Like New Years Eve

One of those moments in history, not a big moment, but a fun moment, worth a bit of fireworks.

Energy arbitrage is back in California

California slants retail prices backwards then what one expects from supply and demand theory. They add other energy regulations and differential pricing that have made the arbitrage game come back. Whatever government favors, in its price control, is satisfied first in the market. government controls  Gray Davis did it, the California legislature is always price controlling energy. So I have sales people knocking on my door, wanting me to sign up as a wholesale buyer, that is, I buy through them because my first batch is cheap, then they make up the price competing with the second half of the sales cycle, the side not price fixed.

I call it the cul de sac market, California does it all the time.  They enforce quantization, large sales amounts, because of a price/volume guarantee.  Then the last part of demand is mame from marginal producers. Analyze this and all other trade channels using the minimum number of transactions optimizer, and you can see how price regulation causes transaction size and transaction rate changes in energy flow.

Here is the fundamental problem, energy is more liquid than government regulation and control.

What is the point of fair voting?

Because political districts match in size and bandwidth. That means elected officials from each district speak the same language. There are two political languages in the USA, small state and large state; and the Senate is barely bilingual. Its a real problem, a real multiplier less than one and it is becoming unavoidably obvious as California fumbles Obamacare. California is converting a huge, national sized health care system into what? An overlaid huge national healthcare system? Costs will be nearly 60% higher than either of the separate systems by themselves would have been. That cost will hit California first, then bounce back and crap out the whole system.

If we had slightly more fair Senate voting then the mismatch between this huge California and those small states would not exist.

More Republican Tea Party welfare bums

Listen to these Weiners, all complaining about how government should be the perfectly assuring nanny. All of them cowards, unable to deal with a little uncertainty. And who do they represent? Companies who make their dime on government welfare. Sick little Communist assholes, all of them, not a libertarian bone in their body. Notice none of these idiots mentions once the fact that having a malproportioned Senate may be the source of the problem. Lydia DePillis assembles the quotes, I provide commentary.

Let's go to the tape:
"I believe our mission as legislators is to liberate our economy from the things that impede growth...to provide clear policies, so that innovators and entrepreneurs have the green light to move forward and create jobs, without having to worry about second-guessing from Washington." - Rep. John Boehner (R-Ohio), May 2011
The definition of en entrepreneur is simple, if you have democracy, good enough. - “Uncertainty is the enemy of our prosperity." - Rep. Mike Pence (R-Ind.), December 2010
Pure Communist nannyism. "The biggest problem I have, Hugh, is we don’t need a temporary economy, which means we don’t need a temporary tax rate. A permanent extension of our current tax rates would allow businesses to plan five and ten years in advance, and that’s how you build an economy.” - Sen. Jim DeMint (R-S.C), December 2010
Barking for the socialist corporations who want hand holding from DC.

- "What I hear businesses saying clear as day is that when they are uncertain about the action of government in areas of regulation and tax reform, it creates a barrier to job creation. The uncertainty lies in areas of cost projections; it slows operations and stifles growth." - Rep. Phil Roe (R-Tenn.), February 2011
You hear businesses demanding that government be at their mercy because they might screw up.

- "Businesses need certainty and employees deserve to know their jobs aren’t at risk because of ill-conceived federal regulations." - Rep. Marsha Blackburn (R-Tenn.), March 2012
Workers vote you idiot. They created the problem. Are you saying voting is undemocratic?

- "The current pervasive lack of certainty across this country is having a remarkably negative impact on our economy and on the general trust the American people have in Washington. - Rep. Tom Price (R-Ga.), February 2012
No, uncertainty has a perverse effect on cowards and chickens

- "When I'm out and about in Ohio, the job creators want real certainty, they want the lay of the land. We just had a hearing on this today, and our panel of experts said if you keep increasing regulation, and you keep having temporary fixes, you're never going to fix the underlying problem, which is the uncertainty that exists in our market today." - Rep. Jim Jordan (R-Ohio), September 2011
Boo Hoo, I don't know the future, will government hold my hand

- "Job creators across this country have made clear that resolving policy uncertainty in Washington and reducing the costs of government rules, regulations, statutes, and barriers to trade are some of the most effective things that a Republican controlled House can do to lay the groundwork for economic recovery and job creation." - Rep. Eric Cantor (R-Va.), November 2010
No, the lack of democracy causes burdensome regulations, and you are undemocratic.

- "We must do everything possible to get government to reduce both taxes and stifling regulation so that small business owners have the confidence and certainty they need to invest in their businesses, expand operations and create real jobs." - Sen. Mike Lee (R-Utah), October 2010
Where is the speech about6 getting undemocracy fixed in the Senate?
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/09/30/remember-when-republicans-were-worried-about-economic-uncertainty/

Welfare bums, every damn wing of the Republican Party, creepy welfare bums.

Republican Welfare Bums

On Saturday, two moderate Republicans voted against amending the continuing resolution to delay Obamacare for a year, including its mandate that employer-provided health plans cover contraception. One of those representatives, Rep. Richard Hanna (R-N.Y.), told Business Insider in an email, "as a lifelong and consistent supporter of women's rights and health care, I do not support addressing divisive social issues such as access to birth control on a last-minute continuing resolution." On both food stamps and Saturday's CR vote, moderates didn't have enough votes to stop the House from pursuing an agenda driven by pressure from outside conservative groups. If King gets his way tonight, we'll have found the force that can stop the Jim DeMint takeover of the House GOP. Read more: http://www.businessinsider.com/government-shutdown-moderate-republicans-revolt-boehner-defund-obamacare-2013-9#ixzz2gQ87U5sN

Moderate Republicans, cant get out of bed without the government's helping hand.

Child Molester shakes up Italian government

They may have been all smiles back in April, but underneath lay an uneasy coalition, and one which is now on the brink of unravelling. Ministers of Silvio Berlusconi’s centre-right PSL party are to resign from the Italian government. It comes in response to Prime Minister Enrico Letta’s request for a confidence vote next week, if fiscal measures were not agreed. It also makes good on a promise to resign after Berlusconi’s Senate seat was threatened following a conviction for tax fraud. Letta’s ultimatum came on Friday after the cabinet failed to agree on measures to bring the budget deficit in line with EU limits. It appears the centre-right pre-empted Letta’s resignation citing the tax hike as the reason, which did not go down well with their centre-left PD coalition partners. Euronews

Of course their yields on government debt went up about a half point. Italy will screw this thing up.

California taxpayers spend 1 billion on Obamacare outreach

“The Obama administration [ read California taxpayers] granted a whopping $910 million to California to set up its insurance exchange,” according to Betsy McCaughey, Ph.D. McCaughey is a constitutional scholar, a patient advocate and health policy expert, and a former lieutenant governor of the state of New York. She explained, “That money is not for bandages, surgery, nurses and doctors to care for the sick. Nor is it for insurance plans, though $910 million could buy generous coverage for at least 113,000 people!” The $910 million was targeted not for actual health care, but for bureaucratic spending. McCaughy said this included $360,000 a year for the executive director, and other rich compensation packages for exchange employees. Anything and everything can be defined as “outreach.” Calpolitical Review

This is California. Little of our HSR funds have been spent on trains, most of it goes to political handouts. NCLB spends its money on administration. Darrell Steinberg constantly complaines about Obamacare attracting sick patients to the state. Ed Schultz wants unions exempt. And now Ca pols want to spend Obamacare taxes on favors and corruption. Who coulda known?

Ed Schultz: Join a union, skip Obamacare

SCHULTZ: Believed the president that you can keep it. You can keep it. And eventually their rates will come down. See, this is dealing with an agree-, the unions are a little, uh, toasty under the collar about Obamacare, not willing to throw the baby out with the bathwater. But they believe that what they negotiated for should not be affected at all, and I go along with that! That's the private sector at work. That's freedom. And I think that there's an easy solution to this as I see it. All the administration has to do is say, OK, if you're in organized labor in this country, you've got your own exchange. Go do your deal. I mean, that's the best way to do it. It's the absolute best way to do it. And right now the benefit, the negotiated benefit in many contracts for union workers in this country is so good, it puts them into an area where they may end up paying a little bit of tax on it. Well, that's not good! But that's fixable. That is very fixable. Read more: http://newsbusters.org/blogs/jack-coleman/2013/09/27/ed-schultz-wants-unions-exempt-obamacare#ixzz2gOoENv7q

Workers of the World unite with their own health care unit. Perfect, attack Obamacare from the union left. I love it. Then when all the Undemocrats are exempt, they can blame Obamacare failure on Republicans.

UBS, the Swiss bank delevers

UBS Said to Seek Bids on $800 Million of Distressed Company Debt

Chief Executive Officer Sergio Ermotti is reconstructing Switzerland’s biggest bank, retreating from capital-intensive trading businesses and focusing on its wealth management unit as regulations from the Basel Committee on Banking Supervision require more capital for some activities, cutting profitability. UBS, bailed out by the Swiss government during the 2008 financial crisis, announced plans last year to cut 10,000 jobs and scale back its investment bank.

That is, they will focus on structure, not flow, otherwise known as delever.
Then we have Cramer, who speaks for the retail investor:

Uncertainty in Washington has created a situation where it is simply "not prudent" to buy most stocks right now and investors may be better off staying on the sidelines, CNBC's Jim Cramer said. "I'm searching for why the market isn't down more, because it just reads real bad," Cramer said on "Squawk on the Street" Monday. "I think you can sell in October and then buy at the bottom in November. Every one of these sell-offs have given you a better opportunity to buy." (Related: On the brink: Senate to meet as shutdown looms ) "I just think for those that are trying to be prudent, taking cash off now - [and] betting a week from now that there will still be a lot of rancor - is a good bet, not a bad bet," he said. "This is one where all of us are way over our heads, including, unfortunately I think, [House Speaker John] Boehner and the President." CNBC

Lets watch the market and see if his advice sticks.

Fermions queue up, Bosons don't

When I view atomic physics from the queueing theory, the Pauli Exclusion principle says we can serve one customer at a time. That gets a fermi-dirac distribution for the type of check out counters a store might have. But what kind of energy does the grocery store emit when it changes its check out counter distribution? Evidently, during the retool, some customers get left behind and walk away with free stuff. Why did God do that to the physicists?

No kidding?

Obamacare

Some 240,000 California workers are in danger of losing hours (and the wages that go along with), according to a study by the UC Berkeley Center for Labor Research and Education, because of the new Obamacare mandate that employers with payrolls of 50 or more workers must provide health insurance to those working 30 hours a week or more.

The 2.3 million workers identified as at greatest risk for work hour reduction represent 1.8 percent of the United States workforce . This is consistent with the research on the impact of Hawaii’s health care law on work hours. Hawaii requires firms to provide health insurance to employees w orking 20 hours a week or more, so t he cost to employer s for full - time workers are much greater in Hawaii than under the ACA , while the hour threshold is lower. Buchmueller, DiNardo and Valetta (2011) found a 1.4 percentage point increase in the share of employees working less than 20 hours a week as a result of the law. 4 In Massachusetts, where the employer penalty is smaller than in the ACA ($295 per year), there was no evidence of a disproportionate shift towards part - time work compared to the rest of the nation.

And

And while California actually was outpacing the U.S. rate of job creation earlier this year, with payroll growth of roughly 2 percent, as the Los Angeles Times noted last week, the Golden State’s year-over-year rate of job creation was 1.5 percent in August, which actually was lower than the nation’s rate of job creation.

Joseph Perkins

Obamacare techies thankful for the shutdown

I speculate here. 

They want more time to test and roll out.  The shut down does not give that to them immediately; but it gives them time to go home, relax and think about it.  Likely the best advice to give on the eve of a shaky roll out.

What determines the Democratic vote on Wall Street?

The stock bubble.  A Wall Street broker that hasn't gotten out of stocks loves Obama, Ben and QE.  But once they escape they become libertarian gold hoarders.

A chart sure to confuse the Undemocratic Party

The vertical axis shows a Congressional district's population density (the number of people who live in each square mile). The horizontal axis shows the district's Cook PVI score, which is really just the proclivity of the district to vote Democratic. The pattern is clear, Congressional districts with low population density (rural) are much less democratic-leaning. As the density rises, the inclination to vote D rises fast. Business Insider

Interpreting this chart illustrates one of the great misperceptions about American politics. The naive look would say that dense populations get greater economies of scale from government programs. It would make sense, the mass delivery of government goods is cheaper when the recipients are all co-located, agglomeration effects.

But that is only half the story. Agglomeration of federal programs works in dense populations because federal facilities can be efficiently built there, instead of DC. In other words, the gain comes from distributing federal facilities out from the center. Rural pupulations much prefer to co-locate federal facilities in DC, where the economies of scale can be justified. And that makes the large state/small state difference plain. Small states prefer concentration at the center, contrary to popular believe, but the amount of concentration in DC is limited, and so the expansion of federal programs is limited.

Democrats are completely confused and disoriented because they forget that expanding federal programs into dense populations tends to make DC more of a banker, and less of a distributor. The Democrats typically work contrary to their own constituents needs when they mistakenly believe more government makes for more DC.

Portfolio Compression

John Hussman posted this chart. He calls it log periodic behavior. What he means is the short term variations are imposed on exponential asset growth. The exponential asset growth results from the compression of of the curve by the fed.  Consider the equivalence between bonds and equities, the stable dividend yield should be comparable to an equivalent bond interest rate.  What equivalent bond would that be?  Well we know the relationship between transaction size and transaction rates meet the optimum flow conditions at equilibrium.  So, large cap stocks should trade less often and in larger amounts then small cap stocks.  The  yield curve of a stock portfolio matches the yield curve of the fiat banker. Small cap, frequently varying stocks on the left, large cap slowly varying on the right. If the curve drops, the equity prices rise to make dividends match rates. If equity prices rise, that means they must match lower rates and move left on the curve.

What have small cap and large cap stock been doing in the last five years? The small cap, SP600, increased by 10% annually over five years, the large cap. SP500, by nearly 7% over the period. Both are moving left on the curve, the small cap occupying more of the trade space relative to large. The Fed has kept the curve steep and compressed, and all the stocks want to operate to the left of the knee, where money is cheapest. But there is not enough space for them all, portfolios will have to delever, drop dimensionality to get them all to fit.

The Feds efforts to pump come with a cost, less trading space and reduced dimensionality (increased economies of scale in the market).  The large brokers will delever, reduce the number of classes in their portfolios.  That will cascade and cause a bubble collapse.

This abstract has a missing sentence

The Growth of Modern Finance*Robin GreenwoodHarvard Business School and NBERDavid ScharfsteinHarvard Business School and NBERJuly 2012

Abstract The U.S. financial services industry grew from 4.9% of GDP in 1980 to 7.9% of GDP in 2007. A sizeable portion of the growth can be explained by rising asset management fees, which in turn were driven by increases in the valuation of tradable assets, particularly equity. Another important factor was growth in fees associated with an expansion in household credit, particularly fees associated with residential mortgages. This expansion was itself fueled by the development of non-bank credit intermediation (or “shadow banking”). We offer a preliminary assessment of whether the grow the of active asset management , household credit, and shadow banking – the main areas of growth in the financial sector – has been socially beneficial.

All 51 pages of the report may be fine and dandy, I dont know and I am not reading it. They missed something in the abstract, namely what is the relationship between financial growth and the rise in federal debt to nearly 100% of gdp over the same period.

There may be no connection, there may be a theory of neutral government debt; but the potential connection has to be addressed, dismissed and noted in the abstract. Otherwise, to the uninitiated reader the response is 'Say What??

Jared Bernstein is barking up the same old tree

More on Dysfunctionology: Minority Rules

… gerrymandering is clearly implicated. The fact of “safe,” noncompetitive districts…robs the political process of a disciplinary force, where members could conceivably be held to task for shutdowns and defaults.

He is back to micro-managing Congressional district boundaries. Jared is a government economist, fully committed to DC, where, among other thing, the Senate boundaries are 100% undemocratic and 100% gerrymandered. Most of what goes on in DC is about working around the Senate problem. So government economists always pick on the House, frightened to take on the big task least their puny career opportunities disappear.

Out here in the stronghold of the Undemocratic Party we fully appreciate that our One Fifth Senators are mere affirmative action ambassadors to DC. We get the barrage of disruptive programs from DC cost us 25% extra on our taxes. We know the Undemocrats have created an apartheid government. And we are 15% of the populations.

Bill Maher is not so smart

Bill Maher:

Since then (Dems got a majority) , everything Republicans say can't or won't work -- gun control, immigration reform, high-speed rail -- California is making work.

Let me consul wiki on gun violense. Texas has a gun ownership rate near 40%, California near 20%. Gun murders rates are about the same between them.
Let me consult Fred on unemployment rates: Whoops, Texas is two points below California and the divergence is increasing.
What is happening on choo choo? It is my backyard, let me be the expert here. The friggen thing is an absolute disaster. I noticed Bill lives in the LA Basin, which obstained from building Choo Choo.

Measures of inflation

The graph has producer, consumer and dollar inflation (deflater).  The red line is what producers pay for inputs. That line hits a ceiling above which producers cannot realize gains. But consumer prices rise with the implicit deflater, mainly because that is what the Fed keeps an aye on.  So clearly there is no growth, producers are just adjusting prices to match the deflated dollar.

California's worste apartheid rule, seriously

A racial majority can overturn a fair election if a minority won.

I kid you not, apartheid is enshrined in the heart of California law. This is one of the reasons we must seriously consider, could a California politician cause the end of all events, universally?
You know, John C Fremont damn near caused the Civil War single handedly. Take a close look at the lead up to the civil war, and follow this character. John Fremont, one of the villians from California. I think California could very well collapse the union.

I have decided my reparations for being a supressed anglo in California

My people, the anglos of California, have suffered  300 years of Spanish tyranny, some of suffer as far away as Sweden. In California, they have named our town after Catholic Saints!, even our roads. They impose this Spanish tile architecture upon us, disturb us with their soccer, and make us say things like, Que Pasa, and Hey amigo, was up.  And they don't do enough crossover pop. but the guitar and dance is great. Generations of tyranny and oppression upon the anglo people.

I hereby agree to accept a full apology, and a $1,000 gift certificate valid in any Mexican food restaurant in the state of California.

In the annals of California history

I bet I could name ten historical California political leaders who have caused the most harm to the nation.  Seriously, over the history, bonehead Californians mucking about in DC, causing havoc.

Initial Claims, the SP500 and Joe Weisenthal

At Business Insider, Joe Weisenthal likes this chart.  The red line is the inverse of unemployment claims filed, it tells who got laid off recently, but its upside down.  Thus, up means good for workers getting jobs. The blue line is the SP500. Like Roger Farmer says, when stocks are up, people keep their jobs.

I have a couple of questions for Joe, however. Joe thinks the third spike is good news.  But the only difference between the third spike and the previous two, is that the third spike has not yet crashed.  But it obviously will! Why is this good news?  Why would any fool jump into the market right now?

I guess my second question is what has been going on before 2000 when the two did not track? That, by the way, is the period in which we were not yet debt constrained, now we are.  It is rather funny that the correlation picks up when we are debt constrained.  Roger Farmer, earn you pay and explain this please.

Kocherlakota sees no bubble

Mr. Kocherlakota is a non voting central bank board member. Kocherlakota speaks:

First, I will show you data that depict the painfully slow pace of recovery in the U.S. labor market. Second, I will show you data that demonstrate that there is considerable monetary policy capacity with which to address this problem.

Now, the word is that Mr. K has not explained exactly how the central banker can reduce unemployment. Some pundits thought that odd, proposing a policy he has no clue about.

The closest connection between employment and Fed actions  is Roger Farmer who linked the stock market to employment, showing a clear relationship over 70 years. I did not look at Roger's data yet, but it seems plausible, and further we know that the current central banker policy relies heavily on stock market asset values rising.

Well, Mr. K, you have to get another 1% reduction in unemployment rate by boosting those blue and red lines.   Then what? Do those blue and red lines stay where they are? No, they are going to collapse if the history over the last 15 years means anything.  Tell us more Mr. K, tell us how you avoid the collapse.

Binding arbitration in public sector unions

Public officials required to submit to binding arbitration.

Public Sector Inc The continuing budget crisis in states and cities has prompted some notable reform efforts, including pension and health benefit cuts that begin to address long-term problems. But one expensive mandate that's gone almost completely unchallenged has been binding arbitration, the process by which unelected arbitrators get to rule on pay and benefits for workers when unions and government reach an impasse in contract negotiations. In many places around the country, binding arbitration has been slanted to favor workers and drive up costs. In testimony before California's Little Hoover Commission, San Jose Mayor Chuck Reed, for instance, described how arbitrators helped to spread the pension mess that now affects many California cities by granting rich pensions in places where city officials balked at the cost.

Reed noted that an outside arbitrator in 2007 increased San Jose firefighters' pension maximum from 85 to 90 percent of final compensation and made the change retroactive to the day the firefighter began working for the city. On a going forward basis, this benefit increase would have cost San Jose $5 million a year, Mayor Reed said. By making it retroactive, the City of San Jose, and ultimately the taxpayers, was faced with a $30 million unfunded liability for the prior service cost. "Historically, arbitrators come into town, spend our money and leave," Reed told the commission.

Which numbskull governor tried to enforce binding arbitration? If you thought Jerry Brown the youngster, you are wrong. It was Gray Davis, that same bozo who was thrown out of office for being dumber than Arnold, a hard feat indeed:

High Court Throws Out Binding Arbitration Law LA TImes Public safety workers' unions lose key case before state justices. April 22, 2003|Maura Dolan | Times Staff Writer SAN FRANCISCO — California cannot require city and county governments to submit to binding arbitration during labor disputes with law enforcement officers and firefighters, the California Supreme Court ruled Monday. The unanimous ruling -- a victory for local government officials -- struck down a 3-year-old law, which was sponsored by Senate President Pro Tem John Burton and signed by Gov. Gray Davis. The justices ruled that the law, which had been sought by labor unions for decades, violated the state Constitution.

Thank you to the California Supreme Court.

Obamacare whoops

While the D.C. Health Link will launch a Web site on October 1, shoppers will not have access to the their premium prices until mid-November. The delay comes after the District marketplace discovered "a high error rate" in calculating the tax credits that low- and middle-income people will use to purchase insurance on the marketplace. The insurance marketplaces, if working as plan, are supposed to spit out an estimate for a tax credit after a shopper enters in some basic information about where she lives and how much she earns. In the District, that won't happen next month. Instead, the eligibility determination will be made "off-line by experts" by early November.WA Post

Well, we know California's technology is a disaster, by definition. So, DC is going to take the heat.

Jackass punditry

My specialty has a great advantage, none of the economists or pundits want to acknowledge me. So, if I look carefully at an economic report, I need only find something wrong, then bitch. The economics profession will formalize and deal with any truth I might uncover. They won't ask me to clarify, I am too much of an ass for that. So they have to do deal with my complaint on their own. Then they have to be careful of repeating some dumb error lest I go berzerko on them. I mean, what's the point of an internet blog if one cannot be a jackass? I take special pride in uncovering bonehead Republican socialists, I love that. Then hitting my local California pols and newspapers for serial stupidity, time and again. Eventually they get the message. I see no other way to do it. I am certainly not going to do complete analysis on a volunteer basis.

A sign of the abyss?

Zero Hedge watching consumer spending:

Via Bloomberg,

Wal-Mart Stores Inc. is cutting orders it places with suppliers this quarter and next to address rising inventories the company flagged in last month’s earnings report.

...

U.S. inventory growth at Wal-Mart outstripped sales gains in the second quarter at a faster rate than at the retailer’s biggest rivals. Merchandise has been piling up because consumers have been spending less freely than Wal-Mart projected...

Unusual times. Reprots of greater growth ahead, combined with a retail sales collapse. Hmm...

AEI wants to know the relationship between growth and interest rates

James Pethokoukis

What explains bigger debt but a smaller debt burden? An economy growing faster than the debt. Slow or falling nominal GDP growth is what creates debt problems. As Scott Sumner wrote about the euro crisis:

Lots of news articles on the eurocrisis focus on the sky-high interest rates now being paid by the Spanish and Italian governments, roughly 6%.  But I rarely see people pointing out that until a few years ago 6% interest rates on government bonds were completely normal.  As was the 70% ratio of public debt to GDP that you see in Spain.  So why is this interest rate now such a crushing burden?  Simple, in the old days 6% interest rates were accompanied by much more robust NGDP growth rates.  The problem today in the periphery is that NGDP growth has collapsed.

James says we need to understand the relationship between growth and rates. It is not clear that DC is bankrupt if GDP growth goes faster than interest rates; DC can make up in taxes what it needs to cover increased debt charges. But, and a big but, growth has been slowing as DC debt increases since 1980. Hence, the best assumption we can make, unless new information arrives, is that growth continues to decline, or stays near zero. And that is the null hypothesis.

Why didn't Ben taper?

Theories abound. Here are the theories I have seen
1) A taper will cause the SP500 to crash.
2) Interest costs would be out of control in DC.
3) Interest rates would cause bankruptcies in  municipal bond market.
4) Janet is a money printer and stopped the taper.

Who knows? When Ben writes his memoirs we will know.  But I suspect all three things might happen at once.  This all ends badly.

Interest rate historically low?

Here is a plot reproduced, showing absolute interest costs relative to debt,the effective rate DC pays for money. And the red line is real gdp growth compounded annually. Yglesias says rates are historically low, is that correct?

Yes, actually. Ever since the crash DC has gained in interest savings relative to taxes, we presume, so they prefer to borrow. What is missing in the picture is the response of short term rates, they should respond higher when DC is getting cheap money.  If not then we get a stock market bubble, like the humongous monster we now have in the SP500, which is about to crash as market leaders delever.

A judge muddies the waters on public sector contracts

Ruling could hike state liabilities San Diego Union

SACRAMENTO — California's public-employee unions scored a key legal victory this month that will make it far more difficult for local and state agencies to rein in the growing debts to cover medical-care promises made to their employees. Such costs are even more ominous than unfunded liabilities for pensions, according to state Treasurer Bill Lockyer. Los Angeles County Superior Court Judge Luis Lavin ruled on Sept. 13 that the city of Los Angeles may not freeze health-care benefits for some employees. Facing a fiscal emergency, the city told its attorneys, engineers and architects they could receive a capped health-care subsidy or contribute 4 percent of their salary to cover the benefit, according to news reports. The groups' unions took the matter to court. The resulting ruling is a setback for statewide efforts to rein in public-employee costs, and is the expected consequence of a 2011 state Supreme Court ruling that can place non-vested health-care benefits on the same footing as vested pension benefits.

One judge making a rule has now increased substantially the bankruptcy risk for all the municipalities in California. Another ruling onthe matter is coming from San Jose. It seems labor contracts for California cities are now in the hands of judges, but isn't that the bankruptcy process?. Does it matter if the city waits for bankruptcy, then goes to court? Same process, the name is bankrupcy.

Jonathon Alter compares apples to oranges

As New York Times columnist Charles Blow has noted, a new CNN/ORC Poll shows that while 35 percent of the public (the conservative base) oppose Obamacare because it’s too liberal, 16 percent oppose it because it isn’t liberal enough. 
In other words, 59 percent of the American public either supports Obamacare or wants it to go further. John ALter

Would our prefer ACA or free anti-gravity machines? That would be a stupid survey question. But what these pollers did was not much different, they ask: Do you want to replace what we have with something we do not have. One cannot make a valid survey by having two choices, one based in reality and one based on the Theory of Things that Never Happened.

A better phrasing:

Would you rather ACA work through the state exchanges or should all states simply use the exchange in DC?

That question compares apples to slightly different apples, and your results are more accurate, but they still address the point of central government single payer, to some extent.
Anyway the practice of statistical irregularity in support of confirmation bias is universal among economists.

Japanese real growth is screwed up

I show Japan real growth compounded annually. If Abenomics is working, then why is real growth plunging? It may not be, we do not know yet.  Note that real growth is computed out to Jan 2011.  Fred does not have the proper data series to project the deflater out to current measurement.  So, we likely do not know the results of Abenomics until we get a few revisions.  The result, when data settles down, is that Japan will have squeezed more productivity from the work force and advanced technology such that a real growth is possible.  The alternative is that the deflater never settles down, a good sign of a debt crisis.

Senator Cruz is getting a bit libertarian

I listened to his filibuster off and on. He threw out lines about staying out of the affairs of other countries, like Syria. I can see where the old guard socialist Republican conservative might take offense. Otherwise he was quite intelligent, well spoken.

Government spending over the years

I have total government and state+local government, as a proportion of nominal gdp. Since 1980 we see more government to DC and less to state and local. During the crash we see DC budget climbing, in ratio much higher than state and local.  I would say, going back, state and local spending reached its equilibrium around 1975.

What else? It was decreasing during the Clinton boom years! Imagine that. The answer? Get back to the mean of 1975, drop total government another 5% of gdp, mostly from DC, that is about a 15% hit to budget. Wow! But we are only talking about getting it back to Clinton, he had the right ratio.

The Drum/Krugman argument is that we can do it like lil Bush, but without the crash. But we are damn near crashing right now, the stock bubble looks awfully tippy.

OK, then ask the real question. Is this disparity in federal vs local government the cause of the misery? See how erratic the federal portion is? What happens is the large state rebellion, like LBJ, Reagan, Bush; policies that take large state policies and try them out at the federal level.   These large programs look different coming back to the same large state from the feds, they look bizarre, as if they were fit for a small state. Well duh!! Get a clue bonehead governors of Texas, Florida and California. Big bonehead multiplier less than one, political insanity at its worse.

The California Rebellion builds

Modoc County joins Siskiyou in state of Jefferson bid for secession

The Modoc County Board of Supervisors today voted to join neighboring Siskiyou County in its bid to secede from the State of California. Board Chairman Geri Byrne said a measure to join the push to form a State of Jefferson was approved by a vote of 4-0, with one supervisor absent. “I put the measure on the agenda because I heard from a number of people in my district that wanted to do such,” Byrne said. “We’re not saying we’re seceding today, we’re saying let’s look into it.” Roughly 40 people turned out for the board meeting, Byrne said a standing-room only crowd in the Modoc County chambers. About a dozen spoke in favor of the measure with only two raising objections. “This is going to have to be something the people bring forward,” Byrne said. “It’s going to have to be from the bottom up, not from the top down.” The move makes Modoc the second county to join in the fight to form the State of Jefferson in less than a month. Siskiyou County passed a measure to start the secession process at the supervisor’s Sept. 3 meeting.

Nothing like a bit of democracy to scare the Oligarchs.

Teaching UC Berkely the art of division

AEI's Chris Conover claims that, because total national health spending is going to be higher than baseline as a result of the ACA, it is not possible for the premiums paid by those who purchase health insurance to be going down as a result of the ACA. Say what? Right now the premiums of those who buy insurance pay for a lot of the uninsured's medical care. If you broaden the base by insuring more people, you lower the rates that those who are insured and pay for the system pay.Brad Delong

All things being equal, the same amount of medical procedures done to the same group of people, but with a higher cost. The result is the mean insurance payment goes up.  The missing insurance premiums are covered by taxpayers, but they are premiums nonetheless, according to the Supreme court. Right? Did I miss something?
Brad has to talk about medical efficiency, medical results per dollar spent. How is that going up? Brad convinced me to read the AEI report, which says:

The Medicare actuary first issued a report carefully estimating the cost impact of Obamacare on April 22, 2010. Its annual national health expenditure projections reports for 2010, 2011 and 2012 all have contained tabulations showing that Obamacare will increase health spending over the next 10 years compared to a counterfactual scenario in which the law was never enacted.Footnote

Jared Bernstein, we need more than fluff from you

Jared tries to explain what went wrong with democracy in America in:
The Path to Dysfunction

First, and this is not a recommended route back, a number of friends who work in Congress tell me that the absence of earmarks represents the loss of an effective disciplinary measure by which party leaders could keep members in line. The idea is that if party leaders cannot promise junior legislators some goodies for their districts in return for their votes, they hold less sway over them.

Second, gerrymandering is clearly implicated. The fact of “safe,” noncompetitive districts also robs the political process of a disciplinary force, where members could conceivably be held to task for shutdowns and defaults.

Third is new, nonestablishment money. There exists today a toxic combination between record levels of wealth concentration and the devolution of campaign finance rules such that independent and often anonymous donors have much more influence.

I can deal with these three. The question Jared fails to answer is why did we suddenly become democratic immorals since 1980? I mean, if the USA naturally devolves into oligarchy then we have a bigger problem. What could that be?
So, try and figure out something useful. You sound like Robert Reich, claiming this evil force but failing to identify it. He makes a feeble attempt:

But — and this gradual process has reached a juggernaut — it’s not just that concentrated wealth and lax campaign finance means big money can buy the politics it wants. It can also buy the facts it wants.

We are being subject to a conspiracy, long in the making, of big money to control the facts. Frankly, in the era of the Internet this is a whopper. Jared, you fail to mention the most obvious and noticeable fact about democracy, In California we have 54 Congressional Districts and only two Senators. A clearly obvious mismatch which must be dealt with in any essay concerning democracy in America. We cannot help but notice that Jared specifically skipped this issue.

The web bots are reading our newspapers

If policymakers had wanted to see signs of the housing bubble at the time it was inflating, perhaps they should have read local newspapers. That’s one take-away from research done by University of Michigan Ross School of Business assistant professor of finance, Cindy Soo. Ms. Soo used newspaper articles to measure the “animal spirits” in housing markets across the U.S

The web bots are learning to read in general, once they are up to date on what they read, we can just ask them, What's up?

Fiscal Times makes good chicken

Talking about Congress

That would be my hometown

FRESNO, Calif. (KFSN) -- Authorities are assessing the damage Wednesday morning, after an explosion inside a Northwest Fresno apartment.

It happened shortly before 6 p.m. Tuesday night at the Colonia Del Sol Apartments on Barstow near Blackstone. Police say the tenants were processing marijuana when the explosion happened.
The explosion shattered windows and sent debris into the parking lot. Two people inside the apartment were taken to Community Regional Medical Center with serious burns to their legs.
It's unclear if any charges will be filed.

Interest payments as a percent of the federal budget

Here I plot interest costs as a percentage of the federal budget, and also plot debt as a percentage of GDP.  A high growth economy is 1990 - 1998, in which federal interest expenses are 14% of the budget.  Our problem in returning to that norm is that debt to gdp has nearly doubled. All things being equal, one expects interest payments to be about 28% of the federal budget during high growth, and it has never been done. Something has to give.

Things are different today than in Clinton's time because we rollover about 25% of GDP in debt management, and our rollover interest payments go with the average length of maturity.  The average length of maturity has been increasing as we accommodate a doubling of the debt.

Congress is trying to roll a turd way to big, there is no growth solution that balances interest payments and taxes.  It is as if the economy is choosing DC bankruptcy as the least costly way out of the mess.

Banks most likely to cause a crash

“We estimate the amount of capital that a financial institution would have to raise in order to continue to function normally if we have another financial crisis like the one in 2008. This is interpreted as a capital cushion to protect against a decline of 40% in the broad equity market over the six months after this occurs . . .Robert Engle via Big Picture

JP Morgan again, Hmmm... The Fed is stuck in a small space. JP Morgan needs to delever first, before the crash in asset prices. otherwise it is toast. But the Fed needs to wait on its boss, Congress, before a delever happens. The only way to avoid the disaster is a two way negotiation between Congress and JP Morgan, kind of a violation of democracy and a mutual bankruptcy.

Mish doesn't like fractional reserve banking

He says that short term savers sign up for a fixed amount of time. Their money cannot contractually (or morally) be offered for longer lengths of time. I think its an enforcement of property rights. The risk for the depositer, of course, is the economy tumbles and long term borrowers cannot make payments. Variance in bank reserves go up and when reserves go to zero some deposits are lost.

But my question is, lending short and pooling funds that can be lent long might be a good idea to the cash holder, willing to take the risk. They buy short term bank notes in a liquid market, evaluating the risk by looking at the variance in capital accounts of the bank.  Once the bank collects enough short term cash, with reserves, it makes a long term loan. When the market tumbles the short term note is bankrupt.

How is the one OK and the other not?

Deranged Ex VP fails in mass murder attempt

Former Vice President Dick Cheney’s gun malfunctioned before he could get a shot off at an antelope hunting contest in Wyoming on Sunday, according to a local ABC News affiliate. “The Vice President is an excellent shot,” the captain of Cheney’s hunting team said. “He had a gun malfunction. But I think he is so excited and enjoyed this so much. He'll be back next year." Cheney blamed “a small problem with the manufacturer.” 

“I don't take it personally,” Read more:

Whooh, a close call.

CNBC Polling methods designed by monkeys

CNBC Opposition to defunding increases sharply when the issue of shutting down the government and defaulting is included. In that case, Americans oppose defunding 59 percent to 19 percent, with 18 percent of respondents unsure. The final 4 percent is a group of people who want to defund Obamacare, but become unsure when asked if they still hold that view if it means shutting down the government.

Clearly a biased slant on the original question. For example, how would the Obamacare defunding reponse change if they offered to reduce the deficit along with defunding? That would change the survey results considerably. In fact, this CNBC poll was mostly about throwing read meat to the Democrats.

Ask this instead:
Would you stop government for a month if Obamacare had a year funding. or
Would you delay Obamacare by a year to prevent a government shutdown for a month.
This poll determines the relative merits. The anarchist would shutdown government for a month and defund Obamacare, but he is outside the circle.

Fed member Dudley threatens democracy

Reflections on the Economic Outlook and the Implications for Monetary Policy

But, as the degree of fiscal drag and other headwinds lessen, the tug-of-war should begin to shift in favor of higher growth. Absent additional fiscal restraint, a further tightening of financial conditions, or some adverse external shock, I expect the economy to grow a bit faster in 2014.

We have a Keynesian on the Fed! How does Dudley explain the recent spat of healthy growth news in the face of sequester? He has no explanation, and none will be forthcoming from the guy.  He will not vote to taper until his favorite programs are funded.

For example, consider university research spending that depends, in part, on federal grants. As the grant budget falls under sequestration, this will eventually squeeze university budgets over time and likely lead to additional belt-tightening.

He likes university subsidies, so he votes to print money for his favorite projects. Who elected this idiot? This is Yellen in spades, Yellen plans to yell at us until her favorite federal programs are funded. Unfortunately for these two nuts, all they produce is a huge friggen stock bubble which will crash. When we write our epitath we will say, 'Yellen destroyed the economy because her favorite programs weren't funded'

A fellow California ranter

You’d think that the world’s center of computer technology could get its own government computers right. The state government, and many local governments, remain plagued with glitches that would bankrupt any private-sector firm.

The latest: “The Employment Development Department said Friday that about 185,000 of the state’s nearly 800,000 people receiving benefits had been affected, with the department having yet to clear about 80,000 of those cases.

“Frustration flared as the week dragged on, with jobless residents repeatedly dialing the department’s customer service line and failing time after time to reach an agent.”

What a gang of incompetents. The state government forces people into a government-run unemployment system. Then state government cases high unemployment with its policies of sky-high taxes, incredible regulations and incompetent bureaucracy. Then the state’s own computers that are supposed to cough out checks to those unemployed by state government policies break down. What we really should do is fire everybody in government. With those incompetent functionaries out of the way, we wouldn’t need unemployment checks because everyone would be employed. Even the unemployed government functionaries would get honest jobs in the private sector and for once contribute something positive. - See more at: http://calwatchdog.com/2013/09/22/ca-computer-problem-does-not-compute/#sthash.8ymAF0O6.dpuf

Republican Conservative Welfare Bums

Ted Cruz's Threat To Shut Down The Government Is Brave And Principled — And That's Why Republicans Are Upset With Him

Read more.

Truthfully, both parties are crooked. Either party, on its own, would keep the US economy in a low growth mode. They both believe in deadweight government.

Economic opportunity waits for Obamacare

Here's something you don't often see in Washington: a businessman trying to repeal a law that helps his company. That's Bob Funk's latest mission in life. He's the president and founder of Express Employment Services, the fifth-largest employment agency in America, with annual sales of $2.5 billion and more than 600 franchises across the country. This year he will place nearly half a million workers in jobs. "ObamaCare has been an absolute boon for my business," he says as we sit in his new office headquarters near downtown Oklahoma City. "I'm making a lot of money thanks to that law. We're up 8% this year. But it's just terrible for the country. I see that firsthand every day." WSJ

Well that excplains a lot. We have more poor people in California because the California liberals export their crap to DC.

Ted Cruz gets a clue

The Texas Republican [Ted Cruz] accused Senate Majority Leader Harry Reid, D-Nev., of "abusing his power" and using "brute political power to force" the funding of Obamacare with a simple majority vote, a move that allows Democrats to change the bill without Republican support. WA Examiner

Well, Ted, one might think that the issue of a fair Senate vote would have come up in the Texas elections. Did you point out, in the election, ever, that Texas is short about six Senators to make a proportional vote? If fair Senate voting is not an issue in Texas, then Texas voters can suck it.

When the Fed is the first buyer of risk

Brad wants to know why QE is a bad thing.
In a DSGE model, the purchase of risk by the Fed happens independently of other risk buyers.  In a period of moderate growth, the order of the purchase makes a big difference. When the Fed buys the first chunk of risk, then the law of diminishing returns applies.  If the Fed buys the largest chunk of the riskiest assets first, then the seigniorage risk rises. The Fed transforms  interest rate risk into inflation risk. But, wait, you say. Inflation is small.  Yes, but you end up with a few large banks buying risk after the fed take the largest chunk of riskiest assets off the market.  Private banks are buying less risky assets, and their spread is smaller, relative to inflation. The total risk remains the same.

Tablet technology still fails

I have wi fi and a tablet. I swipe my finger, no response. I swipe again, no response. I commence to beating on the thing. Finally it responds by executing every single one of my finger beatings.  With Wi Fi, each of the finger taps is a one minute internet access.  Once the tablet starts rolling, it has about 20 finger beatings it has to respond to, each finger tapped on one screen, but then interpreted by another screen. Finally I put the table down and use the desk top. The tablet is wastes about 90% of the bandwidth and time.

Multipliers?

Here I have rate of change in real gdp divided by rate of change in federal outlays. Clinton had the high multipliers, Reagan had a few. Lil Bush less than one, and Obama is in the mud. Also plotted is the deficit as a percent of GDP. Multipliers greater than one are associated with declining deficits. Cause and effect? Mainly it takes sound government to reduce deficits.

Bubbles are hard to spot

How do I find one? Should I look just before the grey bars? Do all the bubbles look the same, or just the recent ones. Please, give me a clue.

Why fibonacci numbers work in trading, short version

Traders use the set of fibonacci numbers to predict pricing structure in the market.  But what really is happening is that traders are using finonacci numbers to predict the dimensionality of the portfolios of large broker firms.  The detected changes in the market price that seem to obey F numbers, are those prices that occur when a large broker updates his portfolio. It is portfolio that obeys the fibonacci sequence, because a balanced portfolio is:
 -iLog(i) i < 1, and the finite count of i is the portfolio dimension, the -Log(i) are typical prices.

Just something to jot down.

Stimulus Theory Yet Again

My interest in economics started with the puzzle of stimulus theory. The assumptions in and out seemed to be different models, models with different norms. The New,Old and Recent Keynesians seemed to assume DSGE, then predict results from Trading theory. Hard to make the switch.

Trading theory can best be thought of as a finite dimensional portfolio, or ship, which is filled by executing probabilistic trades with finite time service times.  Think of military logistics as an extreme form. On the other hand, DSGE theory is best thought of as rental periods which must be filled. It is an economy where everyone rents everything. 

Now, my new stimulus theory says the economy (or market) is stuck in a DSGE model, no one wants to make purchases, preferring to rent. The monopoly player wants to return to a  trade flow model. In this dual normed model, the monopoly player in the market, the hegemon, asserts itself as anchor element in the proposed portfolio, it gets the largest portion of the proposed finite container. That monopoly play sets the portfolio standard. If the new portfolio structure yields gains, other market players accept their position in the portfolio.

This model makes sense across sectors and countries, with or without fiat money, using or not using government.

Insider Trading at the Federal Reserve?

Because hard evidence, along with the speed of light, proves that someone got the Fed announcement news before everyone else. There is simply no way for Wall Street to squirm its way out of this one.
Before 2pm, the Fed news was given to a group of reporters under embargo - which means in a secured lock-up room. This is done so reporters have time to write their stories and publish when the Fed releases its statement at 2pm. The lock-up room is in Washington DC. Stocks are traded in New York (New Jersey really), and many financial futures are traded in Chicago. The distances between these 3 cities and the speed of light is key to proving the theft of public information (early, tradeable access to Fed news).Zero Hedge

Gold traded too soon in Chicago, someone in Chicago had a trading program ready, then knew we had a notaper ahead of time. Right now I think JP Morgan threaten a delver if Ben tapered. JP Morgan knew that Ben would vote no taper if the big banks started a delver. Ben acquiesced, and JP Morgan had the trigger set for gold buys. One could see JP Mogan build up to a delever in the weeks prior. Is insider trading among fiat bankers home the first sign of hyperinflation?

California still can't compete

Ca vs Tx, California unemployment going back up, Texas rate staying down. The dispersion is too much to hold.  Californians have to teach Texans to be idiots or Californians have to get a clue.

My universal computing law of Moore and Morse

I claim:

Every computing model can be decomposed into a Turing complete, binary convolution or join of two expression graphs.

• Each expression graph has a node of the form, keyvalue, operator, object
• Every object itself an expression graph with the same join rules.
• Every instance of a join operation connects to an external namespace via the keyvalue, no operation, object form
• Every join system has built in traversal operators, the join is commutable,  and operator pairs form a consistent precedence; meeting Turing completeness.

The claim starts with Morse signalling up to to Watsons talking to me. The  There is no other model of AI.

The effect of Moore's Law is to increase the rank of the recursion, each shift in Moore's moves up the expression graph, the previous graph model being subsumed into the objects of the new join model. The scale changes, the rules remain.

My proof.
Trivial really, I prove that all semantics are serializable, finite, and terminating.  Then I prove that the basis function for the model is the finite expression graph. I show this to be true when making multipliers from transistor logic, as well as organizing signals on a telegraph line. Then I prove recursion by scale.

Then I prove this likely to be true if I did it, by confirmation bias;  thus  no further effort on my part needed.

Optimizing the Artificial Intelligence

The global brain, the web, should appear to each individual as just a bit more intelligent. That makes it optimally artificial, as in human created tool.  Any less intelligent, the AI become mechanically controlled, conversely, any AI that is remote loses semantic exchange. Consider the IBM Watson AI machine. In specialty field, one the Watson machine may be part of, the payoff is when Watson seems to be just a bit more knowledgeable about the goings on.

Like this crime predictive software, that one that looks at crime reports and returns near term predictions of potential crimes. It works simply because it is a bit more knowledgeable about crime in the neighborhoods. Makes it efficient for the police, like a short term memory aid. There is another component, police make the crime reports. The trade goes both ways between the creator and the createe. The AI seems just a bit smarter when it comes to reading all those stacks of crime reports. The semantic, bidirection flow between the A and the I is maximum.

I want to perform a physics experiment

My economic/physics theory:

My loyal readers know I see connections everywhere, and my current plausible theory about bad economic times is that the California legislature creates a contradiction in the time/space fabric, threatening the very probability of existence.

The mechanism is simple, they do something so contradictory it causes congestion and partial collapse of the atomic structure right there in the legislative hall, an instantaneous realization by existence that it is threatened. A gravitational pulse is unable to contain, and the finite structure of existence rips a bit.

But I don't want to wait two more quarters to confirm my theory, I want to perform a public experiment instead.  If the California legislature could just convene and legislate as per their normal insanity, generate a few bills so horrible they might cause a 3% dip in local GDP.  Then, physicists all over the world should look for subtle signs of excess background radiation.

Multipliers and bad statistics, once again

Economists, a large group of them, want multipliers and adders to be greater than one, such that a positive increase in government debt yields a greater positive increase in total GDP.

Does an increase in government spending add or multiply? What do I mean? In a fully functioning positive growth economy, the government sector and the private sector share transaction space efficiently, in that scenario, any exogenous shock to their external terms of trade will be equally felt by government and private sectors. The multiplier is one. In an economy that has suffered a sudden crash, the assumption is that government and the private sector have become disconnected, any shock to gdp will effect the two sectors independently as their external terms of trade dominate their internal terms of trade. In this scenario, the economy is operating way below output, the government and private sector can be treated independently.

Shocks can be additive when operating below output capacity, they assume. Thus  the DSGE assumption that adding log growth is the same as multiplying growth. So, two regimes, one way below output capacity and we can assume log linear; and another near output capacity when the log linear assumption is invalid.

When is the phase shift between the two regimes? Evidently, the phases shift is placed where they get confirmation bias. So we end up with charts that contain both positive growth economies and zero growth economies. They make assumptions about the latter and apply them to the former. When does the phase shift occur? Right after the dead cat bounce, about four years ago. Watch the yield curve. it recovers its nominal shape about 8 months after the crash.

The log linear  assumption includes negative and positive multipliers, in a disconnected economy, under the log linear assumption, both negative and positive issues with government spending become visible.  But the Keynesians mix the two modes to confirm their bias.  Hence, their multiplier studies can  never include modelling errors, the stability of their measurements are way off in the low growth mode, and their assumptions patently wrong in the high growth mode.

Gold and growth, the depression

Am I mistaken or does growth begin before gold purchases by the Fed? Remember, this is nominal GDP, and they didn't have the grey bars back then. Growth crosses zero, gold purchases spike, growth keeps on increasing at the same rate. Roosevelt drop fixed gold payments and let gold float on June, 1933, and the fed refilled reserves. In nominal terms, Roosevelt already knew he had a growth spurt going.

The Keynesian counter argument

Why this graph shows multipliers greater than one:

Remember, I said that high growth countries relied on G less than low growth countries. On the chart, high growth countries are above the computed line because they grow GDP with less G; thus proving multipliers less than one.

No so, say the Keynesians.  Countries near zero growth are in a different regime, one where multipliers can have great effect. What regime? The guassian regime where each component of GDP is independent, where the long term and the big things can be ignored. Thus, those countries near zero growth, the extra G is a direct add to of an otherwise low number for GDP, there is no much lest cost to increasing G.

But,but,but... That assumption is the fluid assumption, and has to admit to negative and positive multipliers.  At zero growth, investors are glum and expose their losses and gains, capital preservation, not growth is the norm. Look where the line crosses zero growth in GDP, call that the center of the zero growth countries. If they all take the shortest change toward the computed line, then an equal number will reduce G as will increase G. G, in the fluid norm, has to pick winners and losers. But in high growth mode, government moves can always be positive, sometimes less but still greater than zero. Different norms, can't carry derived principles between them.

Delever!

Concern the Fed will increase its target rate for overnight loans between banks next year is showing up in wider price swings for shorter-term securities. Volatility in five-year Treasuries rose above 10-year (USGG10YR) notes for the first time since 2011 and yields on two-year notes more than doubled in the past four months. Bill Gross, who manages the world’s biggest bond fund at Pacific Investment Management Co., reiterated today his recommendation to buy debt with short maturities. Bloomberg

What other interpretation? Sell the long bond, buy the short note. Build up liquidity.

But I can't see a big crash coming, we can stumble and still do a 1.6 annual GDP, right now we are at an uncertain 2.5. I mean, the crash will be hardly noticeable, to the consumer.

Yet another chart

Courtesy of Antonio Fatas

I compare the change in real GDP in the 2008-2012 period with the change in real government consumption during the same years. This variable is an indication of the fiscal policy stance during those years. I include all OECD countries in the sample (removing some, including only the Euro countries makes no difference to the slope or fit of the regression). The correlation is very strong with a a coefficient that is not far from 1.

Ok. We have OECD nations subject to the GDP shock of 2008, and how did they react since that time under the following assumptions, They are agents with a G and an Private and Other components that meet the accounting identity for GDP. So a pure exogenous shock to any country, when at balance, would affect all components of GDP by the same percentage. For example, external bankers suddenly change interest rates, external oil producers suddenly switch the flow, something that affects all  components of GDP the same. That condition means countries should fall along a 45 degree angle on this chart, like Greece.  Greece was dominated by an external shock, and Antonio also claims, a specific shock to G, one of the components.  That is what he is showing, countries where G did not follow the fluid pattern, and what were the effects.

Note, absent any external shock, countries should be along the horizontal. On that line, GDP change is zero so any change is internal to the components and they offset. So two things to control for, how much was a macro shock to all components, and how much was a specific shock to a component.  Well Greece defaulted, and G got a gain from that, a multiplier greater than one. So, when GDP fell .25 units, and Private fell by the same ratio, and G only fell by .17 units, then we have a clear winner, default made gains over the period of the chart. But otherwise, Greece lies right along the 45, all sectors paying the same ratio for GDP.
Note the few countries that managed to escape the external shock, they lie along the horizontal, multiplier equal to one.  Most countries lie between the hoizontal and the 45.  The countries in the middle either had an over reacting Private and under reacting G; or visa versa.  That is the test, but the data points where to look, not much more.

How do we separate cause and effect here? Look at countries that had high GDP growth over the period.  If high GDP growth pushes you above the 45, then we get more growth with less G. As growth is less, the countries batch up below the 45, or along the horizontal. Here G is sticky but growth low.   Clear evidence that multipliers are a little less than one, over all. Let me crank my imaginary statisticalator,..., multipliers over all are .8.

Wait, do that again! OK. A country likely to have a high positive GDP change is more likely to have a smaller change in G. Successful countries rise above the 45 on the appearance of growth. Countries near zero on the GDP change will move toward the horizontal, they are mainly in a group called undetermined. That cluster has about a 5% variance in everything, too close to separate effects. But Antonio says they don't matter, so follow the linear model in the chart. The computed  line is below the 45 degree, so on average, countries are getting less GDP growth for more G, a multiplier less than one.   That is, in response to a positive growth shock, G expands more than the other components.  I have separated the group into those with large, positive GDP shocks and those with negative or no GDP shocks.  The later group are governed by shocks to G, the former shocks to GDP.

Overleverage in the markets

I hear a lot about over borrowing to play the stocks, and general high leverage. What is meant is that many brokers and individuals do not have ready cash available to pay debts, they assume money will come from sales gains in assets. But, if we crash what's the worst that can happen to growth? We back down to 1.6%, where we were a few months ago. Hardly a catastrophe. There may be some bankruptcies in Illinois and California. Unless DC goes belly up.

Enlightenment in California?

Fact:  North Dakota and South Dakota have the same power in Washington, D.C. (two United State Senators each) as the states of California and New York combined.  The combined population of the two Dakota states is about 1,500,000 citizens compared to California and New York’s 57,000,000.  How undemocratic!    That is wrong and it should be changed.  Let us begin to correct that inequity of representation here by dividing California into two new states.  Only two words need to be used to describe the advantages we get from dividing our golden state.  We would get to “START OVER.” Two Californias

The very first politician to have used long division in the purpose of fair voting. This is a better idea than teaching Latinos how to be racists Undemocrats. The author of the web site was an assembly person who, in 1993, managed to get a three state split thru the CA Assembly.

The broader point. Undemocratic apartheid states do not last, eventually voters figure out that they get ripped off by oligarchs. The broader issue is that California is short eight Senators, even though the US Constitution identifies the problems of an unbalanced Senate and provides repair mechanisms. But as long as anti-democratic corruption and racism remain the norm in California, poverty and decline increase.

Racists, jackass CA politicians attack fairly elected African Americans

Compton, with a majority Latino population and a mostly African American power structure, switched to geographic representation only after a lawsuit settlement. So did Escondido. Palmdale, which lost a lawsuit in July, has vowed to appeal. Anaheim, facing a trial, tried in vain to appease plaintiffs by requiring that candidates live in designated districts, although they still would be elected at large LA Times

In California Latinos are a majority, yet they are not racist. This pisses off Latino politicians who were told they had majority rights over minorities, told this by dumbshits like John Perez and Darrell Steinberg in the CA legislature. Now we have to deny cities the right to fair elections so as to force Latino voters to become racist.

America should be ashamed, and Latino voters should be embarrased. Latino politicians have problems because they learn to be racist ignorant jackasses, it is a peculiarity of CA Anglo arpartheid policies and has nothing to do with latino culture.  Teaching the official Undemocratic racists policies to new immigrants is a good thing?  No, we would rather teach them that the Undemocratic Party has been a racist organization since 1830 and have never changed.  It is in their blood.

Cullen Roach is too fluid

The USA has an institutional arrangement in which it is a contingent currency issuer. That is, while the Treasury is an operational currency user (meaning it must always have funds in its account at the Fed before it can spend those funds) it has the extraordinary power to tax and issue risk free bonds that the public will always desire to hold so long as inflation is not extraordinarily high. In addition, even in a worst case scenario, the US Treasury can always rely on the Federal Reserve to supply the funds necessary to fund its spending. Therefore, the US government can be thought of as a contingent currency issuer who can issue the funds to spend. This makes it very different from a household. Cullen

Cullen thinks he has discovered the trick. He is wrong. The USA can never run out of paper, but it sure can run out of money. Zimbabwe has all the paper they needed, they could print it up nicely, but it was useless as money.

The effect of money fiat printing by central government is to remove trade from the private sector, to cause private sector  deflation for a while until the money is no longer useful for exchange, then it becomes paper. Cullen is fluid because like Sumner, he thinks money makes for liquidity. No, money just accounts for the liquidity that already exists. Liquidity is the ability to adjust flow, but flow requires like really hard boxes that can carry stuff. These containers are fixed in size and not prone to flow like liquids do. If the containers aren't flowing, then neither is the paper.

Economists are always subject to the hydraulic analogy because it is easy to compute using that model. It leads them to think that excess paper printing by DC leads to inflation. In fact, growth is a prerequisite for inflation. When government dominates the economy by paper printing, the private sector does not grow and deflation, the lack of money in the private sector, is the consequence.

Did the Zimbabwe central government go bankrupt when they switched from Zimbabwe dollars to valuable money?  Absolutely, as did the Weimar Republic.  Excess money printing is a very common cause for government bankruptcy, it is just that monetary induced bankruptcy does not appear in court because debtors bet on paper, and there was still plenty of paper.

Financial brokers deal in money, and they like to have plenty of i floating around, hence their love of middle class funded government debt, it is free float. 

Darrell Steinberg's district

The bad news delivered last evening to the Sacramento City Council is dire: Sacramento has nearly $2 billion in unfunded liabilities, which include pension contributions and retiree medical benefits, most of which have no reliable or stable funding source, as well as excessive bond and lease payments on public projects - Katy Grimes

Then there is this:

If Sacramento builds a new downtown arena for the Kings, how much will the public wind up paying for it? The answer: It depends on who's counting. Sacramento city officials say the term sheet they recently negotiated with the prospective arena developers puts the city investment at $258 million – about 58 percent of the building's estimated $448 million cost. Sac Bee

This is Darrell Steinberg's district, he is a big fan of all this. What is our idiot Brown going to do? He will go ahead and approve all the law Sacramento needs to hang itself. But Darrell Steinberg cannot even compare these two issues, he is that illiterate. If the citizens of Sacramento are this stupid, then I can see why Darrell get re-elected. Voters of the nation, when California politicians from Sacramento come begging for DC goodies, tell them to fuck off.

Is Mexico in recession?

Dallas Fed report says they are close.

Enlarge Mexico’s economy contracted 2.9 percent in the second quarter after growing at a revised rate of 0.1 percent during the first quarter (Chart 1). Service-related activities (including trade, transportation and government) fell 1.7 percent in the second quarter, while goods-producing industries (including manufacturing, construction, utilities and mining) fell 4.3 percent.

They are a downward revision away from a recession. But the last quarter was a steep drop. I guess when growth rates are this low we hardly notice a recession anymore.

Illinois is doomed, New York gets a put

Take a look, we have nominal gdp from Texas, New York, California and Illinois; compared to aggregate gdp.  All units change over the period.

New York losses were stopped at zero, it nice to be the bankers for DC. Illinois has as sub par growth since the beginning of time and is likely going to fall soon. Texas and California get whipsawed.

Let's quit mis-educating our economists

The Arguments of the Great Recession Are Over. Hooray.

Consumer demand is strong enough to sustain a recovery, but not strong enough to give workers any bargaining power.

Here Jonathon simply spouts the great Keynesian backwards. How do I, demanding a $20,000 new car, increase my income? An employer says, "boy, you have high levels of consumption, I should hire you?"

This is all about Keynes making the wrong assumptions, add to that the inclination of economists students looking for any confirmation bias and you get upsidownism. Keynes needed to make a separability argument, we are all independent of each other, so he could justify his policy.  It never was true. Ricardo never left the room, the PIH is wrong, we do not assume regular deliveries. We do not generally have cycles, instead we restructure and have been doing so all throughout the industrial revolution.

When the Keynesian discovers that we agents are not Keynesian, they blame us. It is our fault for being something different than Keynes imagined. We need theory of counterfactuals., which the rationalists are stuck trying to define, basically the theory of the null hypothesis, just to talk to the Keynesian.

Not quite right, Uncle Milt

Definition of 'Permanent Income Hypothesis'

A theory of consumer spending which states that people will spend money at a level consistent with their expected long term average income. The level of expected long term income then becomes thought of as the level of "permanent" income that can be safely spent. A worker will save only if his or her current income is higher than the anticipated level of permanent income, in order to guard against future declines in income. Investopedia

Let me rewrite and correct:

People save according to the value of the permanent purchases they want to make. The value of car they desire and most likely wait time. How big the house down payment They have finite choices, they prefer to target the one of a few rather than count out the intermediate value of a non-existent good.

And that, Uncle Milt, is why your pluck theorem is correct.

THe consumer has inventory, a portfolio of finite dimension.  Food, leisure,clothes, car, house. The consumer is finite bound on choices he can select for his porfolio. His housing, for example, might be move from college, grab an apartment for five years, then buy with a down.  The consumer is sampling a particular transaction rate and transaction size from all the available housing, over multiple purchase. The consumer is operating a particular Shannon recoding of the broad consumer market, as a stream of previously encoded transactions. When his current income seems stuck and out of balance, the consumer rebalances his entire portfolio, creating a different, and sometimes rank reduced, 'recoding' tree.