Wednesday, November 30, 2011

Goodnight Moon - A Brief History of Monetary Policy (Failure)

Under my favourite archaeological theme of "what the fuck happened" (to this once thriving society), for all future Indiana Jones' I am penning my own allegory to document how Monetary Policy failed and destroyed the U.S. economy in the process.
My goal in concocting this basic analogy is not to mock everyone's intelligence, it's to illuminate the specious construct upon which Monetary Policy is based and call to account our so-called Thought Leaders for attempting to replace a once thriving real economy with financial alchemy.  Clearly, upon reading this analogous story, any 5 year old could have predicted that Monetary Policy was doomed to fail and collapse the economy:

Imagine you are out on a camping trip with a bunch of your friends.  You all decide to build a fire.  There are quite a few of you and you are all hard workers by nature so you gather up a ton of really good fire wood.  The fire you build is massive.  It's the biggest fire around.  People from all of the other camp sites come to your camp site to see and enjoy the camp fire.  They want to be part of your camp.

You gathered a lot of wood so the excellent camp fire burns long and strong, yet everyone is enjoying the warmth of the fire and the party atmosphere a bit too much, so much so that no one wants to get any more firewood.  So, naturally the wood pile dwindles - at first slowly but then alarmingly quickly.  Eventually a fight breaks out over who will get more wood, because now no one wants to be the guy out there in the cold darkness gathering wood, even though just the night before you were all out there happily gathering wood...

Along comes a guy that I will call Bob Byrne.  Bob says stop fighting guys, no one needs to gather more wood, because I have some gasoline we can pour on the fire.  Everyone is very skeptical, but Bob goes to his truck and comes back with a gallon of gas that he pours on the fire.   All of a sudden the fire erupts.  Flames shoot higher and the fire becomes bigger and stronger than ever before.  Everyone cheers and thanks Bob profusely.

Eventually of course the fire burns down again, this time quite quickly.  Everyone looks around nervously, what will we do this time?  Don't worry, says Bob, this time he comes back with two gallons of gasoline which he pours on the fire.  Again, the flames leap higher and everyone is happy and festive once again.

This time the good times are even shorter, so in desperation, Bob backs up his truck, takes out a fire hose and literally sprays gasoline directly on the fire continuously to keep it burning.

Alas, due to the lack of underlying firewood, even as new gas is poured on the fire, it continues to die down.  Now everyone is getting really worried, because even Bob's gas can't keep the fire burning.  So Jim points at Bob and says "what the hell is going on, why isn't your gas keeping the fire burning?"  

Bob says to Jim, "well, gas can't keep a fire burning forever, eventually you need to add new firewood.  My goal of spraying gas on the fire was just to keep it going long enough for you to get more wood."  

"What? says Jim.  You never told us that.  We never got more wood.  Not only that, we sold all of our axes, because we didn't think we needed them anymore".

Bob shrugs his shoulders, "Oh, I guess I should have made it clear that the gas trick is just temporary and that you still need firewood to build a sustainable fire.  Looks like you are shit out of luck now.  Sorry !".  He then hops into his truck and drives off into the sunset, never to be seen again.  


I hope you enjoyed my stupid story, because guess what, as stupid as it is, "we" as a society all bought into it hook, line, and sinker.  Imagine losing your house, your job and your savings all over the biggest line of bullshit ever told.  Now that, is sad.

Friday, November 18, 2011

One (last) Degree to South Park

The Idiocracy has its own 6 degrees of Kevin Bacon - it's the one degree to South Park game.  Every topic of any consequence or gravity boiled down to a crass South Park episode.  All of history reduced to a cartoon and spoon fed to the Idiocracy so they know their exact glib lines when someone inconveniently changes the subject to reality.  Irrefutable proof of the nihilism and cynicism pervasive in this transitory and totally fucked up age.  The Unbearable (and yet all-too-fleeting) Lightness of Being for a generation of spoiled Westerners who desperately assume others in the Third World can die needlessly every day by the thousands for a want of a few dollars of food or medicine, but it can't happen here.

A massive Tsunami looms on the horizon, bearing down relentlessly.  A few lonely discarded voices warn from the high ground - we lonely and pathetic cassandras and pessimists, buzz-kills, really.  

See the beach dwellers -  fully ensconced, like shiny beached whales, sur la plage.  What is that in the distance anyway?  Is that a massive wave?  "...let's surf - I'm not afraid to surf this place - we'll surf this whole fucking place !" 

Occupy Wall Street?  What do those loser bums want anyway?  Fuck all of them.  Don't they know there is a new episode of Dancing with the Lost Star of the Modern American Breaking Bad Family Idol?  

I am sure those doughnut plugged 50-something cops getting-ready-to-retire will take care of those hippies and their PTSD soldier buddies.  What?  Another 50,000 20-somethings coming back from Iraq ?  Time to dial up a new war up in here.  

9 Large Pizzas with 9 Toppings for $9 dollars !  Vote for me.  I can fix all of this...

Friday, November 11, 2011


Republican Debate

Candidate 1: "When I get into office, I am going to cut spending and implement a flat tax, because I feel that the 1% who run this country (and finance my campaign) are paying too large a share of the tax burden.  We need to get the 50% of free-loading Americans (i.e. the ones whose jobs we outsourced), to start paying their fair share.  [TREMENDOUS APPLAUSE FROM ASSEMBLED IDIOCRACY]

Candidate 2: "That's nothing. When I get into office, I am going to cut taxes and eliminate three Government departments - I just can't remember which ones...I am pretty sure one of them is Education..."

Ron Paul: "That's nothing.  I will eliminate five departments in the Federal Government, abolish the Federal Reserve and restore the Gold Standard.  Eventually I will eliminate the entire Federal Government - at which time I will set up my one-man office in the parking lot at WalMart".  
"Folks, I would sincerely like to implement a more effective and efficient Federal Government, but my ideology prevents me from believing that such a thing even exists".

Candidate 4: "That's nothing.  I have been in government for twenty years and I was on the 315 House Subcommittees aimed at reducing regulation, cutting taxes, and downsizing government.  It all went nowhere of course, but it was a super duper experience and qualifies me to be the next bullshit-artist in chief."

Candidate 5: "I am a pizza maker and I promise to reduce all taxes to 9% across the board.  I also promise 9 toppings on 9 large pizzas for 9 dollars"  [TREMENDOUS APPLAUSE FROM ASSEMBLED IDIOCRACY]

Candidate 6: "That's nothing.  I will reduce all taxes to 0% which will free up the economy to grow, grow, grow which will eventually increase tax revenues back above where they are currently.   It worked for Reagan, and it can work again !"

Candidate 7: "As you can clearly ascertain, I am not anything like these tea party nut jobs.  I am the quintessential Wall Street Insider.  I made my fortune in Private Equity disemboweling American companies and selling their carcasses to foreigners.   Unbeknownst to you, I was already handed the Repulican nomination by my 1% Associates who run this country, during a private meeting last year.  After all, I can raise more money with one phone call, than the rest of these morons can raise in a year.  My assignment is to endure this charade for the next few months, to propagate the illusion of democracy for the benefit of the Idiocracy.  Short of finding pictures of me partying with Jerry Sandusky, thanks to the odd jobs here on stage, I can't lose this nomination."

Hello, this is President Barack Obama: "Like these perma-smiliing salesmen, I was elected by making a lot of promises I knew would never see the light of day.  When I got to Washington things were even more fucked up than I could have imagined.   As a result, I have continued to propagate all of George Bush's moronic policies, because the Special Interest groups who run the U.S. won't allow me to do otherwise.  Any time I try to do anything, I am branded a dangerous radical and Faux News starts looking into my immigration status.  I eventually implemented a Medical Care bill which was the most bloated and bastardized piece of legislation ever rammed through Congress- which is no small feat !  Unfortunately, I have more than used up all of the "Change/Hope" political capital that got me elected, so here I am a sitting duck for this coming year as the Republicans decide which Simple Jack will take me out in the next election.  Actually, I was recently told by my sponsors that they now favour their other candidate Mitt Romney over me, even though I have done everything they have asked me to do...after all, the new Medical Care bill is going to make the Insurance companies a ton of money.

 Let me finish by saying God Bless America (because if I don't I will be branded an Islamist atheist)".

Sunday, November 6, 2011

Depression 2.0

Time for a reality check on my original Depression prediction to see where we are relative to the various factors I argued pointed to unavoidable depression.  Granted, the full scale depression I predicted is taking longer to manifest itself than I had guessed at the time, but nevertheless, the overall fundamentals continue to deteriorate, not withstanding the unprecedented levels of government intervention in the economy.  In other words, reality is rapidly catching up with delusion and will soon take the lead, obviating the need for blogs like this one to keep reiterating the undeniable.

My original list of factors borrowed heavily from Paul Kennedy's Rise and Fall of the Great Powers, which was published over 20 years ago and is the quintessential guide book for how empires "change" over time.  I also added some contemporary factors:

1) Peak Debt: 
My original post discussed the unprecedented overall debt levels and cited the subprime crisis which was yesterday's version of today's sovereign debt crisis.  And while the subprime debt crisis was widely discussed and analyzed well before the Lehman collapse in 2008, clearly that knowledge did not prevent the inevitable crash from occurring.  Fast forward to today and in addition to still having near-record high levels of household debt, sovereign debt has also reached similarly insane proportions due to two well known factors 1) the global bailouts of the lenders/banks 2) massive fiscal deficits which are still propping up global economies and propagating the illusion of solvency.  And so while we are all getting tired of the Greek debt drama (pun intended), the reality is that Greece is only somewhat ahead of the curve in its debt problem than most Western nations which have similar or in some cases higher levels of debt and/or deficit.  Every time I turn on CNBC (before can hit mute), and hear stunted infotainers deriding the profligate Europeans, I just have to laugh at the hubris of it all.  Be patient !  Every dog will have it's day.  Actually, this guy said it best.

2) Real Estate Meltdown
Been there done that.  The only major countries that have yet to experience a full fledged real estate meltdown are China, Canada and Australia.  No surprise, these countries are all inextricably linked via their trades ties and more specifically commodities - Australia and Canada being two of the world's largest commodities producers, and China being the world's largest commodity consumer.  Throughout China's long economic expansion, the Chinese have traded investments in real estate in exchange for commodities - which matches precisely the story in Canada and Aussie, where the marginal real estate buyer is Asian.  So unlike ROW (the Rest of the World), after the 2008 meltdown, citizens in these 3 countries continued to over-invest in real estate under the general presumption that while real estate can collapse in every other part of the world, "it can't happen here".  Unfortunately, I can't have sympathy for my Canadian brethren who apparently eschew reality for realty.

3) China Trade aka. Mercantilism aka. "Beggar thy Neighbour" policy
This is actually the most egregious aspect of this ongoing fiasco and the one that will have the most lasting  deleterious impact on the American economy, of all these factors listed.  As I have reiterated many times, the U.S. didn't just outsource its jobs, it outsourced entire industries and the associated knowledge and expertise.  Intellectual capital and excellence in engineering and manufacturing does not manifest itself overnight - it accumulates over decades.  And yet this current generation sold it off to Asia in exchange for what will amount to some short-term consumption loans.  Some now say that the U.S. is not good at manufacturing and should not try to compete due to cost disadvantages.  This is a loser's mentality. Japan and Germany both have structurally higher wage costs than the U.S. and they still compete very successfully in manufacturing.  Ultimately, the American 1%ers of the day decided it was cheaper and much more profitable (short-term) to liquidate the manufacturing sector and hand the keys to Asia; meanwhile, the corrupt and addled policy-makers and economists who should have known better, looked the other way, or even worse endorsed the strategy.

Have I reiterated the "wisdom" of borrowing from the Chinese to build weapon systems designed to fight the Chinese?  That was my point in this posting.  Who is the Simple Jack at the Pentagon war gaming that strategy?  I think they need to get together with the accounting department.  Clearly the Chinese have that scenario covered - it's called stop buying U.S. dollars and watch the U.S. economy go tits up for good.  No need to launch one missile, just wait for the Idiocracy to go into Clockwork Orange mode.

4) Energy Shortage
Not much to add here, other than to reiterate the obvious that relatively cheap and abundant energy is paramount to economic growth and vitality.  With each passing day, the U.S. surrenders more control of its energy supply to unstable regimes in the Middle East, and for all that, even now the U.S. is not one step closer to adopting a coherent long term plan for reducing its dependence on ever-dwindling and more expensive fossil fuels.  It's been 40 years since the U.S. became a net importer of energy - and still no plan !  Major strategic mistake.  Picture having to negotiate with the Taliban one day to buy oil...

5) Financial Derivatives/Hedge Funds/High Frequency Trading - All that Crap
No change here.  Still the tail wagging the dog, as Wall Street's financial WMDs continue to dictate terms to the global economy.  Economically it's said to be a zero sum game (my loss is your gain), but it's actually a massive lesion on the world economy, one that leaks tens of billions of bonus profits for the privileged few rent seekers who command insider access.  Worse yet, it's a massively leveraged out-of-control latent catastrophe that should have been dismantled in 2008, but has since been allowed to continue to grow in size and complexity.  The Federal Reserve went all in during 2008/2009 to save the Machine, and in doing so, squandered their assets and their credibility, so who will save the system this time?

6) Fiscal and Monetary Policy - "this one goes to 11"
What can I say about a  plan to borrow our way out of a debt crisis?   We've had 0% interest rates for three years.  Who exactly is the marginal buyer at these rates?  Is it someone who just came out of a fucking coma for three years and now wants a new Suburban?  How about some more QE (printed money) Bennie?  What round are we on - is it QE3? ..I've lost track now.  How about we just jump to QE11, I am sure that will be 8 notches better...

And on the fiscal side, what are we at: borrowing ~40% of the U.S. federal budget now?  Who are we fooling at this point.  Let's forget about taxes, because apparently paying $.60 on the dollar is too much for Republicans.  Let's cut to the chase and borrow the Fully Monty !

At $1.3 trillion, the current U.S. deficit is enough to create 13 million new jobs each paying $100k/year.  And yet, for all that, the number of new jobs added in October was a mere 88k !  Fiscal policy is DOA - no return on investment.

On a related note, we hear all the time that Wall Street paid back its bailout money...really?  That is pure bullshit of course.  The trillions in QE money used to juice the stock market, is still out there and sitting on the Fed's balance sheet.  The likelihood of that money ever getting paid back is 0.  And the $4.5 trillion in deficits that have stacked up since the 2008 meltdown?  Never getting paid back.  Who benefited from all of that deficit spending?  As indicated above, wages and jobs are still well below 2007 levels.  Corporate profits - ALL TIME HIGH BABY !!!  Now, what do those hippy Occupy Wall Street types want again?

7) Complacency and Mass Delusion - Never go Full Retard...
Ah yes, the Idiocracy, my favourite subject.  Here we are, every other TV show is now a cartoon - not targeted at kids mind you, but for Xbox addled Boy-men living in their parents basement and wondering what they will be when they grow up.  Just the thought of my grandfather in his middle age watching a cartoon is unthinkable and ludicrous.

Ultimately successful countries unravel and fail because the population at large becomes overfed and complacent and can no longer stand to delay consumption gratification to make long term investments in infrastructure, education and R&D.  That's the ultimate root cause of this fiasco and the root cause of every once-great nation that has failed.