disruption to normal people, as everyone could continue using and trading national currencies as is currently done, and nations would preserve their ability to manipulate their own money supply. A win all around.
Anyway, that was my thought on the subject; probably a little deep compared to my usual ranting, but I'm sure there will be more simple ranting in the near future. Thanks for reading, hope it was interesting. :)
Wednesday, March 11, 2009
Other blogging
Commenting on another blog (as Nick): here
I thought this was an interesting topic, basically if you should buy now if the business fundamentals are good. Normally I'd be inclined to agree, but recently I'm inclined to give more weight to the idea that the government will change the rules in substantial ways, and that might invalidate the whole investment strategy. I kinda explore and defend that counter-argument in the comments.
I thought this was an interesting topic, basically if you should buy now if the business fundamentals are good. Normally I'd be inclined to agree, but recently I'm inclined to give more weight to the idea that the government will change the rules in substantial ways, and that might invalidate the whole investment strategy. I kinda explore and defend that counter-argument in the comments.
Tuesday, March 10, 2009
Downside expectations and market effects
An interesting thing happened to me the other day, as I was looking a an open house (not browsing to buy, just browsing for home ideas). I struck up a conversation with the RE agent there, who was eager to convince me that it really is the right time to buy (like it always it, of course, when you're in sales). Amidst the usual baseless arguments, prognostications, and typical sales speak, there was the familiar argument: nobody can know which way the market is going to go, so you shouldn't hold off buying because you think the market is going down (I'll call this "the argument"). I was struck with the significance of both the argument itself, and the current state of the market, and how there are some interesting effects going on.
First, in a normally performing market, the argument makes sense, and is almost a tautology. In normal free markets, the valuation of traded commodities is based on the weighted average of the future expected value of the commodity. The weighting is both in terms of amount of value in the market (the more of a commodity you own, the more your perception influences the price), and the time horizon of the expected future value (the further out your horizon, the less certain your estimate, and the less far from the current price you're willing to trade on). As perceptions of the future value changes (eg: news, events, natural effects, etc.), the value of the commodities changes to reflect the new perceptions. This is true for virtually all free traded market assets: stocks, commodities, derivatives, real estate, etc. If the weighted average perception was that the future value was going to be higher or lower, the immediate value would change to reflect it, restoring the validity of the argument.
Now consider the housing market, which is going through a strange period. There's a glut of inventory, and prices will typically fall when there's an over-supply compared to demand (simple economics). In addition, there's a large "shadow" inventory of REO properties held off-market by banks currently, which contributes to the perception among the educated would-be market participants that there is even more downside potential (from excess supply) than the market is currently priced for. Also, there is a large ($3+ Trillion) amount of so-called Alt-A mortgages adjusting in the next few years, most of which will default once they do (but probably not before), which will create more supply at that time. In addition to that, there are various government efforts to postpone and/or delay foreclosure efforts from lenders, which delays more REO entries onto the market, building in more delayed downside expectations from additional inventory. And all of these are before we consider the various loan modification programs, almost all of which provide a delay for defaulting, but almost all of which will eventually default again (indeed, over 50% do within 6 months).
All of these factors contribute to pending downside expectations among educated would-be market participants. Until these events are all realized into and through the market, there will continue to be very justifiable reasons for thinking the market is going to go down in the near to medium term, rendering the argument inaccurate. Moreover, everything else the government does to stall inevitable foreclosures and bank failures contributes to the problem: it's easy to subsidize the failed borrower or lender for a few more months, but everybody knows eventually they will fail, and the properties will go onto the market, which creates more downside expectations. Indeed, not only can you have an idea which way the market will go, you can be almost certain, and have your view reinforced with every passing day and new bailout debacle.
This, in turn, creates a strong disincentive to participate in the market (at least in a buying capacity) as long as the downside expectations persist, which is bad news for anyone in the RE industry now (as most of them could already tell). I would venture to guess, however, that most people in the RE industry are not as aware that everything the government is doing to "help" is having the unintended? consequence of hurting them and the market further, by creating additional downside expectations. When will it stop? When the validity of the argument is restored, of course, which cannot happen until there are equal upside expectations to match the downside ones. With an oncoming recession, pending massive job losses, a socialistic government response, and the government "help" so far, I wouldn't hold my breath; it's going to get very rough in the Obamanation.
First, in a normally performing market, the argument makes sense, and is almost a tautology. In normal free markets, the valuation of traded commodities is based on the weighted average of the future expected value of the commodity. The weighting is both in terms of amount of value in the market (the more of a commodity you own, the more your perception influences the price), and the time horizon of the expected future value (the further out your horizon, the less certain your estimate, and the less far from the current price you're willing to trade on). As perceptions of the future value changes (eg: news, events, natural effects, etc.), the value of the commodities changes to reflect the new perceptions. This is true for virtually all free traded market assets: stocks, commodities, derivatives, real estate, etc. If the weighted average perception was that the future value was going to be higher or lower, the immediate value would change to reflect it, restoring the validity of the argument.
Now consider the housing market, which is going through a strange period. There's a glut of inventory, and prices will typically fall when there's an over-supply compared to demand (simple economics). In addition, there's a large "shadow" inventory of REO properties held off-market by banks currently, which contributes to the perception among the educated would-be market participants that there is even more downside potential (from excess supply) than the market is currently priced for. Also, there is a large ($3+ Trillion) amount of so-called Alt-A mortgages adjusting in the next few years, most of which will default once they do (but probably not before), which will create more supply at that time. In addition to that, there are various government efforts to postpone and/or delay foreclosure efforts from lenders, which delays more REO entries onto the market, building in more delayed downside expectations from additional inventory. And all of these are before we consider the various loan modification programs, almost all of which provide a delay for defaulting, but almost all of which will eventually default again (indeed, over 50% do within 6 months).
All of these factors contribute to pending downside expectations among educated would-be market participants. Until these events are all realized into and through the market, there will continue to be very justifiable reasons for thinking the market is going to go down in the near to medium term, rendering the argument inaccurate. Moreover, everything else the government does to stall inevitable foreclosures and bank failures contributes to the problem: it's easy to subsidize the failed borrower or lender for a few more months, but everybody knows eventually they will fail, and the properties will go onto the market, which creates more downside expectations. Indeed, not only can you have an idea which way the market will go, you can be almost certain, and have your view reinforced with every passing day and new bailout debacle.
This, in turn, creates a strong disincentive to participate in the market (at least in a buying capacity) as long as the downside expectations persist, which is bad news for anyone in the RE industry now (as most of them could already tell). I would venture to guess, however, that most people in the RE industry are not as aware that everything the government is doing to "help" is having the unintended? consequence of hurting them and the market further, by creating additional downside expectations. When will it stop? When the validity of the argument is restored, of course, which cannot happen until there are equal upside expectations to match the downside ones. With an oncoming recession, pending massive job losses, a socialistic government response, and the government "help" so far, I wouldn't hold my breath; it's going to get very rough in the Obamanation.
Friday, March 6, 2009
California Prop 8 court debate, my thought
So this probably doesn't mean much to people outside California (maybe), but our Supreme Court is currently debating challenges to Prop 8, which changed the California Constitution to make gay marriage invalid. This was in response to the court making it valid under the equal protection concept in the Constitution. At first glace, you might think the case would be over quickly: it's invalid in the Constitution now, so the court would just toss the bogus challenges... but you might be wrong; at least one of the challenges is more interesting than that, and (I think) has some merit.
I'm going to ignore most of the arguments presented by the opponents of Prop 8, and focus on the one which seems to me to actually be a valid legal reason why the court should take action. The most interesting argument is roughly this, as I understand it: it requires a different procedure, and a 2/3 majority vote, to change the Constitution in a way which conflicts with the existing Constitution. The avenue taken by Prop 8 was an amendment which appends to or clarifies the Constitution, which only takes a simple majority.
Now here's why I think the argument has merit. Per the previous court's ruling (which legalized gay marriage), the court found that it violated the Constitution for the state to deny people the right to marry other people of the same gender; therefor, that protection is implicitly found to be in the Constitution (per the court ruling). Prop 8 directly contradicts that protection, which means Prop 8 conflicts with the existing (pre Prop 8) Constitution.
IMHO, the court should find that the sponsors who put forward Prop 8 knew that it directly conflicted with the state Constitution, per the previous interpretation by the court. Therefor, they erred in passing it as a clarification amendment, and it should be invalidated in its current form, and re-voted as a change amendment (requiring a 2/3 majority). Although the people do, as Ken Star testified, have the unalienable right to modify their own Constitution, the Court should ensure that they only do so with sufficient popular support under the law, especially in cases where previously existing rights are being changed. If the court has erred egregiously in a ruling or decision, a 2/3 majority should not be a difficult barrier for the people to right the injustice, while at the same time it provides a more meaningful barrier to the simple majority abusing minorities at will without redress in the courts.
That's my opinion.
I'm going to ignore most of the arguments presented by the opponents of Prop 8, and focus on the one which seems to me to actually be a valid legal reason why the court should take action. The most interesting argument is roughly this, as I understand it: it requires a different procedure, and a 2/3 majority vote, to change the Constitution in a way which conflicts with the existing Constitution. The avenue taken by Prop 8 was an amendment which appends to or clarifies the Constitution, which only takes a simple majority.
Now here's why I think the argument has merit. Per the previous court's ruling (which legalized gay marriage), the court found that it violated the Constitution for the state to deny people the right to marry other people of the same gender; therefor, that protection is implicitly found to be in the Constitution (per the court ruling). Prop 8 directly contradicts that protection, which means Prop 8 conflicts with the existing (pre Prop 8) Constitution.
IMHO, the court should find that the sponsors who put forward Prop 8 knew that it directly conflicted with the state Constitution, per the previous interpretation by the court. Therefor, they erred in passing it as a clarification amendment, and it should be invalidated in its current form, and re-voted as a change amendment (requiring a 2/3 majority). Although the people do, as Ken Star testified, have the unalienable right to modify their own Constitution, the Court should ensure that they only do so with sufficient popular support under the law, especially in cases where previously existing rights are being changed. If the court has erred egregiously in a ruling or decision, a 2/3 majority should not be a difficult barrier for the people to right the injustice, while at the same time it provides a more meaningful barrier to the simple majority abusing minorities at will without redress in the courts.
That's my opinion.
Thursday, March 5, 2009
More blogging
I comment on other people's blogs sometimes, and sometimes those comments are entertaining and/or interesting (this is subjective, of course). Rather than copy/paste, I'll just link a recent comment I made. I'm especially proud of this gem:
Read it, or not; it's my opinion, I could certainly be wrong.
Years of stumbling around like a blind epileptic retard trying to feel your way into the politically correct way to perform a morally deplorable and financially suicidal absorption of every failed gamble made by every underhanded corporation with a lobbyist or individual with a vote doesn’t help the economy or “bring a renewed sense of transparency and accountability”.
Read it, or not; it's my opinion, I could certainly be wrong.
Tuesday, March 3, 2009
Interesting Times
It occurred to me yesterday that amidst all the doom and gloom about the economy, the recession, and the bleak prospects for the near-term future in America (most of which are accurate, if depressing), it's also important to keep an eye on the big picture, and realize that we're going to be living in (and hopefully through) some historically very significant times. It's been 70ish years since the Great Depression ended, and almost everyone still alive today either wasn't alive then, or was too young to remember living through it. The people living in America today will most likely be living through a similar, but probably even more severe, Depression in the next decade, and it's going to be a very interesting experience.
Now, I'm sure some people would object that the current situation is substantially different from the 30's, and I'd be forced to agree. Although the 30's saw a large credit bubble which inflated asset valuations to unsustainable levels, followed by a correction, followed by large government socialism programs nominally intended to "help" but really creating the decade-long depression, and all of those are happening in exactly the same way today, there are certainly some substantial differences. For example:
- In the 30's we had a gold-backed currency which (as a result) could not rapidly lose value of confidence; today we have a pure fiat currency. Whereas in the 30's hyper-inflation was not a concern, today it is very much a possibility.
- In the 30's we had a high level of personal savings among the population, so people who were prepared could survive a downturn. Today we have negative savings and are in huge crushing debt (personal and national).
- In the 30's we didn't have the FDIC, so when banks failed people lost their savings. Today we have the FDIC with $18 billion in remaining money backing over $5000 billion in savings at over 8000 banks, many of which are insolvent, and the deficit is backed by taxpayer money.
- In the 30's we had a large industrial base with competitive manufacturing and exports. Now we have an eroding manufacturing base which is almost extinct, a service-based economy largely dependent on discretionary consumer spending fueled by ever-increasing debt, and a $500+ billion annual trade deficit.
- In the 30's we had a comparatively low level of public debt (compared to GDP), and a young Fed still beholden to Congress. Today we have a huge national debt (around $11 Trillion and counting), and an independent Fed with little oversight printing money seemingly with impunity (over $2 Trillion in committed handouts already and over $10 Trillion total in guarantees).
Yes, this time may be different, but I think it's fair to assume that whatever the course we take this time, it's going to be at least as significant as the Great Depression, historically speaking. Which means that when we are old, we will be able to tell young people that we lived through the historical significant, tumultuous, and likely world-changing time we're entering right now.
Now, I'm sure some people would object that the current situation is substantially different from the 30's, and I'd be forced to agree. Although the 30's saw a large credit bubble which inflated asset valuations to unsustainable levels, followed by a correction, followed by large government socialism programs nominally intended to "help" but really creating the decade-long depression, and all of those are happening in exactly the same way today, there are certainly some substantial differences. For example:
- In the 30's we had a gold-backed currency which (as a result) could not rapidly lose value of confidence; today we have a pure fiat currency. Whereas in the 30's hyper-inflation was not a concern, today it is very much a possibility.
- In the 30's we had a high level of personal savings among the population, so people who were prepared could survive a downturn. Today we have negative savings and are in huge crushing debt (personal and national).
- In the 30's we didn't have the FDIC, so when banks failed people lost their savings. Today we have the FDIC with $18 billion in remaining money backing over $5000 billion in savings at over 8000 banks, many of which are insolvent, and the deficit is backed by taxpayer money.
- In the 30's we had a large industrial base with competitive manufacturing and exports. Now we have an eroding manufacturing base which is almost extinct, a service-based economy largely dependent on discretionary consumer spending fueled by ever-increasing debt, and a $500+ billion annual trade deficit.
- In the 30's we had a comparatively low level of public debt (compared to GDP), and a young Fed still beholden to Congress. Today we have a huge national debt (around $11 Trillion and counting), and an independent Fed with little oversight printing money seemingly with impunity (over $2 Trillion in committed handouts already and over $10 Trillion total in guarantees).
Yes, this time may be different, but I think it's fair to assume that whatever the course we take this time, it's going to be at least as significant as the Great Depression, historically speaking. Which means that when we are old, we will be able to tell young people that we lived through the historical significant, tumultuous, and likely world-changing time we're entering right now.
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