Saturday, February 28, 2015

Krugman is still looking for something good about QE2

This is his best, so far: There are actually multiple revelations in that article. For one thing, it attacks not just QE2, which was about to commence, but QE1 — the Fed’s intervention during the chaotic post-Lehman period — which is generally considered to have been quite effective. Their evidence to the contrary?

Let me help oput on QE2, which started Sept 2010. What happened? The ten year yield jumped, the blue line.  Inflation jumped, the red line. Then, early 2011 we almost had a double dip, the green line.

OK, so show your graph Krugman.

Then we have this claim by Stanley Ficsher of the Fed that QE lowered yields. Lets look:
 The red line is QE. The blue line is the ten year treasury. Anyone see where QE budged the blue line relative to trend? No, the blue line was headed down for 20 years, nothing that QE affected it except to raise it during the QE purchases.

Krugman claims he has the right to handwave because he and his pals went to some basket weaving school called MIT. Show us some chart that verifies QE2 and Ben Bernanke made sense. If the excuse was that Ben saved the pension funds by pumping the market, than say so; at least that is believable and verifiable. But the idea of framing all these moved to conform to some bonehead theory from basket weaving school does not cut it.

The hyperbolic banker and price

The hyperbolic currency banker alwyays has an liabilities and assets as cosh and sinh, respectively. The former is deposits, the later loans. His clearing function are accumulatn rates projected two period ahead, cosh^2 - sinh^2 = 1.

He is adjusting the cummulant rates to define a unit variance such that prices stabilize over the shortest term. Buried in those function is principal, and the outcome is never exact.

So, for the firm, what is sinh/cosh? That is the firms liabilities over assets, almost always less than one, the firm is profitable. That is the firms purchase price for inventory, price.

So we have (1/2)*p'' +p * p' = 0, the standard hyperbolic equation.  The ' market means finite derivative over the firms inventory cycle. I think this is right, but the pros need to check me on this.

Ron Paul wins something

WA Times: Sen. Rand Paul won The Washington Times/CPAC presidential preference straw poll for the third time in a row while Wisconsin Gov. Scott Walker surged to second place, as they trounced the rest of a strong but crowded field of potential candidates Saturday.
Sen. Ted Cruz slipped to third place, down a rung from his showing last year, with retired neurosurgeon Ben Carson in fourth and former Florida Gov. Jeb Bush fifth.
The more than 3,000 conservative activists who voted at this year’s Conservative Political Action Conference also showed commanding support for legalizing marijuana, with a strong plurality of 41 percent saying it should be legal for recreational use, and another 26 percent saying Americans should be able to at least use it for medicinal purposes with permission of a doctor.

Rand is OK, no more nutty on banking than most economists.  I mean, both the Fed, Congress and the Keynesians are all banking cheaters.

Rand is not a big stater from California, Texas or Yawkersville. But I wish he were governor, not Senator.

I also like Patty Murray for the job, by the way.  Anyone who attempts to shoot straight and blurt out the truth is my candidate.

Rick Perry and Jerry Brown are great in their home state; and they might learn that big states are qualitively different from being Little Hoovers. But if Jerry left California then the place is bankrupt in two weeks. But I am going to say, OK to Rick Perry.

Hillary of Yawk scares me, too much like an LBJ liberal and delusional as hell.

Where is Mitch Daniels? Rick Scott?

Go through the Dem governor list, there are some picks there I could vote for.

Then there is the mayor of Los Angeles, Eric Garcetti, he is on top of my list.  Being mayor of LA makes you qualified for any management position. He is actually my first choice.

Jeb might just figure it out, I am not counting on it.

DC collects fairly nutty politicians.

This is the cost of their interest expenses as they when on a borrowing spree, starting with Reagan. nearly 5% of the economy (blue line)  devoted to paying for Reagan's credit card binge. It is a miracle Bill Clinton pulled us out of the nightmare.

The red line peak in 1974 is Nixon's sudden inflation shock when he exited Brenton Woods. Carter got that mostly under control, but kept driving up interest costs as the ten year yield started to jump up.

Those were nutty times and Republicans seem to be horrible dumbshits regarding the economy.

Now we are dealing with this, the rise in federal spending once again. This is the recession cycle when DC politicians shove all the costs out to the end of the presidential terms (Blue line). And as expected the ten year yield jumps up, (red line).  California and New York are going to have the same rise in expenses, it is mostly Obamacare.

So Janet will be selling portfolio this year to help cover interest expense.  The Fed cannot raise rates as that means losses on the sales. So we are gonna have deflation. Taxes will not hold up under deflation and we now have predictions of recession.

Soon we have to redo the monetary regime and Obama is going to need a clue, as due the Republicans. But the Fed is protecting its turf and hiding the new research.  My oh my what a mess.

Friday, February 27, 2015

Meltzer says indebted government eventually cause inflation

WSJ: ...that continuing QE just expands the huge future problem of withdrawing trillions of idle reserves.... More than 95 percent of the reserves that the Fed supplied under QE 2 and 3 sit idle on bank balance sheets. M2 money growth for the year to the end of January 2014 is less than 5.5 percent. There is no mystery about why inflation remains low. The mistaken results of QE policy include Federal Reserve financing of outsize budget deficits. No one should require a tutorial about the longer-term consequences of using central banks to finance government deficits. Sooner or later the results are inflation, always and everywhere...

Let's look:
 Nixon Shock in 71 and inflation (the blue line)  for eight years.  Note the red line, deficits, started soon after the shock.

So when carpet bombing Vietnam made us nearly brock, the Fed took a loss and we had inflation for a while.

So, the question is, will the Fed take a sudden, huge loss on those bonds and allow DC to cause high inflation?  Or will the dollar drop in value as fast as it ran up in value?  I doubt it, DC is debt bound. Any rise in the ten year back to 3.5%, and DC cannot pay its bills.  I doubt the investment banks are going to allow an uncontrolled monetary shock as was done by Nixon.  Something sensible will happen.

The ECB QE thing seems bizarre

The European Bank intends to buy bonds on the open market, they think it increases inflation.  Private investment banks are not selling because they carry high yield bonds, purchased from Euro governments when rates were high.  These are worth too much now that deflation has set in and rates are low.

So who is going to sell the ECB bonds?

Governments, of course, the same governments who own the ECB by the way. One of these governments, Germany is running a surplus and has no need to sell bonds.  The other would love to get bonds at subsidized rates. The ECB intends to sell these to countries based on GDP and population. That ratio is likely to be the same as the ratio by which governments own the ECB, here:

Deutsche Bundesbank (Germany) 17.9973
Banco de España (Spain) 8.8409
Banque de France (France) 14.1792
Banca d'Italia (Italy) 12.3108

So the buyers and sellers sit at the same table, in proportion. Are they going to just set the rate to zero and take their share of the ink and paper? What a game this is going to be.  Germany will easily agree to let Italy have some of its share, for a rate above zero, since Germany then earns the rate in proportion. The net result being that Germany ends up taking 18% of all the interest rate subsidies, at market rates. These will be long bonds, so Germany's share becomes a savings account, paying something like 2%.  The other governments end up with loan rates at something like .5%, with retained earnings; still a good deal.

What will Spain, France and Italy do with the money? Benefits to pay off the leftist anti-euro parties, which is almost certainly a deflationary investment.

Jerry vs Janet

UC wants to hike tuition by 28%, Jerry Brown is none too happy.

CalWatch: Tuition increase

To help pay for UC’s spending increase, tuition increased 84 percent between 2007 and 2011. In Nov. 2014, the UC Board of Regents increased tuition and fees an additional 5 percent annually over the next five years to $15,564 from the current $12,192, pending legislative approval. The compounded increase is 28 percent.
Much of that tuition is supported by state taxpayers in the form of Cal Grants, which have increased from $295 million in 2007 to $882 million currently.
Some of the biggest cost drivers are employee salaries and benefits, retiree benefits and an increase in the hiring of administrators, according to the report:
  • “The number of highly paid UC employees has grown significantly. Nearly 6,000 UC employees earn gross pay of $200,000 or more. [T]he number of these employees has grown by almost 100 percent during that period, and overall pay to this group amounted to $1.8 billion in 2013.
  • “[A]dministrative staff, both in academics and other areas, grew far faster than faculty and faster than overall staff growth.” Tenure-track faculty increased just 3 percent from 2007-14, while senior management ballooned 32 percent and academic administrators grew by 19 percent.
  • UC believes its faculty members are underpaid in comparison with other universities. On average, UC’s full professors receive $150,455, associate professors make $98,804 and assistant professors get $91,155.
  • Pension benefits for more than 61,700 retirees and survivors total about $1.3 billion in the current year.
  • Employee health care costs grew between 8 percent and 11 percent annually from 2007 to 2012. Cost increases have slowed since then, but are expected to rise 6 percent this year. In addition, UC spent more than $263 million on retiree health benefits in 2014. The current unfunded liability for retiree health care is $14 billion.
The UC spending boost, tuition hikes and requests for more state government funding have created pushback in Sacramento. Gov. Jerry Brown and Assembly Speaker Toni Atkins, D-San Diego, are both UC regents and voted against the tuition hikes in November.
Brown has offered a 4 percent increase ($119.5 million) in General Fund support for UC. But only if there is no tuition hike, out-of-state enrollment doesn’t increase and UC begins to rein in costs. Brown and UC President Janet Napolitano have been meeting to work out their differences, with a report expected at the UC Board of Regents‘ meeting March 17-19.

So, explain  how exactly California is going to pay for Obamacare and the UC gravy train at the same time? One would think that our Floundering legislature would have figured some of this out already. Jerry has no answer, really, since he is still committed to the $68 billion train, travelling through  Jim Costa's district in Fresno, from LA to SF. Look at a map. Then, on top of all this we still have the pension problem, which ties taxes to the stock market.  Not too brilliant.

So, that is why California is called the Flounder State.

Chicago going under?

CHICAGO (Reuters) - Chicago drew closer to a fiscal free fall on Friday with a rating downgrade from Moody's Investors Service that could trigger the immediate termination of four interest-rate swap agreements, costing the city about $58 million and raising the prospect of more broken swaps contracts.
The downgrade to Baa2, just two steps above junk, and a warning the rating could fall further still, means the third-biggest U.S. city could face even higher costs in the future if banks choose to terminate other interest-rate hedges against fluctuations in interest rates. All told, Chicago holds swaps contracts covering $2.67 billion in debt, according to a disclosure late last year.
"This is an unfortunate wake-up call for anyone still asleep over the fiscal cliff facing the city of Chicago," said Laurence Msall, president of the Chicago-based government finance watchdog, The Civic Federation.

Bernanke's nutty advice in 2010

He says in July 2010: Federal Reserve Chairman Bernanke pushed back against the Republican Party line in testimony Wednesday, saying the economy still needs fiscal stimulus. See full story on Bernanke's testimony.
"I do believe that, at the current moment, that the large deficits, as unattractive as they are, are important for supporting economic activity," he said. "I would be reluctant to withdraw support too precipitously," given the fragile nature of the recovery.
In particular, state and local governments are cutting services and employment sharply, which is yet one more drag on the economy, he said.

What happened in early 2011, one quarter  later? Oil prices peaked, implicit price deflator rising and real GDP posts a negative quarterly change.  The stimulus had just ended and when he gave his recommendation oil was still $80. Does anybody believe that lack of government spending caused oil to shoot above $120, suddenly? Nor was it a weak dollar, which actually rose during the period. But the ten year yield was rising fast, mainly in reaction to Bernanke's QE. No, the reason we almost double dipped was the sudden spending surge from DC couple with Ben's QE tax on the bond industry.

Ben Bernanke is a nutty economist.

Thursday, February 26, 2015

My favorite child actress becam a mathematician

Danica Mae McKellar (born January 3, 1975) is an American actress, author and education advocate. She is well known for her role as Kevin Arnold's on-again, off-again girlfriend Winnie Cooper in the television series The Wonder Years, and later wrote four non-fiction books: Math Doesn't Suck, Kiss My Math, Hot X: Algebra Exposed and Girls Get Curves: Geometry Takes Shape, which encourage middle-school and high-school girls to have confidence and succeed in mathematics.[1][2]
Graduated from UCLA, degree mathematics. Good for her, and good for UCLA. She was Winnie Cooper on T in one of my favorite shows. The profile is from Wiki.