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.

Mish calls a Grey Bar, sometime in 2016

Mish: We are in an “in between period” where the US will slow down and ultimately hand over the growth engine to emerging markets by the earliest Q4-2015 but firmly in 2016.

My track record is 0 for 3, so he has already one up on me from his call in 2006.  But it is recession season, and certainly it is also liar's season with the election coming up. The two combined make for a potent poison.

The confusion in banking theory

Why can John Cochrane close the loops and span the banking tree and find the equilibrium points? Because he, unconsciously (or consciously)  knows that the currency function is simply the master spread sheet that maintains a unit of price variance, suitable as a numerator in  price.

All the rest of banking still exists, its all important, dealing with government is always a mess.  But at its core, the unit of account is simply a shaped probability distribution. It is a distribution of deposits and withdrawals of member banks, and when that distribution reaches some threshold, the spreadsheet resets the clearing function. The clearing function always pushing the probability distribution, optimally, back into shape.

It can be no other way, it is the definition of double entry accounting and price ratio.

Union Boss to have Rahm Emanuel removed

How important is it that Chuy has forced Rahm into a runoff?
Extremely important. Remember, Chuy got in late [he entered the race in late October]. He announced his candidacy with only three weeks to go before nominating petitions were due. We brought a lot of very committed people to this contest, especially in parts of the south and west sides. We had 100-percent-committed volunteers working outdoors in brutally cold weather. We had phone banks going around the clock. The CTU played an important role in getting Chuy to run. Chuy had been advising Karen Lewis on her run. We thought he was viable as soon as it was clear Karen couldn’t run.
Were the conditions of CPS schools, and the decision to close so many in Chicago, what brought people out?
Schools were the marquee issue of this campaign and Rahm suffered losses because of his high-handedness in relation to school issues.
Union bosses run the election in Chicago.

Mark Weisbrot, incompetent fraud

CEPR: But the initial crisis could have been resolved relatively quickly. In the United States, which was hit by the explosion of an $8 trillion housing bubble, our recession lasted just 18 months.
Here we have California unemplyment, sitting at 10.7 on March 2012, four years after the recession.

And to think, Mark was allowed to commit this fraud on my hometown newspaper, the Fresno Bee. My home town unemployment in March 2012? It was 17.5%, thank you very much Mark Idiot Weisbot. But who do I see in the comment section calling it a great analysis? A dim Harvard grad, naturally. My return comment:
Horse manure for you Californians too lazy to check the unemployment graph in California. As of March 2012, four years, or 48 months after the recession, unemployment in California was 10.7. And, by the way, it stood at 17% here in Fresno California.
If you care to look, that is the graph. Harvard folks are a bit dim about doing actual math I have learned.

I am not sure who takes has the dimest bulbs, UC Berkeley or Harvard.

John Stockman has his hilarious moments

The Pathetic ‘Talk Therapy’ Of Janet Yellen
Contra Corner: What in god’s name does Janet Yellen think she is doing? Just a few weeks ago she established the ridiculous Fedspeak convention that “patient”  means money market rates will not rise from the zero bound for at least two meetings. Now she has modified that message into “not exactly”.

He is talking about the over indebted US economy, peak debt since the Nixon Shock. Here is his household leverage chart:

In other words, the central banker equalizes prices over a friggen 40 year period, that is a long pricing cycle!  The consumer is simply keeping up, the cause? There is no free money in the economy since we left gold in 71.  The only money is principal from the US government, produced by debt and it is now becoming due. Hence the deflation.
HY Zero Hedge, naturally.

Structural deficits and growth in Europe

I use the interest expense on government debt as a percent of GDP and match it with growth numbers picked from Krugman's austerity chart.

We a straight shot, the more structural deficit, the less growth.

Are interest expenses a measure of structural deficit? Sure, why not, they are a market computed cost of borrowing to pay for the deficit. So how does Krugman come up with this chart:

He uses changes in structural deficit, over the four year period.  But changes in structural deficit are not orthogonal to growth, the two will be a mixed variable. Interest expense will separate out the components using price discovery.

Republican Communist Party plans more central government

They are trying to update the Reagan Communist doctrine. let's help them out.

See those two peaks in the blue when government spending in DC consumed huge quantities of our economy? One is Reagan at 24%, and one if lil Bush at 24.5%. That big dip, when DC was small and libertarian? Oh, that was Bill Clinton.

Republicans want to duplicate the feat, expand the communist empire. Where are they going to get all the new debt they need?

From the article:

That simple philosophy [big, massive communist government]  has been the foundation of every GOP platform since the days of Ronald Reagan.

Obama proposes more nuclear medicine

Mainly to solve a doctor shortage.
NY Post: Reports that President Obama agrees Iran should be free to make a nuclear bomb in about 10 years put the lie to his repeated vow never to allow an Iranian nuke. The broken promise is the international twin to his domestic whopper that you “can keep your doctor.”
You can’t, but Iran can keep its enriched uranium, making this lie an even bigger bombshell. As in, bombs away.
It is impossible to overstate the potential catastrophe of the emerging deal. If the terms reported by the Associated Press, the Wall Street Journal and others become final, it would mean the United States and leading UN powers give their blessing for the world’s largest sponsor of terrorism to have the ultimate weapon, effectively rewarding Iran for decades of criminal behavior and acts of war against America, Israel and others.
The deal also would launch a new round of nuclear proliferation among Arab states, with Saudi Arabia long promising to get a bomb if Iran does. Others fearful of Iran’s dominance are sure to follow, escalating the tit-for-tat patterns in the region into a nuclear nightmare.
In addition, an unbound Iranian nuclear industry and spreading enrichment technology make it likely that one or more of the Islamic terror groups, including Hamas, Hezbollah, al Qaeda, Boko Haram and Islamic State, is likely to get the bomb. And there is no doubt they would use it.

Looks like the limit to me

From Calculated Risk, the four week average of unemployment claims.  Looks like we have reached the old equilibrium to me. See the dotted line? That dotted line more or less marks the limit, and then we have our recession. The pattern will be simple. Inflation will rise to about 1%, from the current -.6%. The 1.5 jump is about all the economy can handle, so the economy goes into recession.

Wednesday, February 25, 2015

John Cochrane is a smart banking theorist

He talks about the Fed working paper explaining  overnight reverse repurchases. And he connects the dots and closes the loops.

What does he have when he is done doing the marvelous work? He has a spanning tree with a single currency banker in the center. And, a double entry accounting system that makes liabilities and assets balance. That is also what the financial network ultimately creates.

This tree is ultimately finite, and holds  principal plus interest  due back to the bank over some finite periods.  The only way the currency banker can keep a net money liability spread over the tree is by continually lower lending rates. Hence we got the continual drop in  the ten year rate, after the short inflationary period when Nixon restarted the monetary cycle. When rates are too low, the tree does not have enough currency to cover price variation over its cycle and we eventually get deflation.

Well, this seems like a bonehead system. We  redo the central bank every 40 years?  Who knows that the central banking system is a foul model of fraud and numerical incompetence? At this point, just about everyone. I think the economists have figured this out, the currency banker is supposed to take small gains and losses over short periods. The economists are basically huddling among themselves to find a path forward.

Egad on Brazil

Zero Hedge quoting Goldman Sachs:
According to the monthly FGV Index, consumer confidence (CC) posted a large 4.9% mom sa decline in February, adding to the even larger 6.7% mom sa decline recorded in January. The overall consumer confidence index is now at its lowest level since the index started to be reported in September 2005. Furthermore, consumer confidence is currently 34% below the April 2012 peak and 26% below the average of the last five years.
Sounds like bad news to me.

A more accurate vacuum somewhere out there

Biggest Thing in Universe Found—Defies Scientific Theory

National Geographic: Talk about a whopper—astronomers have discovered a structure in the universe so large that modern cosmological theory says it should not exist, a new study says. (Also see "Giant 'Blob' Is Largest Thing in Universe [2006].")

Using data from the Sloan Digital Sky Survey, an international team of researchers has discovered a record-breaking cluster of quasars—young active galaxies—stretching four billion light-years across.
"This discovery was very much a surprise, since it does break the cosmological record as the largest structure in the known universe," said study leader Roger Clowes, an astronomer at University of Central Lancashire in England.

The fine structure must be much smaller in that part of the universe. As the light entered our space, with less dimensionality, it would look like red shifted hydrogen. But we could just assume it came from a region with a smaller fine structure and reconstruct a complex hydrogen' and develop a theory that goes beyond the mere baryon, a theory of the more efficient sphere packing.  But how would such a region of the universe have happened?  Isn't the totality of the vacuum conserved? Do we have to invent reverse causality? ? Something fishy in the neighborhood, who you gonna call?


Where do those nominal dollars come from?

Nominal gross domestic product in blue and federal debt in red.  The blue line is the principal from loans made by the red line. is this sound banking?

No. It is not the job of the legislature to loan fiat into the economy, it is the job of the currency banker to lose and gain money into the economy, over much shorter periods. What we are doing is running for an entire generation until prices revert back to zero inflation over the period.

If the legislature in DC were to act like a member bank, then fine. We voters might even give it a break now and then on losses made over a three year period, for example. But the legislature is making 40 year bets here, that is impossible to track. The legislature has made its fill of forty year bets and the economy will wait to see which ones pay off.

Currency banking works just like the coupon business in grocery stores.  The coupon printer is supposed to lose and gain coupons on a short term basis to balance inventory flows.  But the key is short term. The currency banker should be losing and gaining money on much shorter periods, periods that correspond to the price equalization period, something like two quarters. Inflation and deflation should lokk like a short term Wiener process.

M1 Velocity and economic gear shifting

Here we have it.  Two sustainable gears for M1 Velocity, 7 and 9.  9 was a high gear we could have kept except for lil Bush, the Republican, overheating the transmission. Now we are back to 7, and holding. Once we get a budget surplus we can try 9 again, but watch out for Republican deficit spending! And keep an eye out on Obamacare, the California and New York economies will begin to strain under the impact. The trick is to return to the policies of 1994. Budget surplus is essential to stabilize interest expenses in DC.

Tuesday, February 24, 2015

Germany pulls ahead

FRANKFURT—Germany’s budget surplus swelled last year and touched all levels of government for the first time since reunification more than two decades ago, strengthening its hand in helping to dictate how vulnerable European countries such as Greece should improve their own finances while likely underscoring worries that Germany isn’t doing enough to stimulate its economy.

The government’s surplus totaled €18 billion ($20.4 billion) in 2014, which equals around 0.6% of gross domestic product, the country’s statistics office Destatis said Tuesday.
That was up from a EUR4.2 billion surplus in 2013. It was the first time all government levels—which include the central government, state and local governments and social security fund—achieved surpluses since German reunification in 1990.
The figures support Germany’s view that “we’re leading by example and using the good times” to get fiscal policies in order, said Carsten Brzeski, an economist at ING Bank.
Germany’s finances are in better shape than other major countries inside and outside of Europe. The European Union’s statistics office hasn’t released 2014 budget figures for all of Europe yet, but data released last month showed that during the third quarter of last year eurozone countries had a combined deficit of 2.6% of GDP. The U.S. ran a deficit of $488 billion in the 12 months ending in December, which is equal to around 2.8% of its GDP.

How are the growth rates?

MacroAdvisors has the USA coming in at 2.4% the first quarter of 2015.
German GDP expected to come in at 1.6%
Mexico is pulling a 2.6%
And Japan at 2.2%

These numbers will change as the first quarter, first revision prints.  For the USA, anything above 2% is good news, it is recession season after all.

Hamada says Bernanke and QE saved the day

Project Syndicate: When the US investment bank Lehman Brothers collapsed in 2008, triggering a global financial crisis, Bernanke – who had since become US Federal Reserve Chair – took his own advice, instituting a bold QE program to revive the United States' moribund economy. The United Kingdom, too, pursued robust QE – and, like the US, it is now experiencing relatively strong economic growth (which is why the British participants in Geneva should have known better).
Compared to what?

Well, compared to Japan, Mr. Hamada says. How about we compare it to the USA, in the 1990s and the USA in the 2000s.   We have three business cycles, one and a hlf of them have this bold QE thing. I do not see one shred of evidence across the three that supports QE.  In fact, I see two negative blips since the 2008 crash, and none in the prior two. I mostly see lower trend growth in the cycle in which Ben did the Bold QE.

Notice the last cycle, we have two negative blips, one caused by Cristina Romer and the bonehead stimulus, and the second was half weather and half Obamacare, Delong's favorite.

Now, batty economists will make up lots of priors, but their priors has better all happen before that red line starts in 2003. Once the red line starts we get a crappy cycle. So, Mr. Hamada, here is an idea. Compare apples with apples and oranges with oranges; then your data set matches your conclusions.

The most likely prior I see is a regularly scheduled recessions, mostly caused by cyclic behavior in DC.

Yet another Krugman

Krugman: Remarkably, nobody seems to have laid out exactly how a Greek-style crisis is supposed to happen in a country like Britain, the United States, or Japan – and I don’t believe that there is any plausible mechanism for such a crisis.

 Here is a starter, the change in interest payments from quarter to quarter.  Does anyone, other than a blind UC Berkeley professor, see anything odd?

And does anyone see any sign of internal devaluation in this chart?

And, naturally this chart.  Anyone notice that peak in 1985 when the major economies had to intervene in the currency markets to forestall a protectionist move in Congress?

Or, see that peak right at the end there? You know the peak that corresponds to almost negative interest rates.  Where have we seen that before? Oh  yes, right before the 1981 crash and right in the middle of the 2008 crash. Looks like a Black Swan to me!

And this:

MarketWatch: J.P. Morgan Chase & Co. is preparing to charge large institutional customers for some deposits, citing new rules that make holding money for the clients too costly, according to a memo reviewed by The Wall Street Journal and people familiar with the plan.
The largest U.S. bank by assets is aiming to reduce the affected deposits by billions of dollars, with a focus on bringing the number down this year, these people said. The move is the latest in a series of steps large global banks have been discussing in recent months to discourage certain deposits due to new regulations and low interest rates.
And, let's not forget an important fact.  Note the appearance of those Grey bars in each of these charts.  You can also see them on the chart to the left, courtesy of @Not-Jim_CramerWhen do they appear? Why, right around the eight year election cycles, with a probability of something like 85%. Wow, some sort of coincidence having to do with our own currency.

Then there are the two major monetary regime changes, the 1932 change and the Nixon shock, about every 40 years. Hmm..., must be something about having a government controlled central bank.

Krugmans are an endless chore, I think the economics profession is devoting way too much time on this fellow.

Monday, February 23, 2015

A great big Black Swan!

Look at the rise in the dollar in the last six months.  Where have we seen that before? Just before the 1981 crash and right during the 2008 crash. The one we got is a straight up, vertical monster, worst than we have seen in  the last 30 years.

What is it? Not sure, but there are a lot of candidates. Alan Greenspan thinks its a big one. It sure looks like a nightmare.

Looking a little closer, I do see that this happened around 1984, where the dollar peaked. So there is hope that this is not The Big Black moment.

Sunday, February 22, 2015

Let's do a Krugman, shall we?

Krugman: Were the costs of Greek adjustment unavoidable, regardless of the currency? Could they have been much less, even given the euro? This paper says no; Simon Wren-Lewis is aghast, and rightly so. How can alleged experts have learned so little from so much terrible experience?
I’d like to focus in on one point in particular, which I’m not sure is completely clear in Simon’s argument. We’re all agreed that Greece needed to reduce its wages and other costs relative to those of the euro area core. This could have happened quickly, with no need for high unemployment, if Greece had had an independent currency to devalue — as happened in Iceland. Given membership in the euro area, however, Greece had to go through a period of relatively high unemployment depressing wage growth.

Well, the USA had our own currency, how did we do?

Here we have unemployment for Minnesota and California, two different parts of the same monetary economy.  Does one do more internal devaluation than the other?

Notice the two graphs are quite different.  The problem is that central banks, ours included, tend to cheat, commit fraud and otherwise take the advice of nonsensical economists. California, seen here, is diverging and getting farther off the mark, headed for a disaster as bad as Greece.  Yet, in this case the Keynesian says the common currency saves the day, and in the other separate currencies save the day.

Why does the economist note a process in other economies but not in his own? Because he is often hypnotized by the currency banker. We do not quite understand the process, we need the sociologist to explain it. 

So, next time the economist makes an incomplete claim, check my site; I often correct them.

Washington DC and the monetary cycle

here is is in a nutshell, written into the implicit price deflator.

Deflation in the 50s.  Genocide in the 60s. Hyper inflation after the Nixon shock. Disinflation since then. Now we are back to deflation.

Question: Who is Hillary going to carpet bomb?

Saturday, February 21, 2015

California's Floundering Legislature

California Medical Woes:
Although experts have not determined the likely extent of doctors’ unwillingness to treat Medi-Cal patients, California lawmakers have begun to brace for the worst: a substantial budgetary increase that will not be covered by the federal government.
Instead, the higher health tab may have to be absorbed by increased taxes, cuts in other budget areas, or both.

Now, wait a minute.  Just about everyone with an ounce of honesty and a bit of intelligence has been bracing for this moment, which leaves out Kevin Drum and Brad Delong.  So do not tell me that the news of a Floundering, Idiotic California legislature is discovered. We knew it, they knew it, Jerry Brown knew it, and Nancy Pelosi knew it.  We saw it when the fat slob Ted Kennedy swooned us with No Child Left Behind.  We knew it when we had LBJ and the carpet bombing. We knew it when we had Krugman and 'debt we owe to ourselves'. We knew it when we had Gray Davis and the energy price controls and the bogus pension graft. And we knew it when Jerry Brown called it some minor budget adjustments. We knew it when Jim Costa came home with the bogus Choo Choo.  We knew it all, it never was a secret, a discovery.

We all knew it, except some fools over at UC Berkeley, so I suggest you go and cut the UC budget until they begin showing a little honesty, or perhaps they might hire a little intelligence.

For the rest of the USA here are some facts:

California is the largest economy in North America
California  is home to 12.5% of the US population
California is the major port of entry for Asian trade in North America.
California is the largest Spanish speaking economy in the world.
California ports carry almost 50% of US import/export volume.

Japan heading to zero inflation

TOKYO (Reuters) - Prices have remained flat for half the items measured in Japan's consumer price index (CPI) even after the Bank of Japan launched massive stimulus two years ago, research by a private think-tank showed, underscoring the challenges of ending deflation.

Well, we have another result from Krugman's fantasy about inflation. What did we learn? If government really wants a price hike for Japanese consumers, then raise the consumption tax.

Let's do another Delong

Right now, the financial markets are telling us that for the next 20 years at least they expect not a surplus but rather a shortage of federal debt.

No, this chart says deflation.
The interest rates at which investors are willing to hold federal debt now and expect to hold federal debt in the future tell us that it is an extraordinary valuable asset

A valuable asset as measured in dollars, which is the unit by which these bond pay dividends. It is valuable because they are a promise from the same government that runs the central bank.
Those interest rates tell us that investors at least think the world economy would be better off with more federal debt than with less.

Horse manure. Investors are telling they will be better off than non investors when the central bank devalues.
A larger debt right now would enrich the present at the expense of the future, but (unless there is some global warming catastrophe coming) the future will be richer than the present, so this is not a big worry.

Pure fantasy. A larger debt right now will insure the wealthy against the pitchforking masses.
When debt is a source of uncertainty and a drag on the economy, its value is low in the interest rates people required to hold it is high.

The value is not low, Brad, look again at the friggen chart and see that the value is right in line with a declining trend.
The future is unpredictable, and interest rates could spike, and the burden of amortizing the government debt could rise substantially from its current near-zero level.

Is that the same story you told Europe in 2010, and now you repost Simon Lewis article showing they paid to high a yield in the debt they contracted. You make up stories to fit your priors, that is not science.
The past hundred years have demonstrated that the United States government is very good at paying down the debt as a share of annual GDP whenever you can argue that it makes economic sense to do so.

Bull shit. Nixon effectively devalued the dollar in 1971, Mexico did it in 1997, and Roosevelt did it in 1932.
The big question right now is not “should we fear a debt crisis?” but “how can we use the borrowing capacity of the U.S. government and the extraordinary terms on which investors are willing to lend money to the U.S. to benefit America?

What debt capacity, lets look at interest rate volatility, shall we?

Look at the friggen chart you poor excuse for an economist.  See that vibration at the end, notice it? Oddly enough that is coming at the point where we are at a deflation, a deflation mainly because some 2.5% of the economy is devoted to federal interest payments.  This chart says disaster, a disaster caused by too much debt. If we did not have too much debt then why did the federal reserve have to buy bonds?

The UC Berkeley economics department is a disgrace, shut it down.

California Flounder in trouble on Obamacare

CalWatchdog: “State lawmakers this week said the latest enrollment news is alarming, and that even if a new pending rate request hike goes through, there is concern the state will run out of funding to care for its Medicaid recipients. State Medicaid costs are up 4.3 percent this year while federal share of costs for new enrollees will begin dropping in 2016, according to Gov. Jerry Brown.”

We knew that the Floundering legislature would screw this up.  For the rest of the nation, California has once again become the likely source of your next recession.

Paul Volcker almost has it right on currency banking

He says price stability is the key.  Change that slightly to price variance stability. The currency banker always wants to flow enough liquidity to match the pricing efficiency of a metropolitan district. In other words, which economic unit has the most self correlation? The large city. That unit represents a price settling time, and the currency banker wants to target that term.  In the case of the US, the Fed should make sure savings balances minus lending balances, projected two rate periods ahead, is enough to cover the price variance in a large city like New York. The currency banker wants to clear money flows at the same rate the New York clears prices.

Friday, February 20, 2015

Taking smaller steps and allow settling time when doing the Greece deal

Krugman gets something right, its time to do the Greece deal in smaller steps.

The EU is facing a bunch of issues and they have some fairly ignorant central bankers.  QE is coming, the large banks are not that interested in buying, the Greek government is just getting settled in, the Greek voters and legislatures need to avoid hasty decisions, all the Euro governments are at risk when QE bonds pass through the Euro bond system, and finally, economists are just now learning about price variability and transaction rates.

Given this context, Krugman had a good idea! Take the small four month bridge deal, let the reaction in the financial and currency markets digest the result, then take another small step. The last thing we need right now is some bogus sense of certainty among the economists. Its a price discovery process that has to be efficiently passed through the system.

Its a new theory for us all

This idea that Brownian motion in aggregate systems is necessary to maintain integrity. Not just economics, but physics and mathematics. It is non-denominational, there is no complete certainty, just enough uncertainty to keep the transcendental approximations aligned.

QE raising rates again

I was looking for this, and Zero Hedge spotted it for me:

(Reuters) - At the height of the euro zone debt crisis in 2012, ECB President Mario Draghi's problem was how to convince investors to hold on to European bonds. Now he faces a struggle to make them sell.
Weeks before the European Central Bank begins a program to buy about 1 trillion euros of euro zone government bonds, banks, pension funds and insurers across the continent are hoarding them for regulatory or accounting reasons.
That may complicate implementation of the quantitative easing program, aimed at reviving growth and inflation in the euro zone. The ECB might have to pay way above market prices, or take additional measures to encourage investors to sell.
"We prefer to hold on to them," said Antoine Lissowski, deputy CEO at French insurer CNP Assurances. "The ECB's policy ... is reaching its limits now."
Banks, which buy mainly short-term bonds, use government debt as a liquidity buffer. Selling would force them to invest in other assets, for which -- unlike government bonds -- regulators ask banks to set cash aside as a precaution. Alternatively, they can deposit money with the ECB, at a discouraging interest rate of minus 0.20 percent.
Insurers and pension funds typically buy long-term debt. They could make hefty profits selling to the ECB. But the money would have to be re-invested in other bonds whose yields would be much lower than their long-term commitments to clients -- a regulatory no-no.
In 2012, many euro zone bonds offered double-digit yields. Today, Greece aside, the bloc's highest yielding debt is a 30-year Portuguese bond offering 3.30 percent.
Between a quarter and a third of the market carries negative yields, meaning investors pay governments to park their money in debt. In Belgium, a country whose rates are taken as indicative of the euro zone average, benchmark 10-year bonds BE10YT=TWEB yield 0.7 percent, just above record lows around 0.5 percent.
"If we were to sell bonds, we would make huge capital gains, but we will then have to reinvest that money at a yield of 0.5 percent, set against liabilities at 3.50-3.75 (percent)," said Bart de Smet, the CEO of Belgian insurer Ageas.
Dutch banks ING (ING.AS) and Rabobank RABN.UL, Spain's Bankinter (BKT.MC) and rescued lender Bankia (BKIA.MC) and France's BNP Paribas (BNPP.PA) said they were unlikely to sell when the ECB comes knocking.

Investment banks treat QE as a subsidized rate, a regulatory tax, and they avoid it.  They know regulatory costs will have to be spread out over a much longer period and so they hold on to the long term bonds for a tax and regulatory hedge.

I take up Delong's challenge on austerity

He lists some points about mindless austerity. Let's go over some of his points.
As long as unemployment is elevated and the real interest rates on government debt are less than the growth rate of the economy, the economy is in a substantial deficient-demand equilibrium and the government ought to be spending more, investing more, and taxing less.
OK, inflation has been negative for the past few months, .25 to .5%, deflation (projected forward a year).  The federal government pays the ten year rate and it has been 2.1 to 2.2% recently.  Growth has been averaging about 2.3% and the recent growth surge is about to be revised down due to imports.  Hence, according to Delong the federal government should not increase spending.

The 25-year fiscal gap is only 1.2% of GDP–a thing that could be closed by simply uncapping the FICA base and the fumes from the carbon tax that we must introduce over the next generation to get our environment on a long-run sustainable path.
OK, now I am perplexed. How does a CO2 tax reduce CO2 if we just apply it to the entitlement gap?  He is implying that working people are less energy efficient than retired people.  How did he reach this conclusion?

The sequester, especially, is simply an awful policy, and ought to be eliminated.

But wait, his first point above indicated that government spending should be held steady, and the inflation rate is now near zero.  He proves the need to sequester in one point then disclaims his logic in another.

Here Brad is a Fred chart to help.  Note, quarterly price deflator slightly negative. Quarterly growth is  .61.  Quarterly interest payments on the ten year rate government pays is about .55.  So, DC is there, DC should stop spending growth or Brad should change his logic.

So, I am sure he will fill us in on the contradictions.

Thursday, February 19, 2015

The discount rate and the optimization of finite time

Is there a clear theory of the discount rate?

There sure is, under two assumptions, time is finite and time is useful.
If we assume that then we have a simple optimization problem, assign time to the X axis and make sure that combinations of activities, on the Y axis, are optimally accurate on the X axis. Doing that gets us a Poisson like distribution, or more like a Planks curve. Integrate that and you get the yield curve. Surplus is optimally spread over time. The economy does Brownian motion, enough to keep the combinations of activities stable.

If time is not equally useful over the X axis then introduce the Zeta function, I guess.  Time in this case is term length, or wavelength.

Plank's curve is defined by the constant speed of time, converted to wavelengths. So it is really the sample rate of events that is constant, and time has constant precision. Precision optimally spread over the wavelengths of events makes the curve. The partition function, or the necessity of connectivity in the system, makes the spectrum a plank instead of Gauss. The general conditions are finite number line (or bandlimited spectrum) , connectivity (or locality), and minimize redundant actions. The constant precision of log-add fall out of that, and that is the constant speed of light.

Ice Age?

Accuweather: Old Man Winter will be unrelenting across the Midwest and Northeast this week as yet another blast of arctic air spreads deep into the South and off the Atlantic coast.
This current push of arctic air is delivering air that is just as cold, or even colder than the air that brought subzero lows to the Midwest and Northeast during last weekend.
Millions will shiver from Chicago to New York City as record lows are challenged during this bitter blast. Records may also fall across parts of the South where temperatures manage to fall into the teens and single digits.

It wouldn't be the first time we had an ice age. But I see no triggering event.

Wednesday, February 18, 2015

Scott Walker using short term financing to cover long term interest payments

(Bloomberg) -- Wisconsin Governor Scott Walker, facing a $283 million deficit that needs to be closed by the end of June, will skip more than $100 million in debt payments to balance the books thrown into disarray by his tax cuts.
The move comes as Walker, 47, mounts a 2016 bid for the Republican presidential nomination, and while his state is under stress from a projected shortfall that could exceed $2 billion in the two-year budget beginning in July.
Delaying the $108 million principal payment due in May on short-term debt would free funds. The move doesn’t require legislative approval, the nonpartisan Legislative Fiscal Bureau said in a Feb. 13 memorandum. The terms of the debt sale allow Wisconsin to defer the payment in any given year, a procedure known as a restructuring, without defaulting.
Yep, he is a Republican alright.

Scott Walker meets with Republican Communist Reaganites;decides deficits don't matter.

Scott Walker to attend private dinner with supply-siders in New York
Wisconsin Gov. Scott Walker is scheduled to attend a private dinner Wednesday with longtime advocates of supply-side economics.
The gathering, set for the upscale “21” Club in Manhattan, is the latest effort by the potential Republican presidential contender to bolster his relationships with the GOP’s anti-tax wing. It also reflects the interest business-friendly conservatives have in his possible candidacy, in spite of the recent ascent of former Florida governor Jeb Bush.

Will Dick 'Deficits don't matter' Cheney attend?  I am sure the Scott will come from the meeting with a plan to double the national debt, he is a Republican after all.

The nightmare socialist economy under Ronald Reagan, Communist:

How did the famous Republican Alzheimer's president do?

Well, the blue line, deficit spending, down is bad, went down. He ran the deficit up to 5% of the economy, and the only president to do worse was Jeb's brother, the other deficit spending Republican communist, and we crashed.

And, like all Republicans communist rats, Reagan ran the federal government spending, the red line, up to 24% of the economy, not other communist in recent American history had done more spending in DC.   Note that Carter left the deficit 1.6% short of a surplus, and we would never perform that well until Clinton ran a surplus, the only president to do so in recent memory. And Carter left DC spending at 21% of the economy, Reagan, the Communist never came close.

Then, two quarters after Reagan was inaugurated in Jan 1981, he had run the economy into the ground in the worst recession until Jeb's brother shows up.

So, explain to me why anyone with a sense of the economy would elect Scott Walker when he has already promised to run up the deficit and crash the economy?

Jerry Brown and the bizarre energy taxes

Sacramento – The California State Board of Equalization (BOE) will consider lowering the excise tax rate for gasoline by $0.075 for Fiscal Year (FY) 2015-16 during its February 24, 2015 meeting in Culver City.
Since 2010, the “fuel tax swap” law has required the Board to adjust this tax rate by March 1st of each year. If adopted, between July 1, 2015 and June 30, 2016, the excise tax rate on gasoline will be $0.285 per gallon. The current excise tax rate of $0.36 is in effect until June 30, 2015.
The excise tax on gasoline pays for public road improvements and mass transit. In FY 13-14, the BOE collected nearly $5.8 billion for the Motor Vehicle Fuel Account, Transportation Tax Fund. Sales tax funds a variety of state and local programs.

First, Jerry wants to use Cap and Trade energy taxes to fund an energy inefficient train between LA and SF, via Fresno! Then he finds out cars are to energy efficient to fund his gas guzzler train, so he wants to tax them by the mile.  Now we find that he wants to lower gas taxes on cars, but those taxes are already needed to fund his energy guzzling San Jose Light Rail. 

WTF! Jerry Brown is simply off on bizarro land with no idea what energy taxes are all about. 

Term and liquidity premium on the yield curve

The two problem are caused simply by the fixed demand for long term borrowing, generally from government. The yield curve runs out of X axis.

It is back to finite number lines and the fixed dimensionality of Brownian motion.  In the case of the USA we have a fixed and large requirement to roll over long term bonds, generally 2 to 10 years, and the X axis does not go beyond 30 years in our system. The XY graph runs out of terms over which it can fit a rate of change in yields for each of some finite number of terms. So at some point, terms are dropped and the curve must be steep. The rise in yields, its delta, has to be equally dense to notches on the X axis for each term. It the science of yardsticks again, using the yard stick with equal precision across all the motions.

A simple view:

Bankers and the aggregate agents are performing the same problem, mainly trying to get the yield curve to proportionally fit on an XY graph with the rate of changes matching the density of the grid equally everywhere.

Monday, February 16, 2015

An additional $200 billion in debt a year is impossible, without deflation

NY Post: Almost 90 percent of ObamaCare users get federal aid. As a result, a new CBO report projects ObamaCare subsidies will balloon to nearly $2 trillion over the next decade, only partially paid for by more than $640 billion in ObamaCare taxes and fines, which means more government borrowing and more upward pressure on interest rates.

The interest costs are simply too volatile to cover an additional 200 billion a year.  That is something like a 30% rise in interest volatility. Remember, Treasury is still rolling over something like 1.5 T a year. But Janet already takes something like 90 billion a year from the rate flows, so the bond market is going to sit on the money.

Deflation is the solution. Economists seems to forget, sitting on the dollar can still earns more in deflation then the 2% per year covered by Treasury.  And deflation reduces interest costs for Congress, especially interest cost volatility.

Richard Green, bogus semantics

Richard Green: My colleague Alice Chen, along with Emily Oster and Heidi Williams, have a new paper that explains differences in the infant mortality rate in the United States and other OECD countries. Despite its affluence, the US ranks 51st in the world in infant mortality, which puts it at the same level as Croatia.

Where is Richard Green from?
Richard Green is a professor in the Sol Price School of Public Policy and the Marshall School of Business at the University of Southern California.
Now is Richard Green completely unaware the California and Mexico are practically a federation and 'our babies' includes Mexico?   We just fixed the ID laws in California to include simple residency as a condition for citizenship. We just had an election in which Nancy declared our Southern border null and void, and she actually declared a federation  with Central America.  Jerry has all but declared California independent during the election. Our legislature is actively rewriting laws to include dual citizenship between Mexico and California.  We practically live in a political environment where federal laws are null and void.
Yet Richard Green still decides to limit his statistics to the federal political boundaries, set in DC, some swampland 3,000 miles to the east. That is fraud.

I happen to agree with California secession and uniting with Mexico, by the way.  I went out of my way to support any idea the California can adapt to the federal system, but voters decided on the Mexican path. Was I angry? For about five minutes, but aggregate statistics  rule and the path toward independence  makes the better sense. If Richard Green is unhappy, then he should renounce his California citizenship and go live in the USA.

Profesores de California se olvidan de que California está ahora unido con México.

Greece rejects conference results, will try again later

BRUSSELS (Reuters) - Greece rejected a proposal by its euro zone partners on Monday that it should accept a six-month extension of its international bailout programme while sticking to the terms of its agreement with lenders, casting talks on its debt into disarray.

I assume the Greek government knows what it is doing, is that too much presumption?

Obama says we have to be nice to these people

Drudge: The Islamic State terror group released a video on Sunday showing the Islamic jihadis beheading 21 Egyptian Christians who were previously kidnapped in Libya.
The Egyptian Copts, who were dressed in prisoner-like orange jump suits, were lined up along a beach and abruptly beheaded in the graphic five-minute video.
The Islamic State’s Al Hayat Media, the group that has published the previous beheading videos in the Middle East, produced the Libya video titled, “A Message Signed With Blood To The Nation Of The Cross.”

I sort of liked Obama's foreign policy of let them screw up on their own.  But he seems awfully delusional, as does Hillary of Yawk.  I accept stupidity in government, as much as the next person; but delusion is a nightmare.  Obama and Hillary give stupidity a bad name.

Obama gets hammered for historical stupidity

But then, Obama is from Harvard.

Ralph Peters : In his ignorant and bigoted remarks to religious leaders this week, President Obama parroted jihadi propaganda. Bored (when not annoyed) by facts, the president referred to the Crusades and the Inquisition as evidence of the horrors religion can wreak. That kind of talk emboldens the Islamist line that Christian bad behavior justifies the Middle East’s bad behavior even today.
The president knows as little about history as he does about warfare, and even less about religion. But he’s not alone. With the Left’s successful destruction of history instruction in our schools and universities, even “well-educated” creatures of Washington accept the Arab fantasy that the cultural incompetence, practical indolence, and spiritual decay of the entire Middle East stems from Richard Coeur de Lion’s twelfth-century swordplay.
Stop it! All of you! And try reading a book or two on the subject. Meanwhile, here’s a starter course in the vast tragedy jihad has posed for every civilization it’s touched for the past 14 centuries — while the Crusades mythologized by Islam’s apologists were a two-century blip whose only practical legacies are a few ruined castles.
Responding to the conquest of Christianity’s birthplace and jihad’s westward thrust, the Crusades were an effort not at imperial conquest but at reclamation. By dumb luck more than strategy, the First Crusade reached the Holy Land amid local Muslim squabbles. The Crusaders took Jerusalem and made a bloody mess of it, then held the city for less than a century. They never took nearby Damascus, but were confined to a narrow coastal strip and a fragile principality in Anatolia.

Obama demonstrates an example of Doonesbury Cartoonism in history, another layer of bonehead thinking.  We do not expect much from Harvard these days, sorry to say.

Democrats and endless Obamacare hysterics

(AP) — The official sign-up season for President Barack Obama's health care law may be over, but leading congressional Democrats say millions of Americans facing new tax penalties deserve a second chance.
Three senior House members told The Associated Press that they plan to strongly urge the administration to grant a special sign-up opportunity for uninsured taxpayers who will be facing fines under the law for the first time this year.
The three are Michigan's Sander Levin, the ranking Democrat on the Ways and Means Committee, and Democratic Reps. Jim McDermott of Washington, and Lloyd Doggett of Texas. All worked to help steer Obama's law through rancorous congressional debates from 2009-2010.
The lawmakers say they are concerned that many of their constituents will find out about the penalties after it's already too late for them to sign up for coverage, since open enrollment ended Sunday.

In California we have endless, serial adjustments  for No Child Left Behind; and of course, the California Floundering legislature immediately signed up for the same torture with Obamacare. These hysteria, hallelujah sequences are already priced into the economy. This nonsense has a name, Doonesbury Cartoonism. Democrats are afflicted with it.

Let's list the stupids and put them in bold letters, shall we?
Really stupid politicians: Jim McDermott , Lloyd Doggett,Sander Levin

Sunday, February 15, 2015

Come out to California

BOSTON (AP) -- Another weekend, another major snow storm: The latest system to sweep the Northeast brought another foot to Boston - on top of 6 feet that has fallen over the last month - and tested New Englanders who say the winter is beginning to feel like one without end.
Even after the storm, forecasters warned of exceptionally cold air, perhaps the coldest yet of the season. Strong winds expected to continue into Monday reduced visibility, created drifts and complicated an ongoing cleanup effort. Forecasters were talking about another storm on the horizon for midweek.

We have no water,  deserts can be cold; but it beats being buried in the snow.

Saturday, February 14, 2015

Greek multiplier does look greater than one!

Greek government spending down since 2009 and Greek GDP per capita down during the same period!

Greek interest payments did not shoot up until the crisis, and prior to htat were about 10% of government expenses.  So, I give this one to the IMF, who said they have a multiplier of 1.3.

So what happened? Greece is a small nation trying to live among France, Germany and Italy.  These heavy weights can carry long term debt, Greece cannot. Term mismatch, and it happened because the ECB is not a fair currency bank.

Multipliers tell us how symmetric and centered is the correlation matrix, it says nothing about whether the economy is nutty or sane.  Greek is more like an independent Los Angeles County, the optimum economic unit, in Arnold Kling's view.  They will have high and stable correlations with the economy, efficiently bad or good; but efficient.

Keynesians, of course, will misinterpret this, trying to work backwards from the aggregate.  But in Greece, the people know what the government can and cannot do, the imprecision is already established in the correlation. So a Keynesian working from the Greek government out will just foul up, and mostly be ignored.

Amazon almost getting it right on currency

It taking us a bit of learning, but we will get private currencies right. More below the link.
Despite the failures of Facebook Credits, Microsoft Points, and the dot-com virtual currency Flooz, Amazon has decided to mint its own money. The ecommerce giant announced today that customers will soon be able to use a new virtual currency called Amazon Coins to buy apps and make in-app purchases in the awkwardly-named Amazon Appstore for Android on Kindle Fire.
Gamers loathe this practice
Customers tend to dislike, nay abhor, the unnecessary process of transferring between their home currencies and virtual tender — just look at Microsoft, which forces customers to spend $1 to buy 80 Microsoft Points in order to make purchases in the Xbox Live Marketplace. With the Nintendo Points system, customers must buy a different set of points in order to purchase games for the Wii versus the handheld DSi console. Gamers loathe this practice, which at the very least forces them to do math before they can tell how much a rental or purchase truly costs.

Amazon can tie its currency to the dollar simply enough by rebranding them as discount coupons, and discount coupons have worked for a hundred years, just fine. The key to discount coupons is simple, the gain from better inventory management exceeds the discount.

Amazon can increase the utility of the discount coupon by offering rates, using variations of the Hyperbolic banker. The point of the hyperbolic banker is to identify the unit of inventory variance, normalizes to one, then force enough coupon money through the system so sellers and buyers can adjust inventory and price. The gain is simply that surprise inventory imbalances can be handled with forward and backward insurance. The insurance rates revealed to all parties, including the coupon banker, at the same time. Hence all parties have the ability to move forward or backward inventory to suit their peculiar circumstances; and no party has the arbitrage.

Nor does Amazon want all of its prices denominated in coupons, only the typical inventory variance from planned stocks.  

It is as simple as understanding that the role of counting accurately is the value added. When one party or the other attempts to get the edge with advanced knowledge then the utility of the currency drops.  Amazon, being a 100% on line vendor, is in the best position since the ease of saving and borrowing coupons is as simple as a purchase on a credit card.

Where Amazon has to be careful is from its position as a general purpose distributor. Not all inventories are a connected, additive network similar to Wal Mart, which has centralixed inventory management.

Here is an app developer explaining the issue:
Kevin Galligan, an organizer of the 969-member New York Android Developers Meetup and president of Touch Lab, an Android development agency, said his reaction to the Coins announcement was mixed. "Anything that’s going to help Android monetize anything at all is good," he said. "But how do you get Coins? They don’t go into that. If you have to buy Coins, then I don’t understand what’s the difference between that and money."
Exactly, the difference has to be this: Money is used worldwide for everything, Amazon app discounts can be used for apps, and apps are a connected market. So apps, being a small part of the total economy, want a small variance in distribution to match, thus app developers can separate out the price variations for apps from the price variation for shoes.  Hence, Amazon can set up savigns and loans accounts just for app purchases. Without fear of arbitrage, app purchasers, app developers, and the neutral app banker can meet on common ground. Those deposit and loans balances tell all partier, equally, the correlation of prices due just to apps alone.

Amazon's Next Step:
Take the hyperbolic banker concept and experiment off line for a few days. I just started, and just figured out that accumulant rates, not money rates, are key, but have not gone much farther.  A day or two and Amazon can have it worked out and app developers and game developers will be thrilled.

This works, Amazon needs to do this and pay attention to variance, separated between its internal and external components.

Ancient image of Muhammud revealed

Muhammud doing the dance of joy

Krugman and shoe sales vs growth

Anybody confused? Government spending is the blue line,  real growth is the red line.  Any questions? Look at 1975, a worse pattern. Or 2000, government spending on the rise and growth down. Can we find the opposite? Sure, go back and look at 1981.

Here is  Paul Krugman's  chart:

That regression coefficient is crap, and we do not know which countries lie on the lower left. And we expect  normal growth to include government, and shoe sales,  right along with it.  We have a gaussian blob that matches growth with growth. Try this:
Plot shoe sales vs growth.  If you see the same pattern, then you can be sure Paul is bad at statistics.

And worse:
Take a look at recessions and what do we find? 7/8 of the time a recession falls within two years of a presidential regime change in the USA.  How in the frig is that possible? Why would recessions always line up with presidential elections? If DC were useful in preventing them then one might think that recessions would be quite random.  Anybody hear anything from the dim bulbs at UC Berkeley about that? No, they do not do anything that might violate their priors, a complete waste of California education funds.

What are his other claims?

Deflation goes with zero bound? Give me a break, deflation goes with worn out central banking models. Try the obvious, when bad banking models are common place, banking networks shrink and money dries up and we get deflation.  Apple farming works the same way, when apple farmers are for crap, apples disappear.

Keynesians have not told us a damn thing new in the 80 years since the English dandy educated a bunch of ignorant American economists. Dim bulbs at UC Berkeley might tell us something new about economics, for once, rather than quoting their priors. Otherwise, why taxpayers paying them?

Friday, February 13, 2015

The hyperbolic currency banker equation, reposted

The continuing work on currency banking.

Loan and deposit net balances are the objective function.  The currency banker always drives some fixed percentage of the economy through the banking system from the short end.  No matter what happens, bankers are forced to get involved, they can lever leave the scene of the crime.

Here I just through a cycle change in economic growth, and let the banker function recompute accumulation rates on deposits and balances. The ratio of short balances to total balances is 1/10, the net liability normalized to 1.0.  Accumulation rates are about 2% in this. So we see the currency banker balances shifted as much as 2% over the 15 period sequence (about four years). The driving function was simply an increase in bank activity. The response is white noise, and I am still looking at different driving functions.  The currency banker keeps one units of deposits more than loans, he keeps the member banks busy finding investments. So the banker activity should grow and shrink proportional to economic variance.

Accumulation rates  set deposits and loans balances for the forward period.  The currency banker wants net balances to sum to a normalized percentage of GDP, which I call 1.0. The actual cost of money is a derived value computed one period late.

The currency banker looks two periods ahead when setting rates. The equation becomes becomes:

D*(1+d)^2 - L*(1 - l)^2 = 1.0, where d,l are rates and D,L are liability and asset balances.  D for deposit and L for loan. So deposit liabilities minus loan assets are driven to a fixed percentage of GDP. Rates here are   accumulation functions.  The net balance is a currency banker liability to the economy.

Thus deposit balances accrue and loan balances decay..  Net balances are normalized to the unit percentage of GDP, at two look aheads over the term period is selected.  So we see how loan rate was redefined, it is an outstanding balance reduction at a fixed percentage. The banker makes the net balances come to a 1.0 at the look ahead.

The rates are set independently so that balances match.  Why did I pick a two period look ahead.  First, I know the hyperbolic form is correct, and second the banker wants to stay one step ahead of the economy.

At each step set: D = 1/(2d) and L = 1/(2l), and at equilibrium, D = LD and L will accumulate as agents react to economic changes, and the banker chooses the appropriate moment to reset rates. There is a scale factor in the balances, D,L. which is the percentage of debt allocated to the short end.  The currency banker takes losses during growth and takes gains during recessions, so prices will be stable around zero inflation.

What are these rates again?
The rate on deposit includes rate to be earned on current deposits . The rate on loans includes rates  to  decrease in loan balance.  Actual rate cost of money is backward derived from the previous period, not known to anyone at the moment.  This will produce the Black-Scholes no arbitrage result.

After accounting for rates paid in and out, the system always tries to project a net liability of the currency banker equal to some tiny portion of the economy.

Are currency banker term structure fixed?
The currency banker operates at the quarterly rate, likely.  Member banks are forewarned that rates may change quarterly, but they can always see the balances and know when and how.  If the economy engages in longer term invesing, then the rate variation will be small.

What about prices?
Inflation in this thing should be zero with a fixed variance. I have not quite verified this.  But the debt flow system should be no arbitrage and obeys the theory of everything.  Debt flow will of necessity be log additive so Lucas numbers will apply. Also, I am pretty sure this system eliminates the equity premium and r will equal g, mostly.

Anyway, this is what I am playing with on my spread sheet.  It makes no attempt at stimulus. But the net effect is bankers always off their butts doing something . I am pretty sure I have this right, I have confidence in hyperbolic banking.

How does this relate to Schramm-Loewner?

I would think the ratio of total debt to short end debt is the Schramm-Lowener index.  That ratio determines the dimensionality of motion of the economy. And that should also be related to the Compton spectral match between mass and wave.