Dec

10

I can understand why Austrian school economists love sociological explanations for the origins of money. If, as von Mises presumes, capitalism is the a priori wiring of our species (like a kind of Chomskian embedded grammar), then money had to evolve out of the rational need for a medium of exchange. The difficulty is that there is absolutely no historical evidence for the notion that "money emerges as a consequence of economic actors being better off using a medium of exchange than engaging in direct barter"; and there is a great deal of evidence for the fact that money develops as the unit of account for the people with edge weapons who collect bribes aka taxes from people who do not have them.

People in authority needed money to buy things that they could not extort and to bribe the supporters who might otherwise become rivals. The negotiations between authority and the people who could not be wholly intimidated, who had some degree of personal freedom, were the beginnings of trade and money. The promises to pay and to obey made by the parties were the beginnings of credit.

The struggles ever since have been about the quality and quantity of money and credit and the limits, if any, on the monopoly authority has over the question of what will be the unit of account for taxes.

Nov

7

 It took the Yankees–the Yankees!!!–until the 1920s to get a stadium that could hold more than 12,000 people.

…to get their own stadium, yes. In the decade before Ruth's house was built, they were tenants across the Harlem River, in the ~34,000 seat Polo Grounds.

Stefan Jovanovich writes: 

PG II and III's highest attendance were 14.4 and 16K, including standing around the outfield. The increase to 39K came after the fire and new construction which finished in 1917 and was part of the failed attempt to keep the Yankees as tenants.

George Zachar writes:

I erred in relying on Wikipedia. Shoulda known bettuh.

Stefan Jovanovich writes: 

To us bleacher amateurs it looked like a tie, GZ.

"1924 World Series : Washington Senators over New York Giants (4-3)".

Oct

30

 The graph on the link below shows that gasoline sales in the U.S. may already have reached an inflection point.

U.S. Gasoline Sales

Automobiles have about a 12-year average life. The graph below projects that almost all car sales in 2030 will be electric. Therefore, in 2030 the rate of decline in gasoline consumption should be about 8% per year. Some of my liberal arts friends might calculate that in the twenty years from 2030 to 2050 the total decline would be 160 percent.

Projected electric vehicle sales

By the time 2050 rolls around, there might not be enough carbon dioxide in the atmosphere to continue to stave off the start of the ice age, which was predicted to start in 1970.

Automobile companies that rely on the ability to design and manufacture internal combustion engines will face considerable hardship. Petroleum extraction enterprises and countries will need to be the low-cost producer in order to avoid rapid enfeeblement.

Stefan Jovanovich writes:

No one has seriously suggested that distillates can be replaced as the primary fuel for the engines for airplanes, ships, helicopters, farm and construction equipment, large tonnage trucks and railroads. Even the small motors used in chainsaws have had a hard time going electric; Stihl's latest model is a fuel-injected engine, not the battery-powered one they introduced several years ago. The wonderful success of electric motor devices is purchased by their not having to endure the nastiness of the world outside nightly indoor storage and recharging. Their usefulness is unquestionable; their ability to do everything that distillate-powered engines can do is a hope, not a near likelihood.

My favorite Listista enjoys reminding me that I took the pair trade of long coal, short BitCoin back when both Commodities we're priced under $100. (No, I didn't actually do the trade, but if my investing had matched my opinions, that would have been the bet.)So, all churlishness from me about the new energy world needs to be discounted to close to infinity. But, these numbers come from a churl whose calculations Martin Armstrong has chosen to publish this morning.

Current annual gasoline energy consumption by Canadian and American cars converted to electricity, using 30 miles per day as average driving distance and 70 kWh/mile as average electrical car "mileage" rating

Canada 4 Trillion kWh
U.S. 190 Trillion kWh
Present annual electricity generation
Canada .7 Trillion kWh
U.S. 17 Trillion kWh
 

George DeVaux writes: 

Hi Stefan,

I am always delighted to exchange thoughts with you and always with a smile on my face.

I guess the conclusion from your presentation is that the very large number makes the prospect a near impossibility.

So let me try to develop the cost of a "gallon of electric."

On gasoline, a car might get 25 miles on a gallon that costs $2.50. Searching for electric car "mileage", I get 25 to 30 KWh per 100 miles. For 25 miles, this works out to about 7 KWh (Decimal point error in your calculation?). At retail of $0.12 per KWh, the "gallon of electric" costs $0.84. I think that Carder would agree that the manufacturing cost for electric is about $0.03 per KWh. Clearly, there is more than enough margin to pay for the construction of the necessary capacity.

I will leave it to Carder to calculate how many acres of Palm Springs, California will be covered and how many windmills will shroud Martha's Vineyard, Nantucket and Block Island (NIMBY factor). I will also leave it to Carder to monitor the time-of-day consumption of electric in California to determine the impact of vehicle charging on required generation capacity additions.

We can also have a discussion about fission power (various versions) and fusion power (various versions).

One of my conclusions about the electric car phenomenon imposing an inflection point on petroleum usage - At some point in the future, the usage of electricity by electric cars will increase the need for (and the profitability of) the manufacture of carbon free electricity (solar, wind, nuclear). Retrofitting older facilities for improved operation may be a very profitable investment. 

Oct

30

"Repo-Acalypse Now….":

At least in theory, big-systemic banks with unlimited access to FED liquidity have absolutely no requirement to maintain any cash balances at all (While still complying with the Basel requirements). Because of the instantly available FED liquidity these behemoths are insulated from "runs" and in fact, although they would vehemently deny it publicly, look forward to these liquidity crunches as an opportunity to expand market share, absorbing their smaller "non-systemic" rivals and picking up distressed assets at bargain prices. Because of this implicit bail-out guarantee, they are able to invest their "free capital" in any dog-shit, boondoggle, deals they choose as long as they generate significant fees, which is exactly what they've done. Conversely, "non-systemic banks", without direct FED/liquidity access and "free capital" are forced to maintain higher cash balances, have no/little access to these global-fee-generating-boondoggles, starving them of albeit fleeting/fake earnings.

Amar Somal comments and introduces himself: 

Hi All,

Just to start, I thought the article was excellent and really enjoyed the ideas put forward.

My name is Amar, I'm a student (Geophysics with a love of stats–frequentist & bayesian) in the UK (born & raised) and new to the list. Trying my best to learn about markets and understand what drives them–finding it to be a very enjoyable intellectual challenge. Very much enjoy being part of the thread and hope to contribute in a meaningful way over time.

Oct

19

 One of the litmus tests of liberals is that they think that all individual differences are caused by nurture. They have to believe that all success is due to environment and circumstance and all people would be equal if they had the same environment. But the facts are similar to the influence of the market on individual stocks. About 50% of the variance in individual stocks is due to the market. The equation r(o) = a + b ( m(i) is more in its explanatory power to intel (i) = a + b (giq) where giq is general IQ. The studies of Galton, Burt, and Jensen clearly demonstrate this. Identical twins raised apart have the same difference in their scores as the same person tested twice. The more culture free the test, the greater the genetic component. A good review of this is in Jensen's books and papers and Herrenstein.

Here's an update of Burt and Galton's studies.

Stefan Jovanovich writes: 

Then there is baseball. Yogi Berra, who knew a bit about the game, always said that his older brothers Mike and Tony were much better athletes than he ever was. But, he was lucky enough to come later and have them teach him this American game.

Oct

18

 The chronic need of economic doom topics…

New time series on FRED from the Atlanta FED. (New on FRED. The project is not new.) It is derived via keywords from US/ world newspapers. Methodology. Home. I find the uniformity over long phases fascinating. The Jerry Seinfeld joke come to mind: Isn't it surprising, that newspapers never run out of pages or have blank ones. Whatever happened fits perfectly the space available.

Stefan Jovanovich writes: 

PR's usual cleverness and my coach potato contemplations of this year's World Championship in track and field (this was a glorious year) have me thinking that the steeplechase is a better metaphor for the markets than rock climbing. The worries are repeating hurdles more than they are walls.

Oct

18

 The graph on the link below shows that gasoline sales in the U.S. may already have reached an inflection point.

U.S. Gasoline Sales

Automobiles have about a 12-year average life. The graph below projects that almost all car sales in 2030 will be electric. Therefore, in 2030 the rate of decline in gasoline consumption should be about 8% per year. Some of my liberal arts friends might calculate that in the twenty years from 2030 to 2050 the total decline would be 160 percent.

Projected electric vehicle sales

By the time 2050 rolls around, there might not be enough carbon dioxide in the atmosphere to continue to stave off the start of the ice age, which was predicted to start in 1970.

Automobile companies that rely on the ability to design and manufacture internal combustion engines will face considerable hardship. Petroleum extraction enterprises and countries will need to be the low-cost producer in order to avoid rapid enfeeblement.

Stefan Jovanovich writes: 

No one has seriously suggested that distillates can be replaced as the primary fuel for the engines for airplanes, ships, helicopters, farm and construction equipment, large tonnage trucks and railroads. Even the small motors used in chainsaws have had a hard time going electric; Stihl's latest model is a fuel-injected engine, not the battery-powered one they introduced several years ago.

The wonderful success of electric motor devices is purchased by their not having to endure the nastiness of the world outside nightly indoor storage and recharging. Their usefulness is unquestionable; their ability to do everything that distillate-powered engines can do is a hope, not a near likelihood.

My favorite Listista enjoys reminding me that I took the pair trade of long coal, short BitCoin back when both Commodities we're priced under $100. (No, I didn't actually do the trade, but if my investing had matched my opinions, that would have been the bet.)So, all churlishness from me about the new energy world needs to be discounted to close to infinity. But, these numbers come from a churl whose calculations Martin Armstrong has chosen to publish this morning.

Current annual gasoline energy consumption by Canadian and American cars converted to electricity, using 30 miles per day as average driving distance and 70 kWh/mile as average electrical car "mileage" rating

Canada 4 Trillion kWh
U.S. 190 Trillion kWh
Present annual electricity generation
Canada .7 Trillion kWh
U.S. 17 Trillion kWh

Oct

16

 "Baseball is Going Back to the Dead-Ball Era"

This trend brings one back to the useful idiot Paul Volker, the great scholar and lover of baseball Larry Ritter, and Kora Reddy's excellent study, and our own work proving that doc Greenspan was no doc.

Stefan Jovanovich writes: 

Jared Diamond knows as much about baseball as he does about "steel". The spirit of Larry Ritter–Bless Him–has to be laughing.

James Goldcamp writes: 

I still recall fondly reading a worn copy of The Glory of Their Times as a young boy in the car on the way to my cousins in eastern Ohio. The old timer stories were mesmerizing. A copy of a more recent edition of that book still sits buried somewhere on an end table in my living room. It was probably the first non-fiction book I ever read.

I recently finished reading The MVP Machine which centers on the tech wave of player development which has swept over baseball (down to the "Hit Traxx" at my son's 11 year old team's training facility and the now banned for patent infringement Zepp sensor at the end of my son's bat). This wave has finally fully swept up on my shore as the hero of the aforementioned book Trevor Bauer is the centerpiece of my hometown team's starting rotation and the founder of Driveline baseball has been hired to run pitching.

One hopes the wave of technology adopted by baseball ends better than the hordes of hedge fund-ists and investors who found system trading or smart beta just before the long extended bull run in stocks.

anonymous writes: 

Our daughter is an ambidextrous natural athlete who was accurately described, by the mother of a teammate on the 4×50 12 Under Relays as a "mound of muscle". By age 12, she was able to practice driving our "field car" by sitting in the passenger seat and steering with her left hand. We made her play basketball, run track and swim competitively because otherwise there was no living with her; to this day, if she does not have a 45-minute workout every morning, her excess of physical energy and the impatience that it brings with it is downright scary. For a few months earlier this year, we thought we had seen nature come to our rescue. Her now 9-month old son has the same internal combustion engine. His nickname, Whumpa, was acquired before birth; and, while other infants seem able to be awake without needing to do calisthenics, Whumpa has only two speeds: Full Throttle and Full Stop. For a while it looked like Walter was actually wearing his mother down. But that was only a phase. The two of them now happily go off to exercise together.

I mention this to give you all the background to my only disappointment as a father. It was the day, when she was 6, that, after playing catch with me with a tennis ball, using first the left and then the right hand, she announced, "this is no fun; let's go running." Like John Kruk I am not and never have been an athlete, I love baseball and I have always hated running.

Congratulations to JG on having a baseball player and an athlete and embracing the technology that is making modern baseball such a marvel. 

James Goldcamp writes: 

Anonymous, the last part (the Kruk quote with which I'm familiar and use sometimes) resonates with me. I'm one of the coaches on my son's team. At various tryouts for our teams I'm notorious for wanting to get past the timed running from home to 1st, 1st to third, etc. that is typically part of an evaluation and "just see them hit live pitching". I was pleasantly surprised while watching a Ted Williams biography hear recounted a story where some players or coaches were discussing the intricacies of a pickle or some such situation, apparently Williams was claimed to have said, when asked to ponder this, something like "#@#! it , let's go hit". Bill Beane was also purported to have said (as recounted in Moneyball) that we usually no player is too fat for us to draft, though we made an exception for Prince Fielder, and we were wrong.

Oct

16

Ray Fair came up with a prediction model for Presidential elections in 2002 using macroeconomic modeling. Here is the PDF of his book.

Since then Fair has regularly updated his model and offered comments. Here is his most recent one –from last November.

Moody's has taken Fair's model and refined it by incorporating regional economic data. They claim that this allows them to make state-by-state predictions (Fair's model, as you can see from the links, only calculates a national raw vote total.) They are also trying to incorporate turnout statistics in their model.

President Trump is the most unpopular incumbent President since Harry Truman, if you take the average of the approve/disapprove polling data for all the President's terms in office since Franklin Roosevelt's inauguration in 1933. Both men poll well below 45% - the mediocre level at which Nixon, Ford, Carter and Obama were ranked. What is different about Trump is that his approval has been extraordinarily robust. The variance from the mean has never been more than +/- 10%. So, Trump's "low" 40% Approval is a very different number than other Presidents' bad ratings have been. Those 40% can be expected to actually turn out and vote. the question Moody's raises is whether the Democrats can hope to see the wonderful turnout that they had in 2018 in the House elections. If they can, then the Democrat could win in a close election by reversing the results in PA, MI and WI.

That seems to me a near impossibility. I failed to appreciate in 2018 how much it helped the Democrats to have House candidates who could campaign on one issue - F*!K TRUMP. There was absolute party unity at the District level and a "cause" that excited the party loyalists. There is no way the Democrats can produce that same unanimity for a national campaign. The Sanders, Biden, Warren and No Chance Candidate loyalists are not going to be able to form a "unity" campaign any more than Labour, Lib-Dems and Scottish Nationalists have been able to form a working majority in Parliament.

Oct

16

The biggest regrets people usually have are from the fights they sought, the fights they took that they didn't have to, not from not having engaged the fights they didn't take.

Stefan Jovanovich writes: 

RV's thoughts are a wonderful catalyst, as always. "Regret" is THE question. Grant deeply regretted the Mexican War to the end of his life but he never once regretted the Civil War. He thought the arguments for secession were utterly mad and the United States could not continue to maintain its laws and government while accepting legal inequality and outright servitude based on the phantasm of "race"; but no one was in control of the follies that led to that War Between the States. People were entirely in control of whether of not the United States had a war with Mexico; and their choice was a product of pure greed and stupidity.

I don't think Grant, were he alive today, would have any regrets for the United States finally ending its confused attempts to station garrisons around the World the way the British once established coaling stations.

(Note: that is how how Hong Kong began, as a refueling stop for ships headed for Shanghai. For Admiral Dewey to defeat the Spanish Navy at Manila Bay, he first had to stop at Mirs Bay to take on coal and then wait for the U.S.S. Baltimore to bring the needed ordnance. For Teddy the Roosevelt, the true believer in American Empire, this was a humiliation to be overcome as soon as possible.) 

Oct

16

We now have the first useful data for the 2020 Election probabilities. As you all probably know, my definition of "useful data" is polling that is limited to the jurisdictions in which the actual election is going to be held - i.e. states and individual districts for the House of Representatives. I also have this quirky notion that the pollsters ought to disclose what their sample was, in terms of size, party affiliation and probability of voting (adults, registered or likely voter). Meredith College has just released their October poll for North Carolina.

They pass the test for "useful data"; indeed, they go well beyond it. They are careful enough to note that they have not weighted their sample based on the likely partisan make-up of the actual electorate next November. So, their results are simply a raw collection of opinion using dual mode sampling - i.e. telephone versus internet interviewing. They report that "the average age of the internet respondents was 41, while the average age of the telephone respondents was 53. Otherwise, the differences in gender, party affiliation, and other factors was negligible."

The partisan break-down of the respondents is Republican - 33%, Democrat - 32.1%, Independent - 30.4%, with the remainder "Something Else". They favor an "Impeachment Inquiry" - 48.8% Yes, 41% - No, 6.2% - Don't Know; but they also choose Trump over any named Democrat:

rump - 38.4%, Biden- 34.6%, Someone Else/Don't Know - 26.8%
Trump - 39.1%, Warren- 33%, Someone Else/Don't Know - 27.5%
Trump - 38.8%, Sanders - 32.5%, Someone Else/Don't Know - 28.6%  
Trump - 39.1%, Harris - 28.4%, Someone Else/Don't Know - 32.4%
Trump - 39%, Buttigieg - 27%, Someone Else/Don't Know - 33.9%
Trump even manages to beat a "name randomly chosen out of the phone book" but by the smallest margin of all.
Trump - 42.7%, Random Name - 40.1%, Don't Know - 33.9% 
 

anonymous writes: 

 
Anecdotal, but telling imo. I go to a county fair in North East PA in August every year since the kids were little. Last year, there were lots of Maga hats, Trump T-shirts and Trump/Pence 2016 stickers on trucks in the parking area. This year, there were none. Granted it's not far from Scranton, but it's not in Scranton.

Oct

11

 We are all waiting for the Chinese Army to display their superiority by imitating the Soviets' occupation of Prague. Prague's occupation occurred on August 20, 1968 and helped Richard Nixon defeat Hubert Humphrey in the Presidential election. Sending tanks into Hong Kong will undoubtedly help Donald Trump win a second term. There are very few direct parallels between the two events. Czechoslovakia was a nation-state with its own language and government; Hong Kong is neither. But, the events of 1968 are worth remembering for what they say about the presumptions of Proletariat Dictators who have large armies.

Kim Zussman writes: 

Which means they will wait for Ms Warren

Sep

23

 Some of us continue to waste our time on bulletin boards about baseball and military history. This question and the answers are directed to those "groups":

Q: How many people does it take to change a light bulb in a group?

1 to change the light bulb and to post that the light bulb has been changed.

14 to share similar experiences of changing light bulbs and how the light bulb could have been changed differently.

7 to caution about the dangers of changing light bulbs.

17 purists who use candles and are offended by light bulb discussions.

6 to argue over whether it's 'lightbulb' or 'light bulb'.

Another 6 to condemn those 6 as stupid.

22 to tell THOSE 6 to stop being jackasses.

2 industry professionals to inform the group that the proper term is 'lamp'.

15 know-it-alls who claim they were in the industry, and that 'light bulb' is perfectly correct.

249 to post meme's and gifs (several are of someone eating popcorn with the words added, "I'm just here for the comments.")

19 to post that this page is not about light bulbs and to please take this discussion to a light bulb page.

11 to defend the posting to this page saying that we all use light bulbs and therefore the posts are relevant here.

12 to post F.

8 to ask what F means.

16 to post 'Following' but there's 3 dots at the top right that means you don't have to.

3 to say "can't share"

2 to reply "can't share from a closed group"

36 People to post pics of their own light bulbs.

15 People to post "I can't see S$%^!" and use their own light bulbs.

6 to report the post or PM an admin because someone said "f÷×$"

4 to say "Didn't we go through this already a short time ago?".

13 to say "Do a search on light bulbs before posting questions about light bulbs".

1 to bring politics into the discussion by adding that (insert politician of choice) isn't the brightest bulb. This usually takes place within the first three comments.

50 more to get into personal attacks over their political views.

5 admins to ban the light bulb posters who took it all too seriously.

1 late arrival to comment on the original post 6 months later and start it all over again.

Larry Williams writes: 

How many divorced men does it take to change a light bulb?

No one knows. They never get the house.

Sep

17

Ryan Saavedra, who writes for the Daily Wire, has posted his calculations for the causes of mortality in an "average" American day.

Abortion: 2,408

Heart disease: 1,773

Cancer: 1,641

Medical error: 685

Accidents: 401

Stroke: 401

Alzheimer's: 332

Diabetes: 228

Flu: 150

Suicide: 128

Opioids: 115

Drunk driving: 28

Underage drinking: 11

Teen texting-and-driving: 8

All Rifles: 1

I have verified the last statistic using the FBI's report for 2017.

Here are the links Mr. Saavedra posted for his other data:

Abortion

Heart disease / cancer / accidents / stroke / alzheimers / flu / suicide

Medical error

Opioids

Drunk driving 

Underage drinking

teen texting-while-driving

Sep

17

 These are the words Yamashita dictated to his Buddhist priest immediately before he was hanged.

Due to my carelessness and personal crassness, I committed an inexcusable blunder as the commander of the entire [14th Area] Army and consequently caused the deaths of your precious sons and dearest husbands. I am really sorry and cannot find appropriate words for sincere apologies as I am really confused because of my excruciating agony. As the commander of your beloved men, I am soon to receive the death penalty, having been judged by rigorous but impartial law. It is a strange coincidence that the execution is to be carried out on the birthday of the first U.S. president, George Washington.

I do not know how to express my apology, but the time has come to atone for my guilt with my death. However, I do not think that all the crimes for which I am responsible can easily be liquidated simply by my death. Various indelible stains that I left on the history of mankind cannot be offset by the mechanical termination of my life.

For a person like me who constantly faced death, to die is not at all difficult. Of course I should have committed suicide when I surrendered, as ordered by the emperor in accordance with the Japanese code of the samurai. In fact, I once decided to do so when I attended the surrender ceremonies at Kiangan and Baguio, at which General Percival, whom I had defeated [in Singapore], was also present. What prevented me from committing such an egocentric act was the presence of my soldiers, who did not yet know that the war was over at that time. By refusing to take my own life, I was able to set my men free from meaningless deaths, as those stationed around Kiangan were ready to commit suicide. I really felt pain from the shame of remaining alive, in violation of the samurai's code of "dying at the appropriate time in an appropriate place." I therefore can imagine how much more difficult it is for people like you to remain alive and re-build Japan rather than being executed as a war criminal. If I were not a war criminal, I would still have chosen a difficult path, bearing shame to stay alive and atone for my sins until natural death comes, no matter how you all might despise me.

Sun Tzu said 'The art of war is of vital importance to the State. It is a matter of life and death, a road either to safety or to ruin. Hence it is a subject of inquiry which can on no account be neglected.' From these words, we learn that our military forces were lethal weapons and their very existence was a crime. I tried my best to prevent the war. I am really ashamed of having been unable to do so because of my weakness. You may think that I am a born aggressor and a typical militarist, because my campaign in Malaya and the fall of Singapore excited the entire Japanese nation. I understand that this is quite natural. I do not excuse myself, as I was a professional soldier and dedicated myself to the military. But even while being a military man, I also have a relatively strong sense as a Japanese citizen. There is no resurrection any longer for the ruined nation and the dead. From ancient times, war has always been a matter for exceptional prudence by wise rulers and sensible soldiers. It was entirely due to our military authorities' arbitrary decisions, which were made by just a handful of people, that a large number of our people died and the rest of the nation was dragged into its present unbearable suffering. I feel as if my heart will break when I think that we professional soldiers will become the object of your bitter resentment. I believe that the Potsdam Declaration will wipe out the leaders of military cliques who led the nation to its downfall, and Japan will start rebuilding as a peaceful nation under new leaders elected by the popular will. However, the path of rebuilding the nation will not be easy in the face of many obstacles.

The experience that you went through, enduring various difficulties and poverty in the last ten years of war, will inevitably give you some strength, even though it was as an unwelcome result of pressure from the military authorities. To construct a new Japan, you really must not include militarists who are the relics of the past or opportunistic unprincipled politicians, or scholars patronized by the government who try to rationalize an aggressive war.

Probably some appropriate policies will be adopted by the Allied Occupation Forces. But I would like to say something on this point, as I am just about to die and thus have great concern about Japan's future. Weeds have a strong life force, and grow again when spring comes, no matter how hard they are trodden underfoot. I am confident that, with strong determination for development, you will rebuild our nation now completely destroyed, and make it a highly cultured one like Denmark. Denmark lost its fertile land in Schleswig-Holstein as the result of the German-Denmark War in 1863, but gave up rearming themselves and made their infertile areas into one of the most cultured of European nations. As a ruined people, we repent having done wrong. I will pray for Japan's restoration from a grave in a foreign country.

Japanese people, you have expelled the militarists and will gain your own independence. Please stand up firmly after the ravages of war. That is my wish. I am a simple soldier. Faced with execution in a very short time, a thousand emotions overwhelm me. But in addition to apologizing, I want to express my views on certain matters. I feel sorry that I cannot express myself very well, because I am a man of action, reticent and with a limited vocabulary. The time of my execution is drawing near. I have only one hour and forty minutes left. Probably only convicts on death row are capable of comprehending the value of one hour and forty minutes. I asked Mr. Morita, a prison chaplain, to record these words and I hope he will pass my ideas on to you some day.

Facing death, I have four things to say to you, the people of the nation of Japan as it resurrects.

First, is about carrying out one's duty. From ancient times, this topic has repeatedly been discussed by scholars, yet it remains most difficult to achieve. Without a sense of duty, a democratic and cooperative society cannot exist. Duty has to be fulfilled as a result of self-regulating and naturally motivated action. I feel some misgivings in thinking about this, considering that you are suddenly to be liberated from the social restraints under which you have long lived.

I often discussed this with my junior officers. The moral decay of our military was so grave that the Imperial Code of Military Conduct as well as the Field Service Code were simply dead letters. Therefore, we had to remind people of this all the time, even in the military where obedience was strongly demanded and defying orders was not allowed at all. In this war, it was far from true that officers under my command carried out their duties satisfactorily.

They were unable to fulfill even the duties that were imposed upon them. Therefore I have some concern over your ability to fulfill your duty voluntarily and independently, after being released from long-standing social restraints. I wonder if you'll be dazzled by suddenly bestowed freedom, and whether some may fail to carry out your duty as required in relations with others, as you've received basically the same education as military men. In a free society, you should nurture your own ability to make moral judgments in order to carry out your duties. Duties can only be carried out correctly by a socially mature person with an independent mind and with culture and dignity.

The fundamental reason why the world has lost confidence in our nation, and why we have so many war-crime suspects who left ugly scars on our history, was this lack of morals. I would like you to cultivate and accept the common moral judgment of the world, and become a people who fulfill duties on your own responsibility. You are expected to be independent and carve out your own future. No one can avoid this responsibility and choose an easy way. Only through that path can eternal peace be attained in the world.

Second, I would like you to promote education in science. No one can deny that the level of Japan's modern science, apart from certain minor areas, is well below world standards. If you travel outside Japan, the first thing you notice is the unscientific way of life of the Japanese. To search for truth with Japan's irrational and cliquish mentality is like searching for fish among the trees.

We soldiers had great difficulties in securing the necessary materials to fight and to make up for the lack of scientific knowledge. We tried to fight against the superior forces of the United States and to win the war by throwing away the priceless lives of our nation as substitutes for bullets and bombs. Various methods of horrendous suicide attack were invented. We exposed our pilots to danger by stripping vital equipment from the planes in order to just slightly improve their mobility. This shows how little knowledge we had for conducting war. We made the greatest mistake — unprecedented in world history — by trying to make up for the lack of materials and scientific knowledge with human bodies.

My present state of mind is quite different from that at the time of surrender. In the car on the way to Baguio from Kiangan, Mr. Robert MacMillan, a journalist of the magazine Youth asked, what I thought was the fundamental reason for Japan's defeat. Something suppressed for a long time in my sub-consciousness suddenly burst out and I instantly responded "science," before referring to other important issues. This was because my long-lasting frustration and intense anger were loosened all at once when the war was over.

I am not saying that this is the only reason, but it was clearly one important reason for Japan's defeat. If there will be another war somewhere in the world (although I hope there won't be), it is expected end in a short time through the use of horrific scientific weapons. The foolish methods of war that Japan adopted will be regarded as the illusions of an idiot. Human beings throughout the world, I presume, will make efforts to prevent such a terrible war — not just the Japanese who thoroughly endured the horror of this war. This is the task that is given to humanity.

The atomic bombs dropped on Hiroshima and Nagasaki were horrendous weapons. Never before have so many people been killed instantly in the long history of slaughtering human beings. As I have been in prison, I have not had enough time to study the A-bomb, but I think that no weapon will be invented to defend against atomic weapons. It used to be said that it would always be possible to fight against a new method of attack. This is still true. If there is any method to defend against atomic bombs — the weapon that has made obsolete all past warfare — it would simply be to create nations all over the world that would never contemplate the use of such weapons.

A defeated officer like me reflects sadly that if we had had superior scientific knowledge and sufficient scientific weapons, we would not have killed so many of our own men. Instead we could have sent them back home to use the knowledge as the foundation to rebuild a glorious and peaceful country. However, the science that I mean is not science that leads mankind to destruction. It is science that will develop natural resources still to be tapped, that will make human life rich, and will be used for peaceful purposes to free human beings from misery and poverty.

Third, I want to mention the education of women. I have heard that Japanese women have been liberated from the feudal state authorities and been given the privilege of suffrage. From my experience of living in foreign countries for a long time, I can say that the position of modern Japanese women is inferior to that of women in the west.

I am slightly apprehensive about the fact that freedom for Japanese women is a generous gift from the Occupation Forces, not one that they struggled to acquire themselves. A gift is often enjoyed as an object of appreciation and not actually put to direct use. The highest virtues for Japanese women used to be "obedience" and "fidelity." That was no different from "obedient allegiance" in the military. A person who respects such castrated and slave-like virtues has been called a "chaste woman" or praised as a "loyal and brave soldier." In such values, there is no freedom of action or freedom of thought, and they are not the virtues by which one can self-examine autonomously. My hope is that you will break out of your old shell, enrich your education, and become new active Japanese women, while maintaining only the good elements of existing values. The driving force for peace is the heart of women. Please utilize your newly gained freedom effectively and appropriately. Your freedom should not be violated or taken away by anyone. As free women, you should be united with women throughout the world and give full play to your unique abilities as women. If not, you will be squandering all the privileges that you have been given.

Finally, there is one more thing that I would like to tell women — you are either already a mother or will become a mother in future. You should clearly realize that one of a mother's responsibilities is a very important role in the "human education" of the next generation.

I have always been unhappy about the idea that modern education begins at school. The home is the most appropriate place for educating infants and the most appropriate teacher is the mother. You alone can lay the foundation for education in its true meaning. If you do not want to be criticized as worthless women, please do your best in educating your own children. Education does not begin at kindergarten or on entry to elementary school. It should begin when you breastfeed a newborn baby. It is a mother's privilege to have a special feeling that no one else can have when she cuddles and breastfeeds her baby. Mothers should give their love to their baby both physically and mentally, as they are the baby's source of life. Breastfeeding can be done by another, and nourishment can be provided by other animals, or can be substituted for by a bottle. Yet nothing else can substitute for mother's love.

It is not enough for a mother to think only about how to keep her children alive. She should raise them to be able to live independently, cope with various circumstances, love peace, appreciate cooperation with others and have a strong desire to contribute to humanity when they grow up.

You should raise the joyful feeling of breastfeeding to the level of intellectual emotion and refined love. Mother's love will constantly flow into her baby's body through breastfeeding. The fundamental elements of future education must exist in embryo in mother's milk. Attention to the baby's needs can be the basis for education. Untiring mothering skills should naturally develop into a higher level of educational skill. I am not a specialist on education and therefore I am not sure how appropriate it is, but I would like to call this kind of education "breastfeeding education." Please bear this simple and ordinary phrase in your mind. These are the last words of the person who took your children's lives away from you.

Gordon Haave writes:

Yamashita got a bad deal (comparatively speaking). The whole reason he ended up in the Manchuria theatre was because he was actually lenient and kind to the conquered peoples of the pacific, so he was transferred because his superiors didn't like that.

Much worse people than him avoided execution.

Stefan Jovanovich adds: 

Yamashita committed the terrible sin of addressing the people in Singapore as "citizens of the Empire of Japan". That was precisely what Tojo and the racist idiots of the General Staff did not want to consider the people of Southeast Asia so, as GH notes, he was shipped off to Manchuokuo.

There was no actual evidence that Yamashita had ever ordered any subordinate to commit what we would recognize as a war crime. That he recognized his own responsibility as commander and accepted his punishment has nothing to do with "the law". What Yamashita was actually guilty of were two terrible sins:

(1) his 25th Army's conquest of Malaysia and Singapore was the most brilliantly successful campaign since Grant's capture of Vicksburg. Churchill considered Percival's surrender the single event that ended the British Empire.

(2) his defense of the Philippines against MacArthur and Halsey's greatly superior forces ruined both men's reputations as invincible warriors. Yamashita forces skillful resistance so delayed the timetable for MacArthur's half of the joint American offensive that it allowed Nimitz's "island hopping" to get far ahead. That, in turn, made Hiroshima and Nagasaki possible and defeated all chance of MacArthur's being the Caesar who conquered Japan. That cost MacArthur all hope of being the Republican Presidential nominee in 1948. 

Sep

17

The wikipedia article is worth reading: Wall Street Bombing.

The day was chosen because Constitution Day, which is today, was, at the time, as important and serious a holiday as Thanksgiving is now.

Sep

15

 The 2 elections in North Carolina give us some actual data–at last–that can be compared against the polls' predictions; but they only offer a vague sketch of where we are heading in 2020. As anyone who has ever tried to use a sextant knows, there was a very good reason that Nelson's Navy had every midshipman on board do a noon sighting. A single set of readings is not nearly enough information by itself. But, with the polling data as charts, you can finally get a decent confirmation of roughly where we are.

Amy Walter of the Cook Report has a new piece that is a very good description of the present location.

The piece has the unavoidable bias of the Cook Political Report; since Mr. Cook's subscribers and consultancy customers lean Left, Ms. Walter gives the Democrats the place above the fold. (For the younger List members this metaphor is a reference to the time when the NY Times, Washington Post and other "serious" newspapers were large enough that they had to be folded in half. The part with the masthead and the column headlines was placed facing up on the newsstand piles - hence "above the fold".) But, Ms. Walter is a journalist first and a partisan second.

If you read to the end of the piece you come to this startling conclusion by David Hopkins, a Boston College political science academic: "Democrats can't make up for losses in rural areas by winning 'the suburbs'." Democrats can win the large metropolitan area suburbs because those districts are now as much majority "minority" jurisdictions as the major central cities themselves. As Ms. Walter notes, "There are now almost as many Democratic-held suburban seats that are majority-minority (49) as there are Democratic-held urban seats that are majority-minority (54)."

Rather than being a major shift, 2018 was, in fact, a continuation of 2016. The Democrats ran up large vote totals in the districts that they never lose; but in the swing districts the vote was split right down the middle.

If I were a Democrat, I would demand that the Electoral College be abolished. That mechanism succeeds exactly as it was designed to do: the smaller, more rural jurisdictions cannot be overwhelmed by the sheer numbers of the urban demos. In writing this I am not trying to excuse away my utter failure to predict the 2018 results; but I am explaining why what appeared to be a landslide was, in fact, another narrow election, just like 2016. Give Mrs. Clinton the right to take 2/10ths of 1% of the national popular vote - 257,677 - and take them from California and put them in the states of her choosing, and she would be President. Give the Republicans the same fraction (.00216 to be precise) of the 2018 total vote and let them put them in the 18% of the House districts that were "swing" seats and the Republicans not only retain control but add seats.

What Trump has achieved is the restoration of the Republican brand with the white-skinned majority of the electorate. Democrats have been out of favor with Whites for a decade and that negative opinion has been consistent: in 2010 Whites' feelings towards the party of slavery, segregation and affirmative action were -18, and this year they are -17. But, as recently as 2014, the Republicans were no better: in that year they were -11 and the Democrats -16, a spread of only 5 points. This year the spread is 21 points, and the Republicans have a positive rating of +4. That "reboot" of the GOP as the party of white-skinned privilege is the best single explanation for what happened on Tuesday here among the pine trees and live oaks.

What is most likely to explain next year's election is the decision of Trump's campaign to use "Socialism" as the nasty label for the Democrat nominee. For the Democrats' strongest voting segments - single women, urban and large city suburban residents, the young with college diplomas and student loans, and African - that label is an endorsement. But, for the less-than-college educated white and brown-skinned voters and the people with savings counted in the thousands, not millions, "Socialism" means more money for the schoolies and more taxes for them. It is a devastating message, especially for the suburbs in the swing states.

For those who want more poll data, I recommend this.

Sep

12

Admiral Conolly is another person who deserves being remembered.  If Kelton had written American naval yarns, Conolly would have been a model for one of his brave characters.

The subject line refers to how the Admiral and his wife died.
The 737 Max and its difficulties have their predecessors.

Sep

6

Thomas Edison once described Charles M. Schwab as "the master hustler". He meant it as a compliment.

For one brief moment in 1916 Schwab had an offer in hand that would have made him the richest man in the world. At the close of the first year of the Great War the German ambassador to the United States offered Schwab $100 million for his controlling interest in Bethlehem Steel. The British armaments industry was almost completely dependent on Bethlehem to produce the high carbon steel essential for manufacturing cannon barrels and submarine hulls. When the British learned of Count von Bernstorff's offer, they were scrambled to make a counter-offer. The British ambassador Cecil Rice and the President of Chase National Bank, Barton Hepburn, approached Schwab and proposed to buy him out for $150M. Schwab said no.

Reading the numbers for Amazon today [September 2cnd] made me think of what Mr. Bezos could realize if he sold out. The likelihood is that he would say "no".

The numbers: Amazon's common stock sells for 58 times next year's predicted earnings and 36 times the total earnings for the company in its 22 years of public trading.

Sep

6

"Guy Gabaldon: an Interview and Discussion"

Sep

6

Brexit is, for our time, what the "free trade" movement actually was.

It was the rejection of Left-Right as the model of the public mind.

The man who has begun that transformation and who knows more about the mathematics of turnout and persuasion than anyone is Dominic Cummings.

Sep

6

Armstrong Economics on "Private vs. Public Rate".

Sep

6

If you waste your time as I do, reading through academic journals on JSTOR, you already know that Great Britain had a "Great Depression" between 1873 and 1896.

Musson, A. E. "The Great Depression in Britain, 1873-1896: A Reappraisal." The Journal of Economic History, vol. 19, no. 2, 1959, pp. 199–228. JSTOR.

If, as I hope, you have more interesting and profitable things to do, this information will come as a complete surprise. How can Britain have had a two decade long depression at the same time it was the greatest financial power in the world, with the largest empire and a navy that literally ruled the seas?

The answer is that "Britain" did not have a depression; its owners of capital did. During the period "the standard of living improved. Prices certainly fell, but almost every other index of economic activity-output of coal and pig iron, tonnage of ships built, consumption of raw wool and cotton, import and export figures, shipping entries and clearances, railway freight and passenger traffic, bank deposits and clearances, joint-stock company formations, trading profits, consumption per head of wheat, meat, tea, beer, and tobacco - all these showed an upward trend." "(T)he wail of distress did not come from the mass of the people, who were for the most part better off, but mainly from industrialists, merchants, and financiers, who felt the pinch of falling prices, profits, or interest rates."

It could be that the developed world - the part of the planet that now has half of its outstanding bonds quoting negative rates of return to holders and prospective buyers - has just embarked on a similar historical journey. The parallel appeals to me because of all our past political figures Benjamin Disraeli seems the one closest in temperament and style and interest to Donald Trump. Disraeli's greatest tenure as Prime Minister was from February 1874 to April 1880 - the dates during which this Great Depression got underway.

Aug

23

"Ricardo: China is Weak: Part 1"

Aug

23

 When the people, through the Constitutional Convention and the votes of the States, adopted Article I Section 8 of the Constitution, they gave Congress the power "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures". By its Currency Act Congress could define the country's money as specific weights and measures of particular metal and authorize the Mint to produce that currency in standard forms. Only Congress could do this. Section 10 of Article I removed from the States any power to "coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts". Only the Coins authorized by Congress would be legal tender.

Note what is omitted from Congress' limited powers and what is not prohibited to the States. The Congress is not given the power to create a central bank, like the Bank of England. The States are free to continue doing what they have been doing. They can authorize the formation of private banks and those banks can issue notes.

By establishing a gold currency standard and not putting it under the authority of a central bank, the Americans were, once again, violating the accepted rules of nations. They were explicitly prohibiting the establishment of any claims to aristocracy or state religion and rejecting the presumption of all governments that they had "sovereign" authority over property. Their idea of a mint coinage currency standard of precious metals was anything but simple. It was rejecting the notion that, like God, "the law" can be immutable and unchangeable. That, of course, was and is the plain meaning of the assertion that legal tender can be a "store of value". It cannot. Whether made of gold (or silver, nickel or copper or any other metal) or paper, money cannot avoid having its price fluctuate any more than anything else that is traded. What a gold standard can do is fix, with absolute certainty, what everyone, including the government itself, must recognize as the national unit of account.

And why was this necessary? Because, if you were going to embark upon the grand voyage towards the wealth of nations, you and foreigners had to be able to agree upon the terms of trade. That is why the Constitution was so specific about requiring Congress to "regulate the Value" of both U.S. and foreign Coin. Both Americans and foreigners had to share a common standard for their dealings with one another in money. Clearly, paper would not do. The colonists, the English and the French had all tried printing their currency. "The law" had done its best to make people accept paper as fully-valued money. But, whenever people were free to say "no", they did. But everyone would accept coin as a common unit of account. And, indeed, they did.

When Professor Cochrane writes: "The idea behind the gold standard is simple", he is ignoring all this history. I doubt he knows much of it. If he did, he could not write this about the 19th century: "If the value of gold rose relative to everything else (deflation), people gained an incentive to spend them, and thereby drive up the prices of everything else. If the value of gold fell (inflation), people needed more of it, so they spent less and drove down other prices. This crucial mechanism linked the price of gold to all other prices."

Nothing "linked" gold to all other prices. The common units of account for international trade - both gold and silver - were the prices. Whether people kept more or less money depended entirely on their expectations: (1) would their creditors pay? (2) would the harvest be "good" or "not so good" or "bad"? (3) would there be a war? (4) would lending at these rates be profitable?

All of the same questions that people now ask about finances were asked then.

There was only one difference: the government had to pay for its credit like everyone else. Now, governments have central banks that can literally make it profitable for governments to borrow money. Yet, at the same time, actual credit for people remains as rationed as ever. No bank anywhere is offering negative interest rates on credit cards.

In the 19th century this brave New World had yet to be invented. If governments wanted something and could not use force to steal it, they had to go to the market like everyone else. They could either offer money or make promises sufficiently sound that they could borrow money; but they had to follow the same rules.

No wonder reformers demanded that the United States have a central bank, like all the other countries. No wonder applying a gold standard to the country's money (and demanding that foreign countries do the same if they wanted us to accept their payments) now seems to every "educated" person a disastrously terrible idea. Professor Cochrane was not, but States were free to establish private banks and those banks could issue notes.

States could not themselves issue legal tender, but they could authorize the creation of banks Actually the idea behind the gold standard us anything but simple; it is so subtle that its defenders and critics alike cannot be bothered to learn its history or understand its function.

Aug

19

 With little previous warning and without any notable event to bring about the crash, buying power suddenly disappeared from the market about the 13th of March and, after serious losses on that day, prices of leading stocks plunged downward many points on the 14th. Reading, which opened at 115, closed at 93; Amalgamated Copper fell from 98 to 80; American Smelting from 130 to no, and Union Pacific from 145 to 120. Losses in many other cases were 20 percent, and in some cases much more. Issues which were not of a first-class and well-known character became almost unsalable. Margins were wiped out, stocks were thrown over without regard to price, and heavy losses were suffered by wealthy men who had been induced to buy Union Pacific and other stocks in the expectation of an advance. Paper profits shriveled up more rapidly than in the great market breaks of "Black Friday" in 1869 or of the panic of 1873.

Charles Conant

Aug

15

Watch "Bridgewater's Ray Dalio Discusses the Impact of China's Growth on the World Economy" on YouTube

Watch "Gordon Chang: On Hong Kong Protest, Chinese Economy, Trade War, & Trump's New Tariffs" on YouTube 

Very distinct views. What is yours? Btw, any news on Jim Chanos' latest China results? Seems like he backed out his short earlier?

Stefan Jovanovich writes: 

When Cantillon shorted "France" - i.e. John Law's system, he went to the Bourse in Amsterdam and bought gold with a promise to deliver assignats. The difficulty with shorting "China" is who are your buyers? Cantillon's counter-parties were not AIG fools; they needed Law's paper to pay their French taxes, which could only be done with Law's paper legal tender. But who outside the jurisdiction of the PRC has a need for the delivery of Yuan?

Mr. Chanos' shorts, to the extent he disclosed them publicly, were derivative bets against exporters to China that did not touch the currency at all. Kyle Bass' hints at his short position, which he has closed, involved the exchange between renminbi and the Hong Kong dollar. A question for the List: where, in fact, can a sizable bet be made right now that shorts Chinese legal tender? A bet against the dollar in BitCoin can be laid on in volume but not Yuan. The price CNBC puts on its screens is no more a market quote than the exchange rate for Venezuela's money. Or, have I answered my question already. A purchase of BitCoins in China with the domestic currency would seem to be, for now, as good as selling assignats for future delivery in Holland in 1719. 

Peter Ringel writes: 

Hi Leo, I don't see necessarily a contradiction between the two.

Dalio seems to highlight opportunities in the Chinese private sector. Chang points to the many issues and question marks, that arise from the behavior of the Chinese government.

Anecdotally, I only hear of foreigners exiting China's "physical" sector. I don't know what foreigners are doing in the financial sector in China.

Isn't Dalio concerned about the rule of law? Will he get his money out at some point? I believe Dalio talks a bit to his book and to ears in China. His historical analysis of past global powers, which was also posted on his blog a little back, is aimed in this direction. I do see contradictions mid and long term. With all due respect to China's culture and idiosyncrasies, how can an economic power house and a police state coexist? (Mainly corruption will rip any economy apart).

What do you think the prospects are (in case as an analogy)? The ear on the ground is always the best source.

anonymous writes: 

Hi Peter,

I have been quite negative since a few years ago, and so started long term traveling outside the country since 2015.

I feel quite the same that Dalio was talking to his book and the top ears in the country, and suspect that might be a precondition for him to take his money out now.

His data presentation looks convincing, but it seems dated without considering the country's abrupt shift to the far left in these few years. One may argue that he is looking at a trend on a century level and a few years time can thus be well neglected. Well, people in the West really lacks the experience of what "far left" means. That alone, not to mention about other big issues in the country, will cause a deep and likely long hiccup in the near term, which might well expire everything imagined for the long term.

Larry Williams writes: 

LTTIU

Never forget: the Long Term Trend Is Up…do not fear the future. Fear does not create death. Fear limits life.

Aug

7

The Cornucopian history of the last two hundred years will continue into the future.

"Impending Defeat for the Four Horseman of the Apocalypse"

Stefan Jovanovich writes: 

With friends like Mr. Bailey the odds of a decent future for our species already has enough reasoned enemies. Who else could write this - "(M)an-made climate change arising largely from increasing atmospheric concentrations of carbon dioxide released from the burning of fossil fuels could become a significant problem for humanity during this century." - yet fail, in an article about the to mention either nuclear weapons or pandemics? We should all pray that crowds in their wisdom remain as sceptical as possible. When the future gets so bright you have to wear shades, someone has just delivered a bomb.

Aug

2

 Today [July 30th] in 1609 Champlain introduced gun powdered weapons to New England by helping the Hurons attack the Iroquois.

The result was what the folks at StrategyPage rightly describe as the final phase of the largest of the original aboriginal wars in North America. For at least a hundred years before Europeans sailed up the St. Lawrence, the two nations had contested for control of Western New York. The pressure from the Huron in Ontario had helped form the Iroquois Confederacy among the Seneca, Onondaga, Mohawk, Cayuga, and Oneida.

"By 1627, the Huron, with French support and guns, had effectively driven the Iroquois out of the Valley of the St. Lawrence…The Iroquois sought support from the Dutch, then just settling in the Hudson Valley, and later the English, who seized New York from the Dutch in 1664. Termed by one historian "the only people north of the Rio Grande who consistently practiced every principle of war at all times," in 1648 the Iroquois, who could field some 16,000 warriors, began a devastating series of campaigns that in a generation saw them harry their foes relentlessly from New York across the Great Lakes and into Canada, until the Huron and anyone who offered them aid had been effectively exterminated."

George Zachar writes: 

Upstate New York has such an interesting history. I'm always saddened when I go up there now, and see its current status as a suppressed backwater.

Stefan Jovanovich writes: 

"Suppressed backwater" is, alas, a perfect description.

Peter St. Andre writes: 

One wonders how upstate NY would do on its own.

We need 250 states.

Jul

30

 Mine. 46 years ago. The best, by far, of all my many efforts at being Melville's Confidence Man. "A Mute Goes Aboard a Boat on the Mississippi"

When I arrived in Berkeley in 1972 to go to law school with a duffel bag and nothing else and met the only woman in the world I have ever wanted to marry, she asked me if I was a Polish seaman off one of the break-bulk freighters that still occasionally docked at the Port of Oakland. (All gone now; only containerships.) Thinking about that reminded me of Melville's extraordinary work–which is nearly impossible to read now but remains the best single description of what this country has been and is. It was also the catalyst for the careers of my two favorite Americans - Ulysses Grant and Samuel Clemens.

I have successfully run the happiest of long cons on Susan and then our daughter and now her husband and infant son. With luck and the help of Almighty Providence I may last beyond these 74 years long enough to teach Whumpa how to drive stick.

Jul

27

 We left off Sunday with a speculation about whether or not the Chinese would find collecting the rewards from their contractor imperialism as frustrating as the European nations did. But, as a long-suffering Mets fan reminded me after his team went down in extra innings against the Giants for the 3rd time in 4 days, shouldn't the question be whether military might can ever be sustained without the profits from foreign lending and direct investment?

It is worth considering.

In spite of the truly awful carnage of the Great War, none of the European imperial powers questioned the profitability of imperialism itself. The Versailles Treaty "failed" not because of German reparations but because half of the winners were excluded from what they considered their fair share of the spoils. Of the 6 Allied nations who fought against the German, Austrian and Ottoman Empires, 3 received no substantial rewards from the redrawing of the world's map in the name of ending all war: Italy, Japan and Russia. Their various responses to having been "badly cheated" are the preconditions without which no Second World War could have occurred. Whether empire was ever, in fact, going to be profitable for Italy, Japan, Russia or Germany is the perfect kind of question for academic debate. It ignores the central fact: no country after 1918 thought its currency could resume being freely exchanged in international trade and finance without having the rewards that came from imperial commerce.

I doubt very much that Donald Trump knows this history; yet he seems to have hit upon the policy that the British Empire used before World War I with great success. Even before his election, Donald Trump was asking why American imperialism had failed to achieve similar success. Since taking office, his one consistent foreign policy has been to have America's "allies" place more defense orders with U.S. manufacturers. In the industries that it chose to support - civilian and military shipbuilding, shipping and the finance that went with it - Britain was #1 for much more than a century. As late as 1914 a third of all world trade was carried on British ships, built in British yards and insured by Lloyds. Britain's naval construction program was an essential component of that system; it was, along with railroad construction, the base for British industry. For Britain the achievements of "free trade" were, in fact, the rewards of military dominance; and the "strength" (sic) of the pound sterling was Britain's ability to collect, by fair means and foul.

Jul

22

 But, first, a reminder of why this is the best time of year if your team still has any chance at the wildcard. After beating two of the best starting pitchers in baseball, deGrom and Thor, the Giants go up against a starting pitcher with an E.R.A. of 11.34. He shuts them down without a run for the first 5 innings and they lose 11-4. As Joaquin Andujar, marvelous player and a great wit, once said: "There is only one word for baseball: 'Anything can happen".

Contrary to the Federal Reserve anime fairy tale (thx, Kim), there has never been only "money". The archaeology of artifacts and accounting records always finds at least two different kinds of cash: (1) the currency that the people with edged weapons (now guns), official uniforms and titles collect from people for tribute, taxes and bribes; (2) the currency that other people with edged weapons (now guns) who can't be bullied will accept as payment

I am a Constitutionalist on this question because Washington, Morris and the majority in Philadelphia never let the common sense of experience be defeated by theory, even one as useful as Adam Smith's. Hence, these provisions in Article I Section 8 for enumerating the powers of Congress: To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures; To provide for the Punishment of counterfeiting the Securities and current Coin of the United States; For the Constitution's authors and the people who voted to ratify its words as Supreme Law, the labels for these two kinds of money were (1) legal tender and (2) free exchange. Coin, both American and foreign, could serve as either or both monies. But, evidence of debt and property ownership in whatever form would be Securities. When Washington warned his countrymen about foreign entanglements, he was talking about money as much as war. Grant said the same thing 3 generations later, when he advised China and Japan, "to avoid foreign debt and the ruin of war that always comes with it". Both men knew, from direct experience, how empire was always and everywhere a corruption. They also knew how it got started. Countries that found a technological advantage - in arms, transport, manufacture and/or agriculture - would quickly accumulate international exchange. Those accumulations would get spent - on wars and on distributions to the politically important, which could include "the people". (Pericles will always survive as a hero of Athens, in spite of his disastrous wars, because the newly-discovered and productive silver mines worked by slaves showered the demos with MMT free money.) The amounts not spent would be "saved". Since "saved" money, whether legal tender or international exchange, could only gain profits beyond arbitrage by being invested, successful empires quickly found themselves lending or directly spending money abroad. That automatically raised the question: what money would be used to reward the investors back home? The easy and obvious answer for imperial investors was to have payments done in a currency that was both legal

Jul

17

 In the years before electronics, cash meant Federal Reserve notes. The Fed, in deference to the fact that it still needs to order currency to be manufactured by the Treasury, still reports how many of its notes are in the vaults of banks and "issued and outstanding" in the world. But that number no longer has much direct relevance to the question of banking reserves. When the banks report their Liquidity Coverage Ratios, the calculation is "net cash" but that number is composed of the following components:

(1) Unsecured wholesale funding - unsecured debt and institutional deposits

(2) Secured wholesale funding - repurchase agreements and securities lendings

(3) Retail deposits - brokered and transactions deposits, certificates of deposit

(4) Derivatives and commitments

(5) Contingent funding

Currency itself is no part of the "net cash" figure. For those of us in the bleachers enjoying the Giants' return from the dead, the focus on cryptocurrencies is as puzzling as the Dodgers' inability to acquire a bullpen. Why would cash in any form - digital or printed - be the financial problem that requires a brave new technological world for its solution?

anonymous writes: 

Strictly speaking, LCR is one of a long list of capital adequacy tests, and not a reflection the optimum amount of physical currency on hand at the branches. In any case, vault cash is now largely comprised of ATM lockboxes spread across a wide geographic area. If an institution needs to depend on vault cash to settle immediate capital calls, pay off depositor withdrawals, to maintain reserves, or to comply with any of the other testing regimes, then they've probably already failed one or more metrics, such as NSFR.

Incidentally, if you're wondering why any institution would purchase negative yielding instruments, the HQLA (high quality liquid assets) component of bank capital adequacy testing is the reason.

another anonymous commenter adds: 

Are you evaluating solely the currency utility of cryptocurrencies? The below doesn't seem to touch on a store of value. Also, I'm not clear on where you say e-money if you mean digital dollars or cryptocurrencies.

With regard to interest, you mean other than disintermediation of banks? This seems like a worthy goal in itself. Maybe a bit retro, it is my understanding that some time ago it was common not to trust the banks at all and keep cash at home. As a virile youth, I would not know how much of that is apocryphal. In any event, that option has been largely taken off the table as cash becomes part of a the shame and suspicion culture. Future transactions will stay entirely in bank accounts from deposit to spending.

With that in mind, I'd argue financial privacy is another large driver. As nations move down the path of digitizing their currencies and eliminating physical cash (even though India reversed course for now), the tracking and sharing of every transaction and financial habit becomes more thorough. I've noticed that my Chase Sapphire Preferred card happily shares all of my local transactions with Square and I get emailed offers from local businesses I've never shared information with. In my cryptocurrency fantasies, I would love a future where I could buy a movie ticket online anonymously by just paying with a QR code. Instead I end up logging in or filling out pages of personal information (carefully deselecting all optional email promotions) only to have my information profitably shared behind the scenes.

Additionally there is, of course, the innovation itself. The new concept of distributed digital scarcity hasn't found it's limits. That probably interests only a few of us, but it's enough to keep spurs to the development even in people's spare time.

I'm guessing a bit on your question and the answers and may have missed the mark so I'll stop here. To me there are so many interesting points on the topic, that I don't understand why others aren't equally fascinated.

Jul

12

 The NY Fed has produced a marvelous interactive map of U.S. dollar funding.

Zubin Al Genubi writes:

I wondered: Where does credit card money creation fit in M1?

According to an article I read:

"In short, credit cards, debit cards, and smart cards are different ways to move money when a purchase is made. But having more credit cards or debit cards does not change the quantity of money in the economy, any more than having more checks printed increases the amount of money in your checking account"

That doesn't seem right to me. Credit cards are the universal payment method and create much much more liquidity than cash, is easier to spend. Often people buy beyond their ability to pay in one month, so liquidity is being created. And the US economy runs on consumer purchases.

Stefan Jovanovich responds: 

ZAG has asked the questions that, in one form or another, American law and banking practice have done their best to avoid answering, ever since the country was founded: where is the boundary between money and credit and what is the definition of the U.S. dollar? The U.S. Code is no help; its only definition of the U.S. dollar is that it is legal tender. "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts." 31 U.S.C. 5103. But what "it" is remains wonderfully vague. So, too, do the Treasury's own practices. It does not require payment of legal tender for taxes; you can use your credit card.

There is a good reason for all this seeming confusion. The country needed it in order to get started. When the war veterans met in Philadelphia in 1787, they had to establish a national unit of account that was not a fraud while, at the same time, borrowing enough money to pay the veterans' promised pensions and the government's own expenses. Their solution was an elegant finesse. Money would be defined, by weight and measure, but any Coin, foreign, private or newly-Minted by the U.S. government, would be legal tender currency. The United States would not issue paper money, as the British had; and there would be no national bank. Congress could borrow Money, but there would be no Bank of England that could use its own notes for repayment. Congress would be responsible for defining the unit of account to be used as the yardstick for measuring foreign and domestic currency, but U.S. law would only specie as Money. And, the States of the new United States would be specifically prohibited from doing what they had done during and even before the Revolution - turning their own bills of credit into money. This was so important that the Constitution goes far beyond its usual tact is pronouncing where Federal sovereignty would be supreme. The States would NOT issue bills of credit and would NOT go to war. For the veterans of the Revolutionary War, who had seen what the States had done to the country's money and what Tories had done when they had control of state government, those were the two rights the States would never be allowed to have. It worked. Before Washington left office, the U.S. had a perfect record of borrowing and paying back the money lent by its Dutch bankers.

There was only one problem: people were hot to buy more and more land, and the U.S. and most state governments were insisting on being paid, in money. Clearly, this would not do. The solution was for the States to get into the credit business. By creating banks, they could find their way around the Constitution's prohibition on bills of credit; the banks could issue notes, and those notes could be accepted by the Federal and state Treasuries as payment for Federal and state lands. The arguments over the Second Bank of the United States was not, as Schlesinger says, over "hard" money; it was over whose bank notes would be considered sufficient payment for the land sales. When Jackson decided that only gold coin would be accepted, he was creating the very paradise that Ron Paul wishes for - a country with only 100% gold-backed bank notes and, therefore, very little, if any, private credit.

A correspondent reminds me that the land sales were very much like the Treasury auctions in the good old days of guaranteed spreads. The land was sold to primary dealers at fixed prices per acre; the dealers then resold the property purchased at auction. When and where the auctions would be held became a matter of public record only after they were completed, and the funds paid to members of the House and Senate for what was truly inside information were worthy of the bribes that Vanderbilt and others paid to the New York State legislature. "There is no distinctly native American criminal class except Congress." 

Jul

11

 They can take turns looking through the large end of the financial telescope. In his comments yesterday Powell said that the Fed could "stabilize the dollar price of gold" but it might not want to do so. Shelton may disagree about what the Fed should do, but she shares the same delusion that the purpose of the gold standard is have a fixed dollar price for a piece of the metal.

They may have always been a native criminal class, but Congress really did no better. The Currency Acts stated the currency value of a full fine ounce of gold because even in 1791 a dollar's weight and measure would be so small a piece of metal that its coinage would be impractical. But the elected near criminals did not think they were "pricing" gold. They were defining what exactly the weight and measure of the nation's monetary unit of account would be, and they had every confidence that its "price" in wheat, horses and coal would be whatever the markets for those things would be. Bankers could no more set the price of gold than they could choose the length of a mile; bills of credit, bank notes, and U.S. notes were all to be priced by how far their nominal amounts had to be discounted against coin.

The "Gold Room" in the Civil War did not price gold. It stayed at par. The quotations were the prices for how many Greenbacks and other forms of paper were required to own an ounce of money.

As to why this mattered and MMT was not a sufficient answer…

Jul

8

 I think Ms. Shelton's odds for surviving the attacks by CNBC et. al. will improve significantly if she adjusts her Lafferite theology. In a old C-SPAN interview I watched this morning I saw her making the same claim that Boris Johnson made this week on his hustings tour: "lowering taxes raises more revenue".

Clearly, it doesn't; taxes are the government's revenue, and lowering them means that the government has less to spend. This confusion has been a chronic problem for "conservatives" ever since Professor Laffer first scribbled on his napkin. It seems to have created a fog even for Laffer. How else can one explain his support for a single tax rate across all income levels? As a policy and political platform "lowering taxes" is a pure folly equal only to the defense of "capitalism". (Ms. Shelton commits that sin as well; she is an advocate of "democratic capitalism" which is itself an oxymoron.)

Where the progressives are instinctively right is in their belief that the rates should increase as income brackets go up. Where the progressives are and always will be disastrously wrong is to believe that the fundamental purpose of a tax system is to inflict punishment on the rich, to be a collective act of revenge against those who make the most.

A flat tax rate ignores the common sense truth we all see around us: the successful are much better than the poor at making money and the rich are much better at making money on their money. All the babble about the American dream ignores the obvious fact that the power law applies to enterprise just as it applies to the ability to hit baseballs 400 ft. All of us who love the sport can play the game, but only a very few can make the All-Star Game roster. What produces more wealth for both the government and the people who pay taxes is the lowering of TAX RATES if you get the proper shape for the stair-step of brackets and rates. The current tax code has gone a long way towards achieving that result; that may explain the seemingly inexplicable–how both net wages and tax collections can continue to grow in the United States even as they flatten out elsewhere.

Rudolf Hauser writes: 

The Laffer curve idea that lowering marginal tax rates increases revenues only works to the extend that it makes it cheaper to pay the tax than the costs and losses incurred in trying to avoid the high tax rates. In regard to the incentive impact on growth, it is best not to focus on how much the tax rate is reduced than on how much after tax income is increased. The incentive impact of reducing the tax rate five percentage points is a lot more important when the initial marginal rate is 90%, thereby increasing after tax income by 50%, than it is when the initial rate is 50 and the increase in after tax income is only 10%. When the cut applies to the capital gains tax rate, there might initially be a larger increase in tax revenues, as many long term investors might tax advantage to sell their stocks that they only held for so long because of the tax consequences of selling and/or to repurchase the shares to establish a higher cost base should the tax rate be increased again in the future.

But beyond that, there is a conflict of interest between the wealth of the nation and the wealth of the government. Lowering rates does increase the incentive for greater growth. But if the average tax rate is only 20%, the growth in the economy has to increase five-fold for the tax cut to result in more revenues. That is unlikely in most cases. It also has to be remembered that many people are by nature game players, that is they are very competitive and like to win. Why would a billionaire have any incentive to work hard? After all, he has more money than he could ever need to satisfy his consumption needs? It's because gaining the most money is like winning the most points in the game. So even when the government takes a large share of the gain, there is still the competition to have the most points, that is after tax profits and wealth, even with the reduced incentives. Naturally, that only applies to some people. Many will behave like the British aristocracy of old and become a leisure class. But it does explain why we were still able to have economic growth when marginal tax rates were so high in the 1950's, along with the fact that the various loopholes, etc. reduced the actual tax rates that were paid. 

Stefan Jovanovich replies: 

I hate to disagree with RH, especially this week when I am enjoying a biography of Gresham that I owe to his recommendation. My view may be distorted by my experiences as a low-rent criminal, both with and without a law license. My direct observation of both clients and customers is that they all followed the Gompers rule where taxes and penalties were concerned. ("What does labor want? We want more schoolhouses and less jails; more books and less arsenals; more learning and less vice; more leisure and less greed; more justice and less revenge; in fact, more of the opportunities to cultivate our better natures, to make manhood more noble, womanhood more beautiful, and childhood more happy and bright.") Taxpayers want to pay LESS at every possible rate. When rates are confiscatory - at the rates that Democrats have traditionally favored - taxpayers literally stop being taxpayers. They find ways to categorize their wealth and income so that it is not subject to any rate at all. They don't look for marginal reductions; they look for escape.

The ability to escape explains the seeming paradox of the 1950s when private incomes and wealth grew even though the legacy tax rates of WW II remained in place. Thanks to the magic of non-recourse debt financing, the effective tax rates paid in the 1950s were no higher than they were in the 1980s after Reagan's tax cut. The 1954 Tax Act became the bible of the 1950s whiz kids in Beverly Hills whom I was lucky enough to go to work for in the 1970s and it made their fortunes. (The reference is deliberate: Tex Thornton's Litton Industries offices were just down the block on Little Santa Monica.) 

When Jerry Ford, the economic moron who succeeded those other economic morons Johnson and Nixon, signed the 1976 tax reform act, he not only did me out of a job (no more 8-1 write-offs on real estate, oil & gas and movie deals); he also raised the effective tax rates on the wealthy to where they had been in the late 1940s. It produced exactly the same kind of inflation that Truman's vetoes and price freezes had done. The Federal government collects roughly 21% of the national income. The individual income and employment tax share is about 17%. It is rumored that Kevin Hassett's magic calculator at CEA produced a Laffer ziggurat (it is never a curve) that begins at 5% and ends at 30% for all personal incomes; its output was 20% of the national income - 3% more than the current collections. The result was never published because it would be the ruin of the Republican Party.

Integrating Social Security and income taxes would be even worse than Bush's "privatization"; and they would never be able to get it through the Rich's brains that their loss of exemptions and carve-outs would be more than offset by a simple 30% top rate. But, to be fair to the Rich, they know - from long experience that a simple stair-step is a Congressional impossibility. What would Representatives do is they could not offer special rules for wool growers and weavers? Still, as a thought experiment, it is intriguing. 

Alex Forshaw writes: 

Getting back to Stefan's original post, I don't understand how anybody can take seriously someone who for tight money in 2011-13 who's simultaneously in favor of loose monetary policy today. (Stephen Moore, Shelton, others) You can be for one or the other but not both, unless you 'evolved' to a completely different philosophy… which rarely happens honestly in my observation.

Stefan Jovanovich writes: 

Let's go back to RH's point as well. If monetarists think that "money supply" is both the fulcrum and the lever for Archimedesian economics, we taxistas tend to have the same certainty that tax rates move everything. They don't.

For me Ms. Shelton's heresy is the belief that legal tender in any form can be a "store of value". I also find her giving Jefferson and Madison credit for putting the U.S. dollar on "the gold standard" the worst kind of Ron Paul historical fiction. If credit is to be given to Virginia Presidents for fixing the dollar by weight and measure, it has to go to the first and last of the Founders - Washington and Monroe.

Rudolf Hauser writes: 

The monetarist point is simply that an excess of money ( the accepted means of exchange and those liquid assets held that are considered reasonable means of quickly obtaining the means of exchange at minimal cost) results in an attempt to dispose of the excess, which initially results in more nominal purchases of other assets and goods and services and subsequently inflation as the sellers of those goods and services realize that the increased production was not really economical. When there is a deficit of such liquidity, the opposite happens. If income and nominal wealth gains go to those who have a low propensity to consume, the increase may mainly be reflected in higher prices of existing asset, both physical and those financial claims behind such assets. If monetary policy is erratic and causing erratic inflation, the increased uncertainty as to the future might deter future real economic growth potential. Aside from that, monetary policy has negligible impact, if any, on real growth potential. Another mechanism is the increase in money driving up prices of financial assets, thereby lowering interest rates. That in turn can shift some purchases of durable goods financed on credit and investments likewise financed on credit to be shifted forward, whereas a deficiency of money can work in the opposite direction. Stefan believes that the central bank can control interest rates. But a central bank can only keep interest rates low when it has created an inflationary situation by continuing to accelerate the rate of monetary growth. When that stops or the public expectations catch up with what is really happening, those interest rate will rise. As the central bank is not the only creator of near forms of money, the demand for money created by the banking system can change for numerous reasons such as opportunity costs, the speed of transaction settlements, inflation expectations, and financial uncertainty. One impact of financial uncertainty is reduced access to quick credit and less confidence in the ability to convert such assets as commercial paper into money that can be used to settle transactions quickly and at minimal cost is diminished. Shifts in the demand for money depend on public desires for the amount of money they wish to hold and are not well understood or necessarily constant.

In contrast the main impact of tax policy is on economic growth potential. There are both temporary shifts as changes and expectation of changes in tax policy can drive income recognition forward or backward and the far more important permanent effects. To the extend producers try to pass on tax increases to consumers, it might have some inflationary impact as industry shifts the tax burden on to consumers, but since the income of consumers is not increased, eventually it should mainly have a real impact on the purchases of goods and services.

Jul

4

Calvin Coolidge Speech on the 150th Anniversary of the Declaration of Independence

Jul

3

 Massachusetts abolished slavery during the Revolutionary War.

The Pine Tree was it's naval ensign.

Jul

3

 The Revenue Act of 1926 never appears in any historical discussions about what the U.S. did right after the Great War. When Andrew Mellon and Calvin Coolidge succeeded in getting the conventionally-minded Republicans in Congress to adopt this truly "radical" legislation, they established the most successful tax regime in American history. To this day the surcharge rates of the 26 Act remain the most effective soaking of the rich; had the wealthy actually handing over enormous amounts of money to the Treasury while at the same time persuading them to go out and make even more money and pay even more taxes. That is, of course, the reason why it has disappeared from history. To remember it would call into question the central assumptions of almost all modern economic doctrine - that neither money standards nor tax rates and structures matter.

America's entry into the Great War depended on the notion that great nations were built by collective sacrifice. Without that religious assumption - which also drove the push for Prohibition, the Zimmerman Telegram might not have been enough to persuade Congress to vote for mass conscription and nationalization of the railroads. For Americans to take a side among the European powers in their struggle for territory, they had to believe that the Great War was really a sacred Crusade to establish fairness in the world. To an extraordinary extent, that belief carried forward through the 1920 election. Harding was able to secure a modest reduction in tax rates, but his 1921 Revenue Act only removed the excess profits tax and lowered the top rate by 1/5th. But a lowering of the top rate from 73% to 58% did very little to defeat the presumption that the rich should hand over most of their income to the government for the sake of the public good.

1926 changed all that.

Jun

14

These days I find I will do almost anything to avoid getting down to the necessary paperwork of selling our last operating business or the much promised scribbling of fiction.

The Report can be summarized as follows (Caution: I have already seen abbreviated versions of this kind of remark actually attributed to ranchers living in Wyoming and Montana):

"Mr. Trump did not steal any cattle, and there is no evidence that he conspired with anyone else to steal cattle. In fact, there is no evidence of any cattle having actually been stolen. Nevertheless, under the new Federal presumption rules for guilt and innocence, we Special Prosecutors are convinced that the President is obviously guilty of trying to resist being hanged for it; and we only wish we had jurisdiction to provide the rope."

Jun

13

 "The worst thing you could do is judge the world by what you believe. Everyone will act only on their own reasoning and belief system." -Martin Armstrong

Craig Feldspar writes: 

A belief system provides an operating metric, which, we all need, and which if adequate enough (it damn-well better be) can help you navigate. Absent knowledge of the specifics of a data point, a man is restricted to generalizations from the distribution of which the data point is drawn.

The problem with operating metrics is that they do not capture the complexity of reality. "In which direction does the Dardanelles flow?" The question itself, a reduction of reality to the point of uselessness.

Jun

13

The markets take money from the impatient and give to the patient.

Ralph Vince writes: 

There are plenty of mega-institutions whose horizon is longer than the human life expectancy.

They are plenty patient.

They're just slow, and adding into market drops must be done by committee. An individual, with adequate grit and nerve, can take advantage of that.

We live in an era of incredible fear. The multiples on stocks are further evidence of that - the world staggering around as though recovering from a good bonk in the head, the periods, roughly, 2001Q3 - 2016Q3, by many metrics worse than the Great Depression.

There's SO MUCH FUEL out there.

Russ Sears adds: 

While I will agree that there are many institutions that should have an infinite time horizon they are run by humans that have a finite political power over them. And generally the more politically charged the leaders must be, the shorter the patience shown.

Ralph Vince writes:

Russ, yes, in the West.

But some Middle Eastern SWFs have no such pressure–one's "position" determined at birth, the possibility of screwing up diminished via indexing.

Stefan Jovanovich writes: 

NASRA says their members collect 2,850 billion dollars annually in state employer and employee contributions. That averages out to 7.8 billion daily, not 750.

Jun

10

"VERDICT: Jury awards Gibson’s Bakery $11 million against Oberlin College"

Jun

10

 There is in my opinion a great similarity between the problems provided by the mysterious behavior of the atom and those provided by the present economic paradoxes confronting the world. In both cases one is given a great many facts which are expressible with numbers, and one has to find the underlying principles. The methods of theoretical physics should be applicable to all those branches of thought in which the essential features are expressible with numbers.

I should like to suggest to you that the cause of all the economic troubles is that we have an economic system which tries to maintain an equality of value between two things, which it would be better to recognise from the beginning as of unequal value. These two things are the receipt of a certain single payment (say 100 crowns) and the receipt of a regular income (say 3 crowns a year) through all eternity. The course of events is continually showing that the second of these is more highly valued than the first. The shortage of buyers, which the world is suffering from, is readily understood, not as due to people not wishing to obtain possession of goods, but as people being unwilling to part with something which might earn a regular income in exchange for those goods. May I ask you to trace out for yourselves how all the obscurities become clear, if one assumes from the beginning that a regular income is worth incomparably more, in fact infinitely more, in the mathematical sense, than any single payment? In doing so I think you would then get a better insight into the way in which a physical theory is fitted in with the facts than you could get from studying popular books on physics.

Paul Dirac said this at the banquet for the Nobel prize winners in 1933. If you bother to search the net on this topic, you will find the usual harrumphing of the Economics degree holders (Tyler Cowen offers his usual Berkeley snot rockets) about how Dirac was a genius but not as smart as they are about their subject.

Dirac never again discussed economics in public or private. He had thought about what the fundamental principles could be and offered his quiet suggestion about where so far they had failed to pass the test that physicists were required to apply to their work. The theory of discounting did not compute successfully as a prediction of future events. In pointing out the infinitely greater value (in a numerical sense of that tricky word) of a time series (which is how the math works out even for us village idiots) versus a single payment, Dirac was telling his audience what physicists were struggling with - those bothersome infinities that keep destroying the mathematical truths and beauties of our thoughts about nature.

Jun

7

Center for American Progress: "Ending Special Tax Treatment for the Very Wealthy"

Kim Zussman writes: 

(Cue Sonny and Cher "The Beat Goes On")

In the US the top 10pc pay most of the taxes, and a large portion of low income pay no income tax. Maybe we need leveraged taxes, like SPU: the top must pay 300pc and the bottom pays -200pc. This will not only be fair to the poor, but will also importantly maintain governing apparatchik's vig and fiefdoms.

Stefan Jovanovich writes: 

The analysis has the usual academic corruption; it only examines the facts that support its conclusions. There is no mention of the other direct and indirect taxes that are levied in the U.S. against people, property, spending and incomes. The people with "low" incomes pay almost all the employment taxes collected. If the authors were serious about taxing the rich, they would have spared us the elaborate discussion and simply advocated removing the income ceiling on Social Security and other employment taxes. That alone would make Social Security's pay-go financing secure for this century. Those of us who have fond memories of our anarchist grandfather would be happy to add a further adjustment in the name of having one big tax. (The Wobblies platform was "one big union"). Abolish all confiscations of income from savings (interest, dividends, pass-through distributions, capital gains, "excess" Social Security) and tax those incomes as further employment income. That alone solves the inequality of the Federal tax system and the unfunded liabilities for Medicare as well as Social Security.

So, why don't Lefties offer this alternative - which would be simple and avoid all further adjustment of the income tax? Because "fairness" is about assuring that the rich use the Buffett Dodge to subsidize the non-profitistas. Keeping high marginal rates at the top guarantees a continuing flow to foundations.

That motivation explains the authors' other glaring omission. They do not discuss the Federal estate tax. All the subsidies for income on securities (the special rates for interest, dividends, long-term capital gains) are more than successfully recaptured by the estate tax. If, instead of the current system, estates had a single flat rate equal to the employee share for Social Security, net collections from the estate tax would go up ten-fold. But, that would crush the rake-off by recipients of the deductible bequests. Can't have that either.

Jun

2

 PredictIt offers its predictions for 2020.

The posted prices compute as these odds:

Trump - 7/5, Biden - 19/5

Trump to win - 42 cents; Democrat Party to win - 56 cents.

Net gain: 2 cents on a bet of 98 cents (2%) that will pay off in 17 months if Trump is the nominee.

Biden to win - 21 cents, Republican Party to win - 47 cents.

Net gain: 32 cents on a bet of 68 cents (47%) …

Jun

2

 Automobile Production in US vs. Mexico, by brand:

Toyota - 1.4M, .089M

Volkswagen - .3M, .825M

Charles Sorkin writes: 

I believe that the supply chains are far more complicated than a simple production tally would lead one to believe. There is an enormous volume of intermediate goods and finished auto parts which are assembled and transported across the border in a multitude of ways (some more than once) before delivery of finished vehicles in the US.

Stefan Jovanovich writes: 

This may help.

"Toyota Production in North America Nearly 2 Million in 2017"

Jun

2

The paradox of "modern" land warfare is that it is now settling into a convention that is more than a century old. Artillery and aircraft are the only two means of killing and breaking things that do not require engagements by line of sight. The political tolerance for casualties is now so low that having men and women stand within rifle range of each other and exchange fire is no longer acceptable as a tactic, except, of course, in fictional dramas. Armies will continue to train for such fighting because it preserves the necessity of large headcounts (officers need subordinates); but the Second U.S.-Iraq War and the subsequent "surge" will be the last times infantry divisions take the field for the U.S. in foreign wars. There will still be the need for blowing things up and terrorizing the enemy, but that can now be done more safely and efficiently using bombs rather than bullets. Since the physics of taking bombs and carrying them into the air is so much more expensive than shooting them out of breach-loaded barrels, cannons are much, much cheaper as a solution. Thanks to GPS-guided shells, artillery is now flawlessly accurate. Give a battery a coordinate and within less than a minute it will be gone.

May

28

 The accidents of time and circumstance make this a day when John Finn's comment about heroes always comes to mind.

And that, in turn, brings up the name of Hank Greenberg, who was one.

.

.

.

May

20

 Nelson Lichtenstein wrote interesting books about $WMT, noting that Sears was excluded from the initial 1955 Fortune 500 list "simply because it was a retailer".

His "retail revolution" is the transfer of power from manufacturers down the line and closer to the consumer. WMT now significantly controls the supply chain "up" the line.

(Nike and Starbucks have been noted in this regard, but not so far in this book.)

There is a second reason why Burger King management has put the federal Equal Employment Opportunity Commission (EEOC) statement at the very top of the application. Americans consider workplace discrimination on the basis of race and religion and creed un-American. For nearly a third of a century we have had a national debate over the definition of such discrimination and the remedies that are useful and legal to eliminate it. But there is practically no debate about the need to stop it and compensate individuals for it, when discovered.

The overwhelming majority of workers, employers, and politicians believe that the government has a right to insist that active discrimination not take place against anyone covered by Title VII of the 1964 Civil Rights Act or those many statutes that followed in its train. This seems so commonplace and common sensible, that we forget the radical character of this law. If you own a restaurant or a factory or a motel or run a college, you can't make use of your property as you wish. The state mandates you to hire, fire, promote, and otherwise deal with your employees or clients according to a set of rules laid down in Washington and refined by the EEOC and the courts. If litigated, the courts will force an employer to pay real money in compensation and rehire or promote a worker if management is found to have transgressed this new kind of labor law.

Peter Ringel writes: 

Yes, the "point of sale" has the dominant power position.

Like the US has it towards China: US is the point of sale.

Mr. Isomorphisms writes: 

I think this was a point made by Michael Pettis (shows up on twitter.com/jaredwoodard feed) as well.

Stefan Jovanovich writes: 

Some of us are happiest as counter uppunchers. But for I's and PR's wonderful (as always) comments, I would not have spent the first part of the morning rummaging through my books and pestering the wife about her encyclopedic knowledge of employment law. So, I pray these remarks will be taken as merry grumbling, not smart-ass smugness.

1. The EEOC placard is like putting In God We Trust on the Money. It does no harm but it is not proof of anything real. Companies put it up for the same reason water fountains in my birthplace and the nation's capitol once had labels that said colored only; the law made them do it.

2. Labor Union's flourished in the 1930s for the same reason the water fountains had the signs; the Federal law made companies do it. What it did not do, of course, was make the labor unions allow memberships to be open to people regardless of gender and race. On the contrary, those awful capitalist employers had shown a shocking willingness to allow women and Negroes and Mexicans to come to the same workplace. They had, of course, shown the same terrible openness to letting rich black and Creole people in Louisiana ride in the same passenger carriages as white people. In both cases the law put a stop to the dreadful egalitarian idea that anyone could be a source of profit.

3. One should be careful about drawing any inferences from the Fortune List. When Henry Luce ran Time-Life editorial selection had a simple rule: our advertisers are the news. Sears was not a major advertiser in expensive magazines in the 1940s and 1950s. They did not need to be any more than Google (forgive me: Alphabet) needed to buy ads on television in the 1990s and 2000s.
 

May

20

 Here's an interesting — and for Democrats, ominous — statistic: since the election of 1896, a political party has been denied control of the White House after four years only once. That was in 1980 when incumbent Democrat Jimmy Carter lost his re-election bid to Ronald Reagan. And since 1953, only one party has stayed in office more than eight consecutive years. The Republican administrations of Ronald Reagan and George H.W. Bush lasted from 1981 to 1993. A lot of voters may be reflexively throwing out the bums after eight years, with rare exceptions.

Stefan Jovanovich writes: 

The 19th century was even more fickle. After the first broad expansion of the franchise in the 1820s, only Jackson, Lincoln and Grant were 8 year Presidents in 2 consecutive terms.

May

20

 Here are the official links to part I and part II of the Mueller report.

Not strictly to do with markets, but what on the site is these days?

Stefan Jovanovich writes: 

If telling people with badges and law degrees that you do not want to talk to them is "obstruction of Justice", then Trump is guilty. That is clearly Mueller and his minions' reading of "the law". They found it impossible to state that conclusion in their report because they could not get Trump to say anything at all while being directly interrogated. Obstruction is the new catch-all crime, even better than conspiracy. With conspiracy you have to make positive statements; with obstruction you can answer "I do not recall" and be found guilty because someone else has a recollection that proves you could have recalled or in the first, fifth or sixteenth answer to the same question you said something that was a recollection. There is no reason to volunteer to say anything, ever, to the people who can put you away if they want to. 

May

16

The NY Fed has an excellent article about the correlations between "economic expectations" and voting behavior in the recent Congressional election.

"Did Changes in Economic Expectations Foreshadow Swings in 2018 Election?"

May

11

 When I torture the rest of you with comments about Ulysses Grant's genius, I usually neglect to point out the obvious. Grant understood what had happened in the Civil War better than anyone else in American history because he was counting up what was happening in plain sight. He saw Haupt's railroads reduce the unit costs of supplying the Union armies by 1865 to a fifth of what they had been in 1861/2. What changed was what Amazon with its earnings reported today: things can be done better, cheaper, faster with declining capital costs.

Larry Williams writes:

Back about 1967 I had a fellow ask me, "How many days are in a 10 day moving average?" I replied, "Whose buried in Grants Tomb?" to which he replied, "Why are you getting smart with me, I don't even know where that tomb is let alone who is in it".

Apr

26

 Drudge has headline about Biden beating Trump in the polls, 42%/34%

Maybe so, but internals of the poll show 34% R's and 45% D's.

Alan Millhone writes: 

Karl Rove had President Trump defeated through poles he continually touted up to election night.

I prefer to wait and see till the dust finally settles.

Jeff Hirsch writes: 

Like statistics, polls can be torture and tell you anything you want them to.

However the down market in October prior to the election correctly projected incumbent party defeat.

Stefan Jovanovich writes: 

LW's point bears repeating. The sample itself is biased. If the pollster is honest and publishes their cross-tab data, it is not at all difficult to identify the potential weaknesses in the poll's particular results. Because the data does reveal itself, the new "modern" polls do their best to avoid giving any hints about their samples. Morning Consult, who did the poll LW refers to, does not usually reveal their cross-tabs.

I suspect they did in this case because Politico is still worried enough about their reputation to insist on the disclosure. Morning Consult's methodology is based on the assumption that people will volunteer to answer surveys online now that they no longer answer the phone. They describe it as follows: "The firm uses a stratified sampling process and sends a survey to multiple vendors, which it said gives it access to tens of millions of Americans. On average, the surveys are being taken by 1,000 people per day and can include questions based on video and images." The two questions that are not easily answered but are precisely the ones that matter are these: (1) what do the likely voters think, and (2) what will their turnout be.

In 2016 it was easy to predict Trump's victory because there were polls available for every battleground state that had current likely voter polling with cross-tabs and the turnout had no surprises. Last year, I was off by 1 seat in my Senate prediction and completely laid an egg in my estimation of what would happen in the House. I badly under-estimated how much Democrat turnout would be amplified by the revenge factor. I think that will be the question for this race: how much will the Democrat candidate be able to create and sustain the Hate Trump factor. Biden's announcement seems to me to confirm that this is the Democrat's strategy. The surprise may be that, instead of focusing on the Democrats' Socialist sins, Trump's campaign will focus on positive messaging about "the job that remains to be done" - i.e. "We Can Do More". Or, Helen Keller, "Alone we can do so little; together we can do so much."

Larry Williams writes:

Phone polls still work.

Just did a phone poll for Governors race in Montana (Gravis) had all we wanted to know in 24 hours. Same survey technique called last years elections perfectly.

Mar

24

A belated answer to the questions I have received about how "this time" can be different regarding the yield curve. My hopeless antiquarian bias tells me that the present trading in "fiat currencies" acts very much the way London, Paris and New York's exchanges behaved in the era of what academics call the gold standard. In actual commerce 150 years ago, "the money supply" was, as it is now, the amount of "good" credit that traders were happy to clip, shave and discount to each other. Gold and silver coin - what was, in the fantasy of Rothbardian history, the only money that mattered - had so little importance that it was shunted off into a room of its own away from the open trade and regular order spaces of the NYSE. Credit was all. Gold was not even the unit of account for the U.S. Prices for stocks, bonds and gold itself were quoted in "paper" dollars, not the dollar equivalent of sterling. The prices on the slate at the gold room were the premiums to be paid in greenbacks for an ounce of "real" money. Our present world does not have an absolute monetary standard; but it shares completely the circumstances of that period: all credit paper being used in trade and government borrowings was actively discounted against one another using prices set by an integrated foreign exchange market. In that period - the 40 years up to 1914, the term structure of U.S. dollar borrowings spent almost all of its time being "inverted". The commercial paper/call loan rate was equal to or higher than the railroad bond yields.

If, as is predicted, the world's extraordinary population growth of the last two centuries is coming to an end, then the primary driving force for what academics call inflation is being removed from the global political economy. If, because of the renewables and greatly improved drilling and transportation technologies, the supply of energy is expanding faster than its demand, the inescapable component cost of all goods and services is likely to decline - as it did in the last third of the 19th century. Quantitative easing and tightening matters to markets because "everybody knows" that central bank credit is the regulator of consumer borrowing and business investment, even though the correlation between the amounts of private borrowings and bank reserves has disappeared. In Europe government bond interest rates can be negative because the primary risk is not that governments will default but that government debt will be the only place where private savings can safely hide in plain sight without fear of tax collection amounting to confiscation. In Japan it is not the tax man savers fear but longevity itself. In a world of negative returns the incentive is to keep more and more money on hand. Against these deflationary forces, there is the threat of MMT, not theoretically but as practiced in China. But their credit expansions cannot be exported to the rest of the world; like QE in the West the lending is a perpetual motion swap of old bad debts for new never to be paid off ones.

If inversions were, in fact, a certain indicator of "recession" (in the 19th century they were not precise; declines were called "slumps" and "panics") the United States could hardly had managed a per capital economic growth that still outpaces China's remarkable record for the past quarter century (even if you take their numbers at face value).

Mar

24

The Atlanta Fed has done a very good job of explaining why "the poor" are literally trapped by the tax code. The marginal rate someone pays for leaving public assistance and working for a living is higher than the maximum "progressive" tax rate that a rich person pays on an extra dollar of income.

The Economic Report of the President (see Chapter 3) also makes this point.

If progressives really cared about "the poor", they would end this confiscation of the rewards of labor. Benefits would be taxed just like other incomes and the transition from public assistance to work incomes would be treated the same way retirees' incomes above the Social Security limit are taxed.

There is nothing inherently wrong with the idea of what the Brits call a "universal credit". In a system where everyone receives the same stipend and the stipend is subject to tax, "fairness" becomes a rhetorical question. What made Social Security and Medicare so attractive as a social program and what makes them the one part of the Federal budget that only a political fool talks about "cutting" was the fact that literally everyone with an income was treated the same way. In Stefan's magic system the universal tax rate would be 12%.

It would apply to all incomes people received of whatever kind, from whatever source. That one rate would replace all other Federal taxes, including Social Security, Medicare, unemployment, et al. The maximum rate would be 32%. The brackets can be left to the whims of the CBO. This would eliminate the massive frauds of the current Earned Income Tax Credit and reduce the administrative costs of Federal public assistance to the levels of the Social Security benefit administration, which are an order of magnitude lower than all other programs' costs (HUD housing, WIC, et al.).

It would also eliminate unemployment insurance taxes and benefits because EVERYONE would be on the same dole. Most important, it would end the absurd posturing about "entitlements" - i.e. Social Security and Medicare - by having the society integrate the costs of the deserving with the undeserving instead of uselessly trying to separate them. If everyone is entitled to "universal" coverage, there is no incentive to try to separate society into categories of relative need. There is also an enormous incentive for people to save money so they can afford "more" than the universal minimum.

The greatest advantage of all would be that the rich - those evil people - would "pay more" even though their tax rates would be reduced. When societies genuinely honor people's rights equally and remove the threat of future confiscation, incomes literally soar. That explains the seeming illogic of PERMANENT reductions in tax rates producing PERMANENT increases in tax collections. It is truly amazing what risks people will take if they have confidence that they will, in fact, reap most of the rewards and have the government only collect on the same rate schedule that everyone has already agreed to pay.

Mar

22

 First, what Thucydides actually wrote (courtesy of someone who actually reads Greek):

The "aitia" (real cause) of the war was the Spartans' fear of the Athenians' growing power."

If Thucydides had wanted to make Allison's point for him, he would have used the word "aphourme", the excuse. He would also have substituted the word "Pericles" for "the Athenians". The Spartans were not the only Greeks who came to fear the Great Man's ambitions. Thucydides neglects to mention this; but then, he had already learned the first lesson of a popular historian: never, ever blaspheme the public saint. Thucydides does hint at the obvious - that Athens' democracy was very much like the Soviet Union's and China's today and "the people" were only allowed to have one voice; but he is careful to offer only praise for the Supreme leader. That survival tactic for a writer of history remains as valid as always. In a People's Republic only praise is worthy of being spoken. To this day, no one has published a biography of Stalin in Russian or one of Mao in Chinese that comes anywhere close to judging the men for what they did. If Thucydides had chosen to describe Pericles' follies in anything close to the painstakingly accurate detail with which German historians have now examined Hitler's, we would not have his history. It - and the historian - would have been destroyed; and Will Durant would have no hero for his saga of progressive civilization.

In his superficial comparisons Professor Allison is right: if one is looking for comparisons with the distant Greek past, it is appropriate to offer China as the analog to Athens. China's "Golden Age" is indisputable; its gleaming skyscrapers, high-speed trains and brand new airports are the modern equivalent of gleaming white marble buildings and heroic sculpture. But, contrary to Thucydides' narrative, the Spartans did not see themselves as being like the Kaiser and his General Staff in 1914 - who had to go to war before they were overtaken by the Russians' growing military strength. Having defeated Xerxes, they disagreed with the Athenians' belief that the Greeks could continue to occupy the western shores of Asia Minor. It was the Athenians who were determined to continue with military adventuring and Empire building.

In that regard, Trump's decision to change NATO into a hemispheric alliance and leave the Europeans and Russians to work out their coexistence and the Chinese to build their belt and road has a direct comparison with the Spartans' choosing to end their struggles against Persia.

Partisan footnote: One hopes, for the Republic's sake, that Trump's legacy has a happier outcome.

Mar

12

 Larry Sabato's Coven at UVA has released their first prediction for 2020. It is surprisingly rational. It predicts Arizona's 11, Wisconsin's 10, Pennsylvania's 20, New Hampshire's 4 and 2 Nebraska's 4 electoral votes as Toss-Ups; and assumes that Trump enters into the contest for those 5 states having 248 EVs in hand.

The challenge for the Democrats is to somehow duplicate the "black" turnout in the Midwest that won for President Obama. They have to recapture Pennsylvania, Michigan and Wisconsin. The question is how.

After the Civil War, the Democrats were able to re-establish local and State political parity using the minority group identity grievance doctrine that has always been at the heart of their party's electoral appeal. But, with the exception of Grover Cleveland's hard money reform machine and Woodrow Wilson's luck in being able to run in a 3-way race, they were unable to find a candidate between 1868 and 1932 who could successfully appeal to every identity group within the coalition. The solution at the national level only came when they chose a candidate whose upbringing was patrician enough to allow him to be the ultimate minority.

If the Democrats can find another candidate as thoroughly and unashamedly preppy as Roosevelt, Kennedy and Obama were (and are), they will win. That is the key to Ms. Ocasio-Cortez's appeal; she is without any doubt about her democratic superiority and the power of enlightened togetherness.

Feb

20

 Today, in 1852, the Michigan Southern completes the railroad connection from New York to Chicago.

As Jason Zweig notes: "Instead of more than two weeks by horse, coach and canal boat, it now takes just two days by rail to travel from New York City to Chicago."

.

.

Feb

13

 My apologies for the most recent rant about Grant's being so virtuous on the question of "race". I have (finally) made it to the backstretch with my work of fiction (the two previous attempts pulled up lame without even making the quarter pole) and the horse and I are getting feverish. I do have the excuse of seeing a real parallel with the past through Grant's eyes. For me the present frictions very much mimic the shifts in diplomacy and commercial relations that occurred in the last quarter of the last third of the 19th century. Up until the Spanish American War, the greatest testiness in "international relations" (sic) had been between the U.S. and Britain. Germany, the China of the day, had approved of America and its culture. As the Chinese have become a primary audience for U.S. entertainment, the Germans devoured dime novels and were fascinated by the American West. When Grant went to Europe on his world tour, he found "ordinary" (sic) Germans delightfully democratic compared to the British; and he hoped that, having finally defeated their Napoleonic enemy France, they would have the sense to choose commerce over empire. He did not find Bismarck and the Prussian General Staff to be nearly as clever as they thought they were; but it appeared that Bismarck would be able to get the Kaiser and the generals to see the folly of choosing a war with the Russians, when they could have immensely profitable trade instead. Grant's hopes were disappointed. Instead of building a simple and inexpensive canal in Nicaragua in the 1880s, the U.S. waited a quarter century and built the aquatic equivalent of the space shuttle. The Germans chose empire instead of trade and then managed to turn the British into American allies by choosing Spain over the U.S. in the conflicts over the Caribbean and the Pacific.

Feb

10

 It might help to think of money as the protein result of economic evolution. If one accepts that premise, then Crick's Central dogma of molecular biology tells us that wealth has no part in the determinism; it is an end result only. "The Central Dogma. This states that once 'information' has passed into protein it cannot get out again. In more detail, the transfer of information from nucleic acid to nucleic acid, or from nucleic acid to protein may be possible, but transfer from protein to protein, or from protein to nucleic acid is impossible. Information means here the precise determination of sequence, either of bases in the nucleic acid or of amino acid residues in the protein."

Feb

10

Mises wrote in 1940 what it is still difficult to say 80 years later: the "working class" in Germany were the Nazis most dedicated supporters precisely because Hitler offered "full employment" through public spending. Hitler's dilemma in 1939 was that the German central government had no more usable FX with which to pay for its imports. The only means of continuing the supplies from Scandinavia and the Baltic and Romania was to make German IOUs as good as cash in the same way Napoleon persuaded Continental Europe to accept the "reformed" (sic) French currency. The Soviets could not be so easily threatened, but they could be bribed with half of Poland, the Baltic and a slice of Finland. Even so, everything depended on the French and British believing that an invasion to the Rhine would only bolster Hitler's popularity, not destroy it. So, as Mises notes, leaflets were dropped instead of bombs.

Peter Ringel writes:

The left here always gets a little bit annoyed when one highlights, that NAZI stands for National SOCIALISM (A member of the National Socialist German Workers' Party NSDAP). It would be nice if more (in Germany) understand, that economics is the driving force of history–not political or religious "ideas".

Jan

30

 David Lillienfeld's marvelous (and sad) piece about Frank Robinson and the O's was a reminder of how much losses count more than wins. Decades later I still have memories in my sleep about pitches missed as a catcher; and I find myself jumping awake to turn and chase the imaginary ball as it skips away towards the boards of the backstop.

anonymous writes: 

I watched a documentary on Larry Bird and Magic Johnson yesterday. Bird mentioned that the losses haunted him years later. Even decades later, he is still haunted by the loss of Indiana State to Michigan State in 1979.

This made me think about my sports career. I, too remember the losses much more than the wins. The biggest one for me, was when I had the chance to win game from the free throw line for the league championship.

We were down by 1 and I got fouled with 1 second to play and went to the line for a 1 and 1 shot. Now, free throws were something that I prided myself on. I was a high 90% shooter. I once made 108 free throws in a row and had 75 and 50 in a row multiples times. Making 25 in a row was nothing to me.

There's a whole story and build up to this moment that I'll share with the group another time, but I can tell you that I went to the free line with supreme confidence that I was going to win that game in heroic fashion. I'll never forget that moment and that shot leaving my hands knowing with 100% certainty that it was going in…and I'll never forget the shocking disbelief when the ball bounced out.

It was a true turning point in my life and taught me a lesson that I have never and will never forget. In hindsight, it's clear to me that that miss and what happened just before and afterwards was one of the greatest things that ever happened to me.

So maybe if I've got some free time, I'll share the whole story with the group if there is an interest in hearing it.

anonymous writes: 

Behavioral finance studies suggest that pain of losses exceeds the joy of equivalent gains. This may help explain why the velocity of declines are often greater than equivalent gains.

Dec

25

 If there were ever a contrarian indicator of a down market in 2019, this may be it. The number of analysts predicting a down market in 2019: zero. (From Twitter)

Ralph Vince writes: 

My numbers call for at LEAST a 40% move from here (closer to 50% really, but even that sounds crazy to me), and no prospect of a recession until at least 2021 more likely at least 2022 at this point.

David Lillienfeld writes: 

With a tightening Fed (not the discount rate, the inventory)?

Stefan Jovanovich writes: 

Yes.

Sentiment, by any measure I keep, is as bad if not more so than it was in 08 — but the backdrop, not just in the credit markets but in terms of energy, corporate profits, etc., profoundly different than 08, and the drop is minor by comparison. Further, unlike '08, earnings continue to grow, even over this past week.

Capital must find a home, must seek a return. Cash is a temporary placeholder, cover for the rainstorm, and for liability-driven fiduciaries, a very temporary one when you have >4% annual liabilities. How would you manage a pension in Germany or Japan? The US capital markets, with our rich return on treasuries across the maturity spectrum and equities markets that have increasing earnings are the most viable place on the planet.

And all this has come about as QE has ended, ZIRP has snuck out of it's hole to viable, st rates, and a divided congress, who needs to spend and screech like a middle-aged woman who is about to cough up her gizzard, will only find common ground on a pending transportation bill (think QE4), so "yes," to your question.

Dec

18

 One part of the Civil War that escapes almost all notice is how the United States paid for a war with a debt explosion that dwarfs everything done since 1940 - Congress and Roosevelt's first war budget. The current crisis is trivial by comparison. By 1861 year-end the Treasury was spending in a day what it had spent in two weeks the year before. But where did the money come from? Murray Rothbard and many other believers in whole number banking say Greenbacks and Jay Cooke. Er, not quite. The total issuance of Greenbacks was 8% of the total war cists, and Jay Cooke was the underwriter, not the final purchaser. The surprising answer is the people of the U.S. The public bought the bonds.

My wacky thesis is that we are seeing the beginnings of a similar event: U.S. savers will fund the Treasury's borrowings. They may, as Mr. Gundlach predicts, demand 6%; that was the peak rate for the 10/20s that Cooke sold. But, the demand will be there from domestic holders of dollars.

"Who Exactly Mopped up $1.33 Trillion of New Us Government Debt Over the Past 12 Months?"

Dec

18

India, Australia, Canada, Italy and France (and their banks) are coming off their rails:

"Australian House Prices Fall Most Since Global Financial Crisis"

Sydney's property downturn accelerated in November, propelling nationwide house prices to the biggest monthly drop since the global financial crisis, as credit curbs and buyer nerves continue to bite.

Nationwide home values fell 0.7 percent last month, led by a 1.4 percent drop in Sydney and 1 percent in Melbourne, according to CoreLogic Inc. data released Monday.

The drop takes the total decline in Sydney since the July 2017 peak to
9.5 percent, on the cusp of overtaking the 9.6 percent top-to-bottom decline recorded during the last recession 27 years ago. This decline is even steeper than the 1989-91 fall, showing how quickly sentiment has flipped.

Stefan Jovanovich comments:

The declines in the gold currency prices of wheat, coal, rail and water-born freight and lumber that were the "deflation" of the growth explosion of the 19th century came to be seen as "normal". They became so obviously the way things are that rising prices seemed not only the exception but also the product of conspiracy. How can urban land prices keep increasing–despite their recurring temporary panics–if it is not some kind of manipulation, asked Henry George. Even the prices of luxuries like diamonds (thank you, Mr. Rhodes) keep falling.

We are in an age in which credit has seen the same explosion of volumes that the steel industry saw with Carnegie and Krupp. The presumption has been that these loans were prudent for the same reason expansions in industrial capacity were willingly financed at fixed rates for as much as half a century. What called those industrial loans into question was the collapse in foreign exchange that was the financial carnage of WW 1. My presumption is that this crisis is not about the collapse in FX; Germans and Chinese will be able to pay for imports in 2019 in a way neither was able to do in 1919. But, what will collapse are the expected incomes of the civil service and other government pensioners (other than Social Security recipients) and their ability to borrow against their houses. It will be like the farming crisis of the industrial age–a devastation to the small holders that was unable to be softened because the political majorities would not pay for the bailout.

Dec

6

 We are now 2 decades into the electronic world that does not require people to be at keyboards or to speak and listen to others. Even those of us who never trade now understand that "the bond market" for U.S. Treasuries is not an organized exchange but an over-the-counter market in which all interdealer trades are handled through interdealer brokers (IDBs).

As the post on Liberty Street Economics reminds us, "(u)ntil 1999, nearly all IDB trading occurred through voice-assisted brokers, in which dealers executed trades via phone. In 1999, the eSpeed electronic trading platform was launched, and in 2000, BrokerTec, a rival electronic platform, began operations. These fully electronic platforms paved the way for high-frequency trading, in which traders rely on speed to identify and act upon trading opportunities. The platforms soon accounted for nearly all interdealer trading of the on-the-run notes and bond(s), the most recently issued notes and bond(s) of a given maturity.."

"(I)nformation in high‑frequency markets no longer pertains to only the active side of a trade. Algorithms and dynamic trading strategies enable traders to chop a large order into smaller ones and hide them in the limit order book at various layers. They subsequently show up on the passive side in resultant executions. Thus, estimates of price discovery based on solely trade data are likely to be unreliable."

The Subject Line is a quotation from Numbers 23:23. It was the first message ever sent and received by Samuel Morse's telegraph. (May 24, 1844). Without that invention there would never have been an American Civil War because "the news" of state secessions and Fort Sumter would not have been what "social media" claims to be now: instant and universal.

It seems to me that the paradox of the present situation is that even the loudest news items are now squeaks in the Shannon transmissions of information. "The public" and its money is no longer captured by any single headline.

Nov

24

  In the great tradition of all failed prognosticators, I hereby declare that it is not my model that was in error but reality. A week before the election Paul Ryan declared that President Trump was hurting the Republican's chances by talking about immigration. Gallup has just released a poll that strongly confirms the election results. The candidates who wrapped themselves in the America First flag outperformed the average for Presidential mid-term for the party in the White House; those who waffled lost the Independents and failed to win enough votes to survive the last minute ballot discoveries that are the Democrats' most enduring tradition.

Nov

18

After the Thousand Oaks bar shooting, the rules for successful massacres continue to apply:

1. The people being attacked have been forcibly unarmed; even licensed Concealed Carry permit holders are excluded
2. The "security" plan focuses on organizing and controlling the crowd, not spotting the troublemakers
3. The shooter(s) are already well known by schools, military and the legal system to be certifiably nuts

Nov

11

 Charlie Cook got it right. Here is his firm's analysis of what the election says about the future:

"Democrats wanted this election to be about more than just winning the House or the Senate. They wanted 2018 to be a total rebuke of Trump. A wipe out of epic proportions all across the country. That didn't happen. What we saw instead was more of a retrenchment. Red areas stayed red; blue areas stayed blue. The only real movement was in districts that were purple — districts that had voted for Hillary Clinton, Barack Obama or had narrowly supported Trump- tipped overwhelmingly to Democrats. As my colleague David Wasserman pointed out, Democrats didn't flip any district that Trump had carried by 55 percent or more."

anonymous writes: 

It would appear it is going to be a long, hard slog for the D's in that regard. The economy, though hotter than a hotel Coke, and acknowledged by the media is not yet being felt and celebrated on Main St to the extent it seems it should have been.

Half of America, and the other 96% of humanity outside of America, still believes we are in the darkest of times. Of the un-retired, everyone in the private sector, is still shuffling about in a glossy-eyed PTSD-like state from the protracted period of essentially no economic growth, despite substantial population growth in that period. Women in their late 40s to early 60s and older probably in the worst shape from it if they are single.

Millennials, in the main, still hunkered by the tens of millions in their parents basements with their incredible dildo collections.

We have not emerged culturally from the past depression. This is going to take a while, this will not be like the 1980s or it's brother, the 90s, and the reason I believe that not only do the D's have an uphill battle, needing to find a new voice, a new platform–a new direction, but the distance between where we are in terms of economic optimism and where we have been in times past (where the backdrop, sans anything going on policy-wise, has been nowhere near as rosy as now) in terms of euphoria, is a gaping chasm still. More reason why I believe this thing will run longer and go farther than any of us think it will.

Nov

5

 The choice for Japan was whether they would follow a European or American model of Empire. Would their Korean colony have the promise of Independence, like the Philippines, or would it be like French Indo-China and the Dutch East Indies and British Malaya? For Hara Kei the American model made sense; European colonies rewarded permanent bureaucracy–the very political economic disease that Japan itself had suffered under.

On this day in 1921 the first commoner prime minister was stabbed to death in the name of Imperial glory.

Oct

21

RCP's current list of "Swing Districts" totals 49. This includes the following districts held by Republicans: 3 that are "Likely Dem", 11 "Lean Dem" and 31 "Toss Up". It also includes 4 districts held by Democrats: 1, "Toss UP", 2 "Leans GOP" and 1 rated "Likely GOP". So far, I have analyzed 31 districts, including the 5 reviewed today.

The total pick up for the Democrats so far is 6 seats. Adding that to the seats the Democrats now hold (193) gets them to 199 and reduces the Republican majority to 229. If the Democrats win all 15 of seats held by Republicans in the races I have not yet reviewed, the two parties would be EVEN, each with 214. Control would then be determined by the 7 remaining "surprise" districts. Those would be among the 56 districts I had not planned to review: the 18 Democrat seats that are "Likely" or "Lean" Democrat and the 38 Republican seats that are only (sic) "Likely" or "Lean" Republican.

My dedication to sloth leads me to pray that the Democrats will only pick up another half dozen seats from the 18 remaining to be reviewed. That would leave the Republicans with 223 seats - a loss of 18 seats from the results in 2016 - and not require any further labor on my part. The odds are in my favor. There has been only 2 elections since 1952 in which a Republican President had a majority in the House of Representatives during the mid-term elections of his first 4 years in office: (1) Eisenhower in 1954 and (2) Bush II in 2002. In 1954 the Republicans, who had an 8-seat majority, lost 18 seats. In 2002 the Republicans held a 9-seat advantage and gained 8 seats, increasing their majority to 24 seats. For the Democrats, since Eisenhower, their President's first mid-terms with them in charge of the House, have been these: Kennedy in 1962, Johnson in 1966, Clinton in 1994 and Obama in 2010. In 1962 the Democrats lost only 4 seats from their 87 seat majority; in 1966 they lost 47 but that was from a 155 seat majority. Clinton's first mid-term was a complete disaster. For the first time since the 1952 election, the Republicans won the House of Representatives - winning 54 seats and turning an 82-seat minority into a 26 seat majority. Obama's first mid-term was even worse; the Republicans gained 63 seats and a 49 seat-majority, destroying Speaker Pelosi's 2008 moment of glory when the Democrats had won an 87-seat majority. In that election the Republicans outpolled the Democrats by 6 million votes.

It may be that the Democrats' belief in a "wave" this year is a projection of what has recently happened to them. It is certainly not a dispassionate assessment of what happened to Ike and Shrub in their first mid-terms.

The List of Real Clear Politics "Swing" Districts: The 18 districts that remain to be reviewed are identified by *.

PA-1,PA-5, PA-6, PA-7, PA-14, PA-17 D+2  
NJ-2 D+1
CA-49 D+1
IA-1  
MN-3    
AZ-2 D+1
CO-6
KS-3,KS-2
NJ-11
MN-2 
VA-10 D+1 
CA-10
CA-45
FL-26
IL-6
MI-8
MI-11
NC-13*
NM-2*
NY-22*
TX-32*
VA-7*
CA-25*
CA-48*
FL-27
IL-12
KY-6
MI-11*
NJ-3 
IL-6
NV-3*
UT-4*
WA-8*
CA-39*
FL-15*
IA-3*
IL-14*
ME-2*
NC-9   
NJ-7
NY-19
TX-7
VA-5
MN-8*
MN-1* 
 
KS-3,KS-2: KS-3 has Kevin Yoder as the Republican 3-term incumbent; it is Cook R+4. Ms. Clinton carried it by 1 point; but Yoder beat his Democrat opponent by 11. That was a decline from Yoder's successes in 2012 (37 points) and 2014 (20 points); but hardly seems to justify the NY Times calculation that the Democrat challenger Davids is now ahead by 9 points. What does affect Yoder's chances is the 3rd party factor. The Libertarian candidate polled 8% of the total ballot in 2016; and 2018 will be the first of Yoder's races in which there will be both a Democrat and a Libertarian on the ballot. Still, it is hard to see how Emerson comes up with having the Democrat up by 6. It is equally mystifying trying to understand how Emerson manages to put the Democrat up by 4 points in KS-2, a district that is Cook R-10 and also has a Republican incumbent, Lynn Jenkins. Jenkins first won the seat in 2008 defeating the incumbent Democrat Boyda by 4.4 points in a race in which the 3rd party candidates won over 3% of the vote. Since then Jenkins has won 63,57,57 and 61 per cent of the total vote. Yet these two incumbent Republicans are a Toss Up at best in a state where the President is still popular and Trump won by 21 points. That conclusion becomes even weirder when you find that Emerson's affiliation data for its Statewide sample has party registration at R-52, I/O-20, D-28. (For individual Congressional districts they have only done "e-Polls"; and those do not offer sample data or any estimates for 3rd party candidates' likely vote total.) I am afraid that the Emerson poll falls into the PAGI-BWO category (Progressive Academic Garbage In=Blue Wave Out.). Whatever is wrong with Kansas continues to be wrong; Republicans win both races.

FL-26 is a district that, by all 538-style model calculations, should be a lock for the Democrats. It is Cook D+6, Obama carried it by 11 1/2 points and Clinton by 16. Yet, the incumbent Republican Carlos Curbelo managed to win 53% of the total vote against both a Democrat and Independent challenger. The Mason-Dixon poll has Curbelo up 1 point on his Democrat challenger; their sample shows Party Registration as R-33, I/O-30, D-37. Curbelo's incumbency is likely to prevail, especially since his challenger's surname is Mucarsel-Powell is unforgivably diverse in a district where 4 out of 10 likely voters self-identify as Cuban.

IL-6 is Peter Roskam's suburban Chicago district. Roskam matters. He is the Republican Chairman of the House Ways and Means Subcommittee on Tax Policy. He began in the House in 2006, when he beat Tammy Duckworth by 2 points. Since then, he has never been seriously challenged. His margins of victory have been 18 (2008), 26 (2010), 18 (2012), 26 (2014) and 18 (2016). Even the Times is gracious enough to concede that he is ahead by 1 point in their September poll. Republican wins.

 
MI-8 has a 2-term Republican incumbent Mike Bishop. The district is Cook R+4. Bishop won in 2014 by 12 1/2 points; in 2016 he won by 17 and Trump won by nearly 7. There is no sample data available for any of the polls; but they all (including the NYT) have Bishop defeating Elissa Slotkin the Democrat challenger. I agree.

Oct

19

They say the market is upset about the jump in bond yields but maybe she's anticipating a premature return to socialism

Stefan Jovanovich writes: 

If I thought there was any reliable direct connection between elections and speculations, I would be tempted to join LW and you other clever traders and bet my "system" - which does better than average at guessing political horse races. I don't because, if there were any such link, I would not be able to pretend to be an expert in such company. You guys would already know the odds down to the precinct levels if that mattered.

I think, in fact, you all do know what matters regarding politics and money. Now that I am 60% of the way through the House "swing" districts, I are learning what the markets have already predicted: Jim Jordan is going to be the new Speaker of the House of Representatives. When that happens, the Federal budget and the Treasury's operations are going to be subject to the approval of the 21st century successor to John Sherman; and the shock is going to be that the national debt will be brought home. The taxpayers are going to become the Federal bond holders just as they did during and after the Civil War; and they are going to want tariffs and "sound" money to protect their investments, even as Confederate paper (aka Chicago municipal bonds) is allowed to evaporate.

Larry Williams writes: 

If the new speaker shrinks debt stocks will get hit hard. Deficits are very bullish for equities.

Alex Forshaw asks: 

Larry, why do you say that/how do you strip out correlation vs causation in this? The blowoff 1998-2000 top occurred among budget surplus and deficits are inherently counter cyclical i.e. generally low in late cycle/high in early cycle (deficit as % of GDP biggest in 1981-83, during/after 2 recessions or 1 severe recession; 1991-93 after a fairly deep recession; 2002-03 after a recession; 2009-10 after a severe recession.) To the extent that the deficit is high adjusted for its place in the economic cycle (2012, 2018 ytd) it doesn't seem bullish. To the extent that deficits are unusually low cyclically adjusted (late 90s, 2007 arguably, 2015 arguably) it definitely does not seem bearish. 

Larry Williams replies: 

I don't think it is correlation but causation. Large deficits means lots of money floating around the hood. That translates to expansion, building–which translates to jobs, and that to consumer spending, and that to corporate profits. I'm traveling so lack data. The "one and only" Mr Vince may wade into this with data.

Ralph Vince responds: 

25+ years ago I bought the Commerce Dept Database of 900 data items, and set u p a program (that would take two months to run, with a math coprocessor no less!) to examine each pairwise data set, and for each pairwise data set, to skew them +12/9/6/3/0…/-12 months, and record only those dataskew pairs with absolute value of correlation > some value (I forget which, but it was quite high).

One of the (many) dataskew pairs that filtered through very highly was that of federal deficits and economic growth (and broadly, we can stipulate that ROC of economic growth correlates to equity returns). The greater the deficits, the greater the market gains.

There were periods that did not fit this pattern, of course, it was not absolute (one out-of-sample period being the Robt Rubin era which was yet to transpire).

My guess is like the Senator's here; greater money floating around menas greater economic activity. I think it;s even a deeper causation than that. I would define it by saying that debt needs be repayed only once (if ever, it can also be perpetually rolled — the "problematic" nature of this is solely a function of rates. If manageable due to rates, it is virtually nothing. Further, even if rates become problematic, the yield curve itself provides an avenue of release — cue Rubin again), whereas the borrowed dollar can circulate multiple times.

So there is the multiplier effect of borrowed money vs the borrower's asset which is a one-time shot

If it weren't for borrowing, in particular the fractional banking system, we'd be in the year 1,000.

Oct

17

The generic ballot poll for the House of Representatives, which was, until this week, the best evidence for the predicted "Blue Wave", asks a sample of adults, registered voters and/or likely voters which major party they favor for "Congress" (the word of both the House and the Senate has, in modern parlance, come to mean only the House).

The logical flaw in using such a poll is that no office in the Federal government is determined by a national vote–not the President, not the Senate, not the House. But, the poll does have the great advantage of being easy. The only alternative is to go by individual House district; I am not even 30% of the way through the "battleground" House districts, and I am - for the first time in my sedentary life–beginning to have a sense of what long-distance runners mean when they discuss "hitting the wall". I promise to finish; but getting the data for each House race is a long slog.

That is why I am following 538 and taking the easy road for an hour this morning.

But, I can't be a complete cheat. No political poll, of any kind, avoids GIGO if it does not disclose its sample's partisan allocation. It will not surprise any of you to learn that the New York Times and the other most frequently cited generic ballot polls are scrupulous about not providing any such useful data. I did find one polling organization that has gone against the GIGO trend. The YouGov people have been remarkably forthcoming about how they get their numbers. In their CBS/You Gov Tracker poll, their sample data for party ID is R-42, I/O-15, D-43; for political affiliation it is Conservative-38, Moderate-32, Liberal-30. What they do not disclose is their methodology for converting these sample numbers into their overall prediction: R-48 and D-52.

I can explain how they get there, but I was not able to find any explanation of the why. The recipe for How works by taking the middle third of voters - the Moderates - and asking the Lean question in such a way that more than 3 to 1 favor of the Democrats. The result of their party ID inquiries is to assign 13 points to the Democrats and 4 points to the Republicans. That reduces the "middle of the road" share of the electorate to 1/7th. To get to their final D +4 result, their algorithm assigns 60% of the Independent/Other vote to the Democrats and 40% to the Republicans.

When YouGov did a second generic ballot poll for the Economist, they queried 1500 adults. Their bottom line result was similar to the one from their CBS tracking poll: D +6. But, here, too the How and the Why seem very much at odds. Their political affiliation numbers show a slight leftward variation on the common 1/3rd, 1/3rd, 1/3rd distribution pattern. Their sample has Conservative - 31, Moderate - 34 and Liberal - 35. But, that somehow shifts to a Party ID landslide for the Democrats: Republican - 23, Independent - 42, Democrat - 35. Where the numbers get really strange is in the data for 2016 voting. The 931 respondents who voted in the last Presidential election produce a sample that is divided Republican - 45.8 and Democrat 54.2.

But we know that the actual vote count was Republican - 62.98M and Democrat - 65.84M. That was Republican - 48.9 and Democrat - 51.1. Somehow a sample that should, to be representative of known ballot numbers, have a D +2.2 margin ends up with a D +8.4 spread.

No wonder the statistical affiliates of the party of Native American heritage prefer national algorithms above all else. They are not only easier but they always give the right answer.

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