Fake rates and the cost of doing business in dollars

If the quoted rate for fiat money near 0%, and inflation is 1.8%, then holding money costs 1.8% over year. Each year the economy is growing in real terms at 3%. Money velocity per year is around 7, meaning businesses turn over their cash reserves 7 times per year. Then the firm has to profit 8% on transactions. A negative return on money of 1.8% represents the cost of doing business in dollars. The inflation costs hit the firms which do business in dollars and have to hold dollar cash reserves.

When one year money cost the inflation rate, then cash reserves can be held in demand deposits and earn the inflation rate and do not cause a drain on operation. If households and firms earn the inflation rate on deposits, then they need only gain 5% on operations. The real cost of using dollars is the difference, about 3%. Cash is a necessary value in the economy, companies cannot operate unless they keep about 15% of their cash flow in reserves to cover variations and inputs and outputs. The Fed thinks business are holding too much cash, and they want them to pay a penalty.

 Here is cash and demand deposits. It has grown considerably, dramatically. It sure seems excessive. How did it get there? Via the government, which has taken out some 4 trillion from the Fed in exchange for interest free long term bonds.  Where this money is, I do not know, at the moment. But is it too much?

No, the cash reserves are about 15% of GDP. Everything seems normal to me.  Why not raise the short term rate? Because the government in DC cannot afford the interest payments if we do. If you look at the Bush era what do we see?  Very low cash reserves, not enough to cover the variations in operations so we crashed. Why do necessary cash reserves vary from 15%? Too much risk.

Just a side note, 15% reserves is what is predicted by a queuing theory macro model.

Let's look at velocity. Wow, it is just the inversion of velocity, no surprise, they are the same formula. It seems that when cash turnover is high, then reserves are low.  Our uncertainty about the future can deviate, incorrectly, it seems. A puzzle.

How did I get 15% as the approximate reserve ratio? Well, a firm has one standard deviation input stock in house,  another standard deviation is en route on the truck, and 15 percent cash is held in reserve while 15% of output product is held in output. I may be wrong, but I hand waved it. This result comes from the minimal transactions norm in queuing theory. It seems like a fundamental constant of nature which is governed by the maximum entropy law. The result is closely related to the optimum Nyquist sampling rate and also related to Jim Hamilton's double peak theory and the Pauli exclusion principle. What is the relationship between Hayek roundaboutness and maximum entropy queuing theory? They are one and the same, and the accurate macro model.  Paul Samuelson is to Keynes what Claude Shannon is to Hayek.

Beyond that, the optimum reserve ratio is likely violated when bankers run amok. Bankers attempt to impose a Samuelson model on a Shannon economy.

Hayek has a better explanation for optimum democracy

Don Boudreaux wonders what would happen if we kept the same ratio of representatives to voters that we had in 1789. He computes the new ratio:

Why Not 1,358 States in the United States?

I do not mean to suggest that such a large number of states or enlargement of the number of politicians sent to Washington is desirable or that such larger numbers would make political matters closer to what they were 225 years ago.  I mean only – inspired by Dick Wagner’s thoughts – to point out that it’s naive to suppose that political institutions that work tolerably well with a polity of one size will work tolerably well if that polity grows to a much larger size.

So why wouldn't a poster at Cafe Hayek use roundaboutness? It takes four steps and more time for a government good to reach me in Fresno, Ca from DC. But the folks in Portland, Maine have something like two steps.

Austerity reduced fourth quarter growth, I have heard.

So says Bill McBride. How can we verify his statement? He says fourth quarter real growth should be closer to 4.2% if government had not reduced its expenditures. Lets start with the blue line, real growth. Note this graph does not include the third quarter (4.1%) of the fourth (3.2%) . The graph reports that 4% growth is consistent with a federal budget that is 21% of GDP.
CNN Money looked and reported:

The federal government's latest annual deficit is the smallest it's been since 2008, according to Treasury Department data released Wednesday. At $680 billion, the fiscal 2013 deficit is 51% less than it was in 2009, when it hit a record high nominally of $1.4 trillion.

As a percent of the economy, it's also considerably smaller than it's been in the past five years, coming in at 4.1% of gross domestic product. By contrast, the annual deficit in 2009 topped 10% of GDP. And last year it was 6.8%.
Overall, Treasury said higher receipts accounted for 79% of the decline in the deficit from last year.


Several factors have contributed to the strong improvement in the nation's near-term fiscal picture. They include an improving economy and a mix of fiscal restraint -- primarily, the expiration of stimulus measures, the imposition of across-the-board budget cuts known as the sequester, and tax increases on high-income households during the 2013 fiscal year, which ended September 30.
Another boon was the fact that Fannie Mae (FNMA, Fortune 500) and Freddie Mac (FMCC, Fortune 500) paid back a large part of the $187 billion federal bailout the mortgage giants received, starting in 2008, to help them weather the housing crisis.
In addition, total interest payments -- $415.6 billion -- were moderate relative to the amount of outstanding debt and GDP, but were nearly 16% higher than in 2012.

So if we add in these decreases directly then we get Bills's missing .98% of growth.  He could certainly be right. We are approaching a more normal federal budget and we would expect multiplier to be a little closer to 1.0. The key to watch is interest expense, jumping by 16% in the budget, and likely to jump to 25% another 2014. Lets look at interest expense as a percent of the budget:

This does not include the third or fourth quarter, and the number is now near 12%. That number should go above  16%, as we have nearly twice the debt to service.

Minnesota crime by race

Racial Disparities Research Reports


"Compared to other states, Minnesota has the greatest black-to-white disparity in imprisonment rates.  In 1997..., the ratio of African Americans to whites in state prisons was 25.09 to 1."  (African American Males Report)
"African American males also accounted for over three-fourths of the arrests for narcotic drug laws in Minneapolis (77.1%).  In the same year, white males represented only 13.8% of the narcotic drug law arrests."  (African American Males Report)
"In 1999, African Americans represented 3.5% of Minnesota's population, but 35% of the adult male prison population."
"Minnesota's Black-to-White imprsonment ratio is the twelfth highest in the nation."

The Black Sudents want to supress the statistics:

MINNEAPOLIS (WCCO) – School officials at the University of Minnesota are working with black student and facility organizations after they wrote a letter to the school’s president about the racial descriptions given in crime alerts. The letter, sent on Dec. 6, 2013, was issued by members of the African American and African Studies, Black Faculty and Staff Association, Black Graduate and Professional Student Association, Black Men’s Forum, Black Student Union and Huntley House for African American Males.

Henceforth, let it be known, Black Collecge Graduates in Minneapolis do not do honest statistics.

Ambrose Evans-Pritchard is scaring us

World risks deflationary shock as BRICS puncture credit bubbles

Telegraph:

Half the world economy is one accident away from a deflation trap. The International Monetary Fund says the probability may now be as high as 20pc.

It is a remarkable state of affairs that the G2 monetary superpowers - the US and China - should both be tightening into such a 20pc risk, though no doubt they have concluded that asset bubbles are becoming an even bigger danger.

"We need to be extremely vigilant," said the IMF's Christine Lagarde in Davos. "The deflation risk is what would occur if there was a shock to those economies now at low inflation rates, way below target. I don't think anyone can dispute that in the eurozone, inflation is way below target."

It is not hard to imagine what that shock might be. It is already before us as Turkey, India and South Africa all slam on the brakes, forced to defend their currencies as global liquidity drains away.

Lagarde is a bit hysterical:

"We need to be extremely vigilant," said the IMF's Christine Lagarde in Davos. "The deflation risk is what would occur if there was a shock to those economies now at low inflation rates, way below target. I don't think anyone can dispute that in the eurozone, inflation is way below target."

But if they are below target they don't have far to fall.

My hometown in the news

Moody's downgrades Fresno's credit rating, citing weak economy

Moody's Investor Services has downgraded the city of Fresno's issuer rating to Baa1 from A3. Various lease-backed bonds have been downgraded to Ba2 or Ba3. The outlook on the city's long-term ratings has been revised to stable from negative. Moody's said Fresno's economy is weak. It said there are bright spots such as a fully-funded retirement system. Fresno's credit ratings have taken a beating for several years. Lower credit ratings could mean higher borrowing costs. City officials have said they have no plans to borrow.

California dwought slamming agriculture

Bloomberg: Near the confluence of the Merced and San Joaquin rivers, the heart of the California farm belt, Bob Kelley watches the driest year ever erode water supplies and prospects for the dairy business his family began in 1910.
The amount of water available for the 2,800 acres (1,133 hectares) of corn and alfalfa Kelley grows to feed more than 6,500 cows may drop as much as two thirds, so fewer crops will be planted and some animals will be sold to avoid the expense of buying grain, he said by telephone from Newman, about 83 miles (134 kilometers) southeast of San Francisco.
“It would impact us for not just 2014, but all of 2015,” said Kelley, 60, who runs a local water district that will cut output by at least half. “I’m anticipating a very difficult time, and I’m probably the best off of anybody I know.”

Regions with high inequallity suffer credit rationing

Olivier Coibion, Yuriy Gorodnichenko, Marianna Kudlyak, John Mondragon

Income inequality and credit rationing

We present a model that provides one potential supply-side explanation for why differential borrowing behaviours could be related to regional inequality. Each region is composed of two types of households, such that ‘high-type’ households have higher income on average than ‘low-type’ households, and are also less likely to (exogenously) default on debt. Banks in each region lend to these households, but do not observe households’ types – only their income and another signal correlated with the underlying type. The key mechanism in the model is that as local income inequality rises, banks treat an applicant’s income as an increasingly precise signal about their type, and therefore target lending toward higher-income households on average. We show how the latter can be accomplished via differential rejection rates (in monopoly banking settings) or differential interest rates (in competitive banking settings). In both cases, banks will make credit more readily accessible (or cheaper) to high-income households when local inequality is higher, because the latter implies that income is a more precise signal of applicant types.

A segmention effect. Reduce bank transaction by segmenting according to income when a know group of lower income borrers are in the market.

No Dead Cat bounce

SP500 over the week. No real dead cat bounce,. This still looks like a 10% smooth correction.

California and the American Recovery Act: Did the stimulus help?

 I investigate the stimulus on the California economy. I use the green line, oil prices, to tell me when the economy had finished contracting. California was likely completely contracted when oil hit the lowest point, New Years 2009. At that point, the economy had an CA unemployment rate (orange line)of 10%. The red line is stimulus spending. We are looking to see if the unemployment rate responded positively to the stimulus, did it start declining as the money was spent. Unemployment is a lagging indicator, so we would expect California unemployment to continue rising a bit after the contraction. The California unemployment rate started rising earlier than the national rate (purple) , and remained high for a period longer.

What is the normal California unemployment rate look like during recessions?

 I have Texas, California and the national rate all in one graph.  The 90s period kept California's rate high, the 2000s we see California back in alignment. Since the current crash California has done poorly.

We can say, I think, that something big is changing the California economy. California most likely responds negatively to the Clinton tax hike, and likely had a multiplier less than one for the stimulus. California is performing like it did under Pres Clinton, where we had no stimulus, just a tax hike.

Look at the 1982 recession and ignore Texas (savings and loan crisis).   California followed the national employment rate closely, and both dropped quite fast. Reagan actually decreased federal spending growth from 8% to 5%.

Keynesianism in DC likely is bad for California. Also tax policy in DC has been bad for California.  California just suffers from its association with DC.

We need the Smart Card

We now have 32 different crypto currencies.  A smart card can handle them all.

Zero Hedge: While Bitcoin (and Litecoin) garner the most attention in the cryptocurrency world, there are now 83 (and counting) virtual currencies to store your wealth in. Bitcoin's market cap (at over $10 billion) is by far the highest but we wonder whether the miasma of mimiccers - from Unobtainium to the ironically-named StableCoin and from 'Philospher Stones' to HoboNickels - serves to reduce the confidence in Bitcoin as a new method payments, or bolsters it as the clear market winner.

Sell the concept of a smart card to retailers.

Obama get good grades in foreign policy

Mises Blog: Among other things, Mearshimer declares that the neoconservatives “are in real trouble,” and that Obama is a closet realist. Mearshimer has a point. Obama may in fact be a realist. His foreign policy has certainly been less reckless, although it just goes to show how insane American foreign policy is that Obama’s brand of it looks relatively prudent next to that of George W. Bush.
Realists tend to indulge in less bloodletting simply because starting major wars nonstop is not conducive to political stability. Bourne was still right: war is indeed the health of the state, but the wars are ideally low-risk wars.  As Rothbard noted in “The Anatomy of the State” (page 55), wars provide both great benefits and great risks for states. A lost war can be a disaster for a state. A realist like Obama (assuming he is one) apparently favors much safer little wars such as all the little drone wars and the much-scaled-down presence in Iraq. He elected (so far) to keep US meddling in Syria restrained and appears to have little appetite for a war in Iran.

Good news, the USA should use active trade to expand peace and security. Less war, more foreign aid. Hawks generally have a poor understanding of history, in my opinion. Obama would prefer the domestic policy of Bill Clinton, but he is trapped by Democratic special interests.

Global capital flow adjustments

Zero Hedge World Markets React To Turkey's 425bps Rate Hike. It is a pricing scenario, the emerging markets, Japan, and the USA trying to find their trading relationships by currency bidding. Each of the set of economies looking at the adjustment process, trying to find their place in the hierarchy. A world of limited capital is allocated as a scarce resource.

Oil shoots back to its top end range

Oil Trend from Yahoo Finance. The oil price is an outcome, our cost of oil after the adjustments. If we can sustain this then the corrections are done, otherwise we go another round.

Mike Konczal finds expansionary austerity

Wonkblog: The third quarter did spike, but it was mostly the result of inventories, which, as Yglesias says, is probably bad news. Even more interesting, there wasn’t any additional government austerity in this quarter. Government spending actually increased slightly as state and local spending increased, which more than canceled out declining federal spending.

Yes, a great discovery. Austerity in DC likely causes more efficient local government. Notice the trend was associated with stronger growth as it unfolded in the third quarter. Not likely the main cause of expanded growth, oil fracking seems like a bigger constituent of recent growth. But I think Mike finds multipliers less than one in DC.

Households are matching incomes

From political calculations we see that income inequality among individuals has remained steady. But forming households adds income inequality over time. This is supportive of the idea that assortive mating is going on. The higher incomes tend to find mates in their income class, the effect is more dispersion among household income. Why has the household selection process become more selective? Less surplus means people leave less to romance and more to budget.

Teen Unemployment, another look

Dan Crawford at Angry Bear does good work on minimum wage and teen emplyment. He concludes:

The regression says that the business cycle and teen population dominate the teen unemployment rate and that the minimum wage is insignificant.

In other words, teen employment is a stable outcome of known conditions, not especially effected by government policy.

Camping out in California is easy.

A find by Zero Hedge on the distribution of poverty. If your are poor and cold, California will accept you, I don't mind, really, just bring a strong conviction on fair voting with you.

What's making the polar vortex last so long

Something is pushing heat up the pacific, but the pacific oscillations seem low. Barring something noticeable, the weather people say its slightly normal. Climate change theorists, including me, would say the extra heat must push north in winter, and shove the arctic cold south east. Alaska is the new California. New York City is the new arctic ice cap.

Labor market segmentation

Retail hours look stable, and low compared to manufacturing. Are they the same measure? This, on first look, is segmentation of the labor market.
We expect labor market segmentation because transaction costs for labor have gone up, often from government price control measures. The labor market then quantizes into segments that maximally separated out the government rule reducing transactions with governemnt .

Inequality vs poverty

Great debate about the relationship between the two. A difficult subject because of the seemingly great variety of people, climates and endowments.  Poverty lives on mis-placed inventory, it livest the space at the edge of the economy where nature can barely fit groups. Poverty varies from 11% to 15%.

Inequality is much different, and more complex. More on this.

Ten Percenters day at the market

That group of investors, like Ritholtz, who believe we get a ten percent correction, and that will hold for some time. They win today, lets see how long it holds.  I am a 30%, and I expected another couple of 1% loss days, only looking up toward the end of week. The issue here is how efficient is the market in pre-pricing events. Do the cash holding help corporations endure the emerging market drops? Are we efficient in dealing with another game of Congress? Have we covered the loose four trillion fin the Fed's account? What about the cold and drought swans, does the market see them?

When the market works, theory says, then the only things that happen are unexpected things. So traders work in a semi stable world, they price the world to account for known negatives, and we mostly get upward surprises.  The dichotomy is the known downward adjustment. New knowledge makes this happen, we find cheaper ways of containing  negatives; so past practices are downgraded. We are even getting better at that, bankruptcy. The information age overwhelms.

United Canadas of America

Barry Ritholtz points us to this graphic from Stephen's Lighthouse. This is the USA broken up into sections equivalent to populations the size of Canada. The United Canadas of America have 20 Senators, 22 if you add in the Canada up north, about 28 if we had in the three or so Canadas in Mexico. The map is a bit misleading because of the eastern bias. The sparse midlands are apportioned to the western, making geographically large states. Taking account of density, we really see a group of New England style states along the gulf and pacific coasts. These states match the original 13 along the Atlantic. Then there are the Great lakes regions, making a fourth of all. Florida is the most unique, I think.

Speaking of Linda

Kling's production paths

AskBlog: In general, it might be better to think of production “paths” rather than production functions. The path enabling the hunter-gatherers to build a Honda would be long and complex. It would include general-purpose technologies, like language, writing, electric motors, the internal combustion engine, computer chips, and radio-frequency communication. It would include the accumulation of human skills, know-how, infrastructure of various kinds, business norms, and regulations.

Great idea, lets expand it.

This is a queuing problem. The business is solving a queuing problem.  It wants to capture a surplus flow from one path, add value and send it out another path. The business needs to alter the current set of paths, just a bit, possibly displacing some inventory in place of its own.

This is the Shannon model, like information flow (which is a big part of it), goods flow with uncertainty, but everyone agrees on the uncertainty level.

You find this world in large cities, streets bustling with workshops and inventory. To a good approximation, they are all stuck with the same means and delay of transport, for inventory, for lunch, for elevators, and for the commute.  They all see the same basic noise level. Every lunch counter has the same number of people in line, day after day.

The Main Idea

What a great name for a company! Basically this company builds the basic kernels that drive the semantic net. The main idea is to free the web bots.
I dare a VC to get that staffed up.

Fun terms: Dead Cat Bounce, Mini Storm, Landing, Black Swan

Zero Hedge is looking for signs of a dead cat bounce. Roubini says we have a Mini Storm of events, Thoma says we are doing a landing. What is the big issue?

Does the global economy have enough bandwidth to do a smooth correction? I think the answer is, well, we can't fall that far. Think of a transmission, we might take a dip into first gear, but we all believe the real  jump is from third to second. Market bears are evenly split, and they ain't that far apart anyway. And its not like Congress isn't practiced in the art of brinkmanship. Oil really is stable.

They talk about Black Swans. Here they are: Western drought causing food shortages. Another two polar vortexes and heating energy becomes dangerously short.

Technically all the terms are about bandwidth, are we efficient enough to act timely to events.

Should we draft Jerry Brown for the White House?

The guy did a job for us in California, not done, but look at the loonies in the legislature. Jerry likely gets the small government/large government problem; he is dealing with a secessionist movement. The alternatives now seem to be Christie and Hillary, not much of a choice. Jerry is Hispanic, like the rest of us; but a smart Hispanic. The teachers will vote for him.

The alternative might be Rick Perry, still a leap better than Hillary and Christie. I would go for that, religious psychosis and all. But, its time for a Texas or California prez, sorry. Otherwise the Yokels in DC will screw this up.

Necesitamos un presidente de uno de los grandes Estados en el oeste, Rick Perry o Jerry Brown.

Japanese energy efficiency never showed up

Bloomberg: Japan reported a record annual trade deficit last year as energy shipments and weakness in the yen pumped up the nation’s import bill. The shortfall was 11.5 trillion yen ($113 billion), almost double the previous year’s 6.9 trillion yen, a finance ministry report showed in Tokyo today. Imports rose 25 percent in December from a year earlier and exports gained 15 percent, leaving a monthly deficit of 1.3 trillion yen. A record 18 straight monthly deficits show how nuclear plant shutdowns, higher import costs, and limited gains in export volumes are dragging on Prime Minister Shinzo Abe’s efforts to sustain momentum in the world’s third-biggest economy. Goldman Sachs Group Inc. said yesterday that monthly shortfalls of about 1 trillion yen may persist “for some time.”

Too many Egad! moments

China takes a normal bank holiday

Update: But it is just a hioliday and normal baning hours, they ae just a bit lucky.

Forbes: The People’s Bank of China , the central bank, has just ordered commercial banks to halt cash transfers.

In short, there will be a three-day suspension of domestic renminbi transfers.  There will also be a suspension, spanning nine calendar days, of conversions of renminbi to foreign currency.

The specific reason given—“system maintenance” at the central bank—is preposterous.  It is not credible that during the highest usage period in the year—the weeklong Lunar New Year holiday beginning January 31—the central bank would schedule an upgrade and shut down cash transfers. 

A better explanation is that the country’s banking system is running dry.  Yes, there is an increased need for money in the run-up to and during the Lunar New Year holiday, but that is only a small factor.  After all, central bank officials knew this spike in demand was coming—it occurs every year at this time—and a core function of central banks is to manage seasonal liquidity fluctuations.  Moreover, the holiday has not started yet, and the PBOC, as that institution is known, could have added more liquidity to meet cash needs.

Too many rich tucking money away in foreign accounts.

Apples to Oranges about taxes

US News tries to compare taxes between the USA and other OECD nations, and does a poor job. 

US News: Comparing tax rates without scale is impossible and bad statistics. It is hard to believe that all federal,state and local taxes come to just24%. Each of the OECD countries is smaller, they have shifted much local taxes to the federal level and making these comparisons is a statistical error.

And the LA Times was cheering all the way

LA Times Business: Even so, from mid-2009, when the Great Recession ended, to 2011, the average net worth of the wealthiest 7% of households surged 28% to $3.2 million, according to Pew Research. For everybody else, such wealth — assets minus debts — fell 4% during that period to $133,817.
Since 2011, the disparity has grown. Stocks have jumped even higher in the last two years, according to data from Swiss financial services company Credit Suisse Group. And income statistics show a similar, though less dramatic, pattern.
Major corporations, meanwhile, have piled up millions of dollars in cash reserves.
The result is that inequality, which narrowed some during the recession as the stock market plummeted, has widened again and exacerbated a long-running problem that has surged to the forefront of public discourse for the rich and powerful gathered last week at the World Economic Forum in Davos, Switzerland, as well as for U.S. policymakers and ordinary Americans.

Ben had to do this because the LA Times was beggi9ng for more and more spending in DC, in fact, the LA Times editors are quite happy that the national debt nearly doubled.

Perhaps a little innovation here

Medpage: Hospitals across the country are reporting a shortage of IV saline solution, blaming manufacturing problems and increased demand from a harsh flu season.
The FDA said in a drug safety communication that it's aware of the shortage and is working with three manufacturers -- Baxter, Hospira, and B. Braun Medical -- to "preserve the supply of these necessary products."

One might think:
Buy bottled water, sterilize and add salt according to required solution. But it has to be done right and evidently medical technicians are not too good at this. Still, one might think MDs have the capability to do supervise this, they are the ones who specify the concentration to begin with

Market recap

I look at a few things. Stock indices down 2%, ten year at 2.74%. But oil, simply keeping its nominal 93-98 dollar range. Arnold Kling points out that companies listed on the exchange gain about half their income from emerging markets, and these economies are in some trouble from relying on foreign credit. Also, about 25% of that stock is held by households. Alarming? No, not yet. The corporations and brokers have, supposedly, been aware of a correction. If you believe in a 10% correction, then you are halfway there, and relax.

I am sanguine if the market corrects smoothly over a 30% range, say over a three month period.  That would be great news and certainly possible, and still probable, in my opinion. After that we want the folks in DC to avoid doing any more harm with more debt.

No Taxation without Representation

Cal Political News: The state of California loses between $800 million and $1.2 billion each year from an underground economy of employers paying workers in cash, withholding taxes or engaging in tax fraud, a representative from the California Department of Industrial Relations told a state panel Thursday.
DIR director Christine Baker told the Little Hoover Commission that only about 85 percent of employers move into compliance after receiving a warning letter from her department.
Baker said the state loses “a huge amount of money” from employers reporting large numbers of their staff as having low wage positions, such as clerks, when their actual roles are higher up the wage ladder. That practice is often found in construction, restaurants, automotive repair and the garments industries.
The $1.2 billion figure also is derived from employers failing to pay into the workers’ compensation fund, which the state must backfill when uninsured workers are hurt on the job, and by employers reporting their employees as independent contractors and thus not paying for their benefits.
About 10 to 14 percent of the construction industry does not follow workers’ compensation requirements, said Baker. The frequency of workers illegally paid under-the-table is harder to quantify, she said.

Taxation without representation is against American tradition, and cheating oligarchs out of their taxes helps the California economy. Here in Fresno, Ca, we survive and prosper when we cheat Steinberg and Perez of the Undemocratic Party.

If the Oligarchs do not like it, then they have a solution, Draper and Six Californias. 

Now we have the chief Undemocrat in New York using the government for political attacks:

Fox: Conservative activist James O'Keefe is accusing New York Gov. Andrew Cuomo's administration of targeting his group with document requests and a subpoena, claiming the Democratic governor's recent comments critical of conservatives "aren't simply words."
O'Keefe, whose Project Veritas is behind a series of hidden-camera investigations against left-leaning groups and causes, made the claims on the heels of the controversy over a recent Cuomo interview. In it, Cuomo blasted "extreme conservatives who are right-to-life, pro-assault-weapon, anti-gay" and said they "have no place" in New York. He later walked back his remarks, and said they were being taken out of context in the media.

How long before the GOP embraces a break up of New York?

Charles Schumer, bought and paid for by Wall Street, goes wedging

The Hill: Sen. Charles Schumer (N.Y.), the Senate Democrats’ political guru, has a plan to poison the Tea Party by driving a wedge between its rich funders and its blue-collar rank and file.

Schumer, one of the Democrats’ most influential strategists, will argue in a major speech on Thursday that super-wealthy Tea Party donors have hijacked the grassroots movement that grew out of the economic anxiety of the 2008 financial collapse to suit their pro-big-business agenda. He’ll lay out a blueprint for how Democrats could exploit what, he argues, is a weakness in the opposition in the address at the Center for American Progress, a pro-Democratic think tank founded by John Podesta, who just joined President Obama’s inner circle at the White House."There is a glaring weakness, one very weak link in the Tea Party’s armor, which is an inherent contradiction within the Tea Party that, I believe can be exposed to greatly weaken their hold on the policy debate," Schumer will say, according to excerpts of his remarks.

Supposedly the idea popped into his head while golfing with Wall Streets elites. Getting caught in a sand trap, the flustered golfer discovered the wedge.

Obamacare Whoops

Washington Times: Moody’s Investor Service has changed its outlook for the U.S. health care insurance sector from stable to negative, citing Obamacare’s rollout and the uncertainty it brings. The private credit rating agency said potential fallout from the Affordable Care Act’s implementation — including changes to the individual market and the impact of the law’s “employer mandate” on commercial group plans in January 2015 — presents the greatest challenge to health insurers’ credit profile. Lower reimbursement rates among Medicare Advantage plans also are creating financial pressure, it said.

That would be DC fudging the debt without democracy

So, let me ask. Did anyone in Central California know that Obama and the Senate was about to run the deficit way back up?

Guest post by Kristinn Taylor

Half a Trillion in Just Three Months
President Barack Obama has blown through more than $500 billion in deficit spending in the three months since passage of the deal proposed by Senate Minority Leader Mitch McConnell (R-KY) on easing the debt ceiling battles that gave Obama virtually unlimited borrowing authority from October 17, 2013 through this February 7th.
Treasury Secretary Jack Lew sent a letter to Congress today imploring the debt ceiling be raised by February 7th, or the end of February at the latest. Lew cited a limited amount of financial trickery the Treasury can employ to skirt the re-imposition of borrowing authority until the end of February.
CBS News’ Mark Knoller reported on Twitter that Obama had racked up $526 billion in new debt since October 17. The deficit for the entire 2013 fiscal year was $680 billion.
Last April Obama proposed a FY 2014 budget with a deficit of $744 billion.

So, absent a fair Senate vote, Central California needs a full time troll to watch these jackasses.

Cross country scatter plots

The idea of a cross country scatter plot is to look at many examples of a process so as to cancel out idiosyncrasies and observe a general effect of some policy. A good idea generally, as a starting point.

Take this plot comparing budget balances with growth.  Take out Greece and we see that, in general, these nations do not change their budget balances very much, most of the data is centered about zero. How would this cross country scatter plot help Singapore, for example? The problem is that Singapore policy makers know more about the determinants of growth in Singapore than this scatter plot shows. That is, the scatter plot helps the economist, a step toward a theory, but for any individual nation in the scatter,  the knowledge they have about their  own nation far exceeds any information given by this plot. This plot might help Singapore export more goods to a collection of random countries but it tells Singapore nothing new about how much counter cyclical deficit it should run.

The market today

Up, down, up, down, up, down.  This day bodes ill for the idea of a smooth correction.

The nonsense of the minimum wage studies

Economists in DC want to change the law to effect poverty in Fresno, CA. Is that possible?

Well, poverty varies from 11% to 15% over the business cycle. Poverty varies about 6% on a regional basis. Weather alone accounts for most of the regional variation. What is the likelihood that some economist has managed to detrend all this variation and then come up with an elasticity of poverty vs minimum wage? I know none of them even have a clue about the determinants of poverty, most, like Dylan Matthews, simply resort to fiction.

Ignore the minimum wage studies, they are mostly just fiction by self important economists. We do not need to go far to determine the main component of poverty in Fresno, it is over aggregation in DC. The mental illness of being a so called representative in a region of the USA with the least amount of democracy in North America. 

Under that kind of under-representation, Fresno has no choice but to generally break federal law.

Setting the stage for a Dead Cat Bounce

With Yellen on deck, Fed's Bernanke to stick to low-rate vow

SAN FRANCISCO/NEW YORK (Reuters) - Federal Reserve policymakers will likely leave intact their delicately worded easy-money message when they meet next week, despite a surprisingly sharp drop in U.S. unemployment that threatens to make a central part of that message irrelevant. Top Fed officials believe their landmark decision last month to reduce the pace of the U.S. central bank's bond-buying stimulus was well received by financial markets. That, in turn, allows them to make another $10 billion cut to the bank's monthly bond purchases at the January 28-29 meeting without needing to adjust their promise to keep interest rates low in the future.

The message is clear, hoard your cash because the buying opportunity is near.

Companies sitting on cash pile of over $1 trillion

Corporations are hoarding cash: despite dividends and buybacks, cash is likely to hit another record high. Cash set a record in the first quarter of 2013 on an absolute basis: $1.093 trillion in the S&P 500. It has set a record for 18 of the last 20 quarters. With 47 percent of the S&P 500 reporting,we are once again on track for record cash levels. What's going on? The short answer is that companies are not spending as much...they have record earnings, but they are holding on to a lot of the money.

Is it possible to plan a dead cat bounce? I doubt it, how would we do that? When everyone is waiting for the certaintly of a dead cat bounce then we get a smooth correct as bears set various traps on the way down. But soon we will find out!

Survey: Mid-Sized Companies Still Holding Back on Hiring, Investment

Mid-sized businesses are holding back on hiring and investment because of unpredictable health-care costs, a lack of clarity on federal regulations and expectations of slow domestic economic growth, according to a quarterly survey of firms.
“A majority of middle-market companies said that uncertainty regarding government policies is impeding their ability to grow and their willingness to hire and spend,” according to the Middle Market Indicator, a poll of 1,000 executives from companies with revenues ranging from $10 million to $1 billion.

Uncertainty makes sense, but it also makes dead cat bounce. So where are we? A crash or a smooth correction? Dunno, in fact there is a lot the economy and I do not know. But the market is hoping:
A stock market correction measured in time

Last year, the stock market moved in one direction: up. So far in 2014, it has traded in a sideways pattern.
After Tuesday's small gain, the Standard & Poor's 500 stock index is down 0.2% for the year.
But a flat market might not be such a bad thing. It's better than a falling market, especially with worries of a pullback mounting after last year's 30% gain and valuation metrics suggesting the market is no longer cheap and, perhaps a tad overvalued.
The slow start has many investors hoping that the recent rut turns out to be a sideways correction that will be measured in "time," rather than the more traditional "price" correction that's measured in losses of 10% or more for indexes such as the S&P 500.

We can only hope. A downward correct managed by time is called a Euler path. Down is the only direction it works, and if DC doesn't screw this up we might be smooth.

What will retail investor say?

As a percentage of household assets, stocks are now 28.7%, according to data from the Federal Reserve.

"By no means are the households shunning away from the equities, like they did during the late 1970s and early 1980s," writes financial blogger Tiho on The Short Side of Long.

But, what's interesting to note is that the last time stocks approached 30% of assets, the market peaked and corrected within a year. That, of course, was at the time of the financial crisis five years ago.

Housing inventory and vacancies

Did the housing industry over build in response to the housing boom? We can answer that by looking at vacancies, hoses held off the market, vs inventory, houses on the market.

 Did the housing industry over react to prices during the housing boom? I seems so when looking at housing starts (from Calculated Risk). They were 28% above the typical peak for the business cycle.  But the collapse of housing starts did not signal the recession, that came two years later.

Jed Kolko makes an interesting observagtion:

Nationally, Vacancy Rate Still Above Pre-Bubble Level
In the third quarter of 2013, 10.2% of housing units were vacant, excluding vacant homes that the Census classifies as "seasonal," such as beach homes. Vacant homes include those for sale or for rent, as well as homes "held off market" for various reasons. This vacancy rate of 10.2% - the share of homes that are empty - was unchanged from 2012 Q3 and well above the pre-bubble level. In fact, the vacancy rate today (10.2%) is closer to its peak during the recession (11.0% in Q3 2010) than before the bubble (8.8% in Q3 2000).

Jeff then goes on to dis-aggregate the housing vacancies by metropolitan district, showing that high growth metro areas have the lowest vacancy rate.

 Jeff shows us vacancy vs inventory.  Vacancies are held off the market, inventory is for sale, on the market. Notice the inventory rate was well managed, peaking with high prices, then declining with low prices. That represents the housing industry responding properly to price.  The huge number of vacancies had nothing to do with housing, but had a lot to do with generally lower economic growth in various metro regions, and it seem the housing industry has done a good job of separating out the two effects.

This recession is a bit different from the previous recessions in which housing tends to lead growth.  Something else caused the recession, not a housing collapse.

Here come the smart cards

WA Post: U.S. banks and retailers, a decade behind in deploying the secure, high-tech credit cards used elsewhere in the world, may take years longer to switch to a system that all but eliminates common types of fraud.

Under pressure from credit card companies, major banks and retailers have begun to roll out the cards, which carry a computer chip and advanced security software that keeps the customer’s account number and other details invisible, even if crooks manage to steal records from a store or bank.

But the conversion could take years to reach critical mass amid a squabble over who will foot the estimated $8 billion bill, and despite fears that scammers have been targeting the United States because of its outdated technology. U.S. credit card fraud rates, once the lowest in the world, have doubled in the 10 years since chip cards spread through Europe.

No problem, Silicon Valley sees 8 billion in revenue for advanced technology, they will make it happen.

Obamacare whoops

Daily Caller:

David Kennedy, the hacking expert that shook the country this week with his congressional testimony about the security failures of HealthCare.gov, explained Sunday how he was able to penetrate the site.
“There’s a technique called, what we call ‘passive reconnaissance,’” Kennedy explained to “Fox News Sunday” host Chris Wallace, “which allows us to query and look at how the website operates and performs.”
“And these type of attacks that I’m mentioning here, and the 70,000 [personal records Kennedy found] that you’re referencing, is very easy to do,” Kennedy continued. “It’s a rudimentary type attack that doesn’t actually attack the website itself. It extracts information from it without actually having to go into the system.”

The wonder of DSGE

Two charts showing the American Recovery act. In the first we have the ARA matched against the log of gdp growth. In the second I removed the log function. If we assume the exponential growth mode, then the ACA looks aligned with growth, top chart.  Actually it looks like ACA could have caused immediate growth, or it could have caused growth three years later, we do not know since exponential growth is a complex variable and has lags.

If we ignore the exponential assumption, we see the ACA had little affect, as in the second chart.  There is seems growth reached equilibrium and stayed there, ACA having no effect.

We know that total spending from DC stayed the same, after interest expenses are taken into account. ACA affects are likely an illusion. Why are economists so confused? In an undersampled system we get dead cat bounce. So the Romer method of finding multipliers will, by its nature, identify dead cat bounces. If Romer then assumes the economy is completely sampled, DSGE applies and the log growth operation accentuates changes.  Applying some exogenous change in spending, the changes will naturally line up and fool the economist.

What happens when interest rates suddenly drop and DC passes out money to the states? The money goes into the pension funds to make up for lost interest income.

So I vote a banana to John Taylor who first exposed this problem, though the poor fool still believes in DSGE.

How's fourth quarter growth and beyond?

Estimates are good, 3% plus, mainly on continued inventory growth. This seems at odds with the decline in brick and mortar stoores which Zero Hedge reports. But the brick and mortars took their losses during the crash, and continued bad news should not be a surose. Oil remains in the $95 range, high enough to make the frackers pofitable. Europe is no worse off than before.  The ten year rate has not gone beyond 3%. So all the conditions for the third year 4.1% remain in place.

What could go wrong?  Taxes come in short for DC causing Congress to lean heavily on the bond market. If that happens, Congress will drive rates up, faster than growth, and the economy will recede.  Look for a clue in the debt limit negotiations, when they become difficult, then we know, Congress cannot pay its bills, and we drop back to a 2.3% rate.

The issue is simple, this is a business cycle and we seem to be at its end, and this is our first time doing it with debt to gdp at nearly 100%.

How did we end the previous cycles? With a bout of inflation as the stock market corrects. Notice in the two previous peaks, inflation surged and held for a time as the market corrected. Can it happen again? CPI is one percent and declining!  What gives? That is the great unknown, but I fear it means a very sharp and sudden correction and a short burst of inflation hits the economy.  We would all wish for a signal, especially the Fed which is about as uncertain as anyone.

So where is inflation going to show up first? Not oil, not with the fracking machine. Its the great mystery, and it may take another quarter of growth before we find our limits. 

It isn't racism killing the Dems and Obama

Obama is simply racist himself, taking the easy way out. But the Republicans are pulling ahead because:

• The national debt is nearly doubled. 
• Poverty is as high as it has ever been in thirty years. 
• Obamacare is slowing the hiring process. 
• And, the racial pandering of the Dems continues.

How big is the illegal economy?

The number point to 8 to 14% of wages are unreported. So, 11% of workers have more money because they break the law.

Rick Newman US News "Data from the IRS shows that total tax receipts from personal income dipped in 2009 and 2010, as would be expected in the aftermath of a tough recession. In 2011, the last year for which data is available, tax receipts rose by about 14 percent, as the economy recovered and more people went back to work. That's a healthy rebound, but some of that may have come, ironically, from government transfer payments, such as extended unemployment insurance, that temporarily boosted some people's income, On the whole, it's hard to tell if tax receipts are depressed as more people underreport their earnings. Economists estimate the size of the underground economy at somewhere between 8 percent and 14 percent of total GPD, which could amount to as much as $2 trillion worth of economic activity. Authorities in California say off-the-books transactions cost the state $6.5 billion in lost tax revenue every year. If the trend is similar throughout the U.S. economy, that would amount to roughly $50 billion in lost tax revenue for all 50 states combined, plus an even bigger chunk that Washington fails to collect. All told, that would be more than enough to completely cover the $85 billion in spending cuts—known as the sequester—that just went into effect. On the other hand, that's a lot of cash consumers end up keeping to spend on cars, appliances, restaurant meals and vacations—almost like a government stimulus program."

Texas, Dallas News:  "This [unreported labor] is so prevalent in the construction industry that researchers at the University of Texas say more than 40 percent of such workers across the state are the victims of payroll fraud. That’s more than 300,000 workers and about $7 billion in wages not reported to the Texas Workforce Commission. This causes the state to miss out on at least $54 million in unemployment insurance each year. The feds lose untold billions in Social Security payments.' 

I say, keep breaking the law.

One Fourth Senator from Texas attempts to count

FORT WORTH — U.S. Sen. Ted Cruz continued his campaign against the national healthcare law Friday, calling on Texans to rise up and join a grassroots movement to try to repeal the program.
This time, he took his argument to a group of local businesspeople, saying it’s time for change.
“How do we repeal Obamacare?” he asked a crowd of nearly 300 people gathered for a Fort Worth Chamber of Commerce luncheon at the Petroleum Club. “It will come from millions and millions of people rising up and saying” that it doesn’t work.

Read more here: http://www.star-telegram.com/2014/01/17/5494696/ted-cruz-calls-on-texans-to-join.html?rh=1#storylink=cpy

Nice try bonehead, but the reason Texas is stuck with Obamacare is because they did not pay attention to democracy. Texas has no voice in DC, its in the numbers. Texas is about six senators short of a fair vote, and until Cruz learns to count Texas is screwed.

Huffington Post readers are illiterate

They can only look at videos and pretty pictures, the result being the site is impossible to view on a tablet.

Obama and poverty

Not so well. Obama has managed to increase poverty, and his increase corresponds to a near doubling of the national debt.  My numbers say that the rise in the national debt is costing the middle class some 1.5% of income per year, enough to cause the rise in poverty.

Proof that Obamacare is harming employment

Coverage Expansion Fail: Less Than One-Third Of Obamacare Exchange Enrollees Were Previously Uninsured

JOLTs in a nutshell.  There are always people entering and leaving the work place. Most of he time a job change requires signing up for health insurance.  Where are the sign ups?

Migration patterns tell us that many more people are unwelcome in New York

Cuomo: New York Governor Andrew Cuomo believes that pro-life activists along with anti-gay activists, and supporters of the Second Amendment, are not welcome in his state.

New York Soon to Trail Florida in Population

Among other things, Cuomo and company screwed us their health system and forced Obamacare on the nation. and your business taxes are stifling.  Now New York is the fourth big state, having dropped from third. Texas has lower unemployment, and Florida is growing at New York's expense.

Does Cuomo need a reason? I give you one, your state was too frigging big and your cirtizens lost out by being under represented in the US Senate.  Your state lives off the DC debt machine with no other real industry. Your state, Cuomo, is fucked. The unemployment rate in New York is 8.9%, on par to become the permanent unemployment state like California. Meanwhile Texas is scooting along with an unemployment of 6.2%.

So, the real answer, Mr. Cuomo, is you will never run for president because you are a fucked up governor.

Who is gong to pay taxes?

Congress survives if they can keep taxes rising fasterer than interest costs. Not with this labor force participation.

When Eric Holder is a racist prick

Bloomberg: President Barack Obama said that racial tensions may have softened his popularity among white voters within the last two years, according to a story posted on the New Yorker magazine’s website today. “There’s no doubt that there’s some folks who just really dislike me because they don’t like the idea of a black president,” Obama said in the article by David Remnick, appearing in the magazine’s Jan. 27 edition.

Eric has one set of rules for his special race and another for the rest of us.

Politically Correct can be harmful, Texas edition

What is the most famous song of Texas? The Yellow Rose of Texas, a great American folk song. It was likely written by a black, look at the original lyrics:

    There's a yellow rose in Texas, that I am going to see,
    No other darky knows her, no darky only me
    She cryed so when I left her it like to broke my heart,
    And if I ever find her, we nevermore will part.

Chorus:

    She's the sweetest rose of color this darky ever knew,
    Her eyes are bright as diamonds, they sparkle like the dew;
    You may talk about your Dearest May, and sing of Rosa Lee,
    But the Yellow Rose of Texas is the only girl for me.

    When the Rio Grande is flowing, the starry skies are bright,
    She walks along the river in the quite [sic] summer night:
    She thinks if I remember, when we parted long ago,
    I promised to come back again, and not to leave her so. [Chorus]

    Oh now I'm going to find her, for my heart is full of woe,
    And we'll sing the songs togeather [sic], that we sung so long ago
    We'll play the bango gaily, and we'll sing the songs of yore,
    And the Yellow Rose of Texas shall be mine forevermore. [Chorus

Then I hear this:

More than 25 years later, the lyrics were changed to eliminate the more racially charged lyrics. "Soldier" replaced "darky." And the first line of the chorus was also changed to read, "She's the sweetest little rosebud ...."[7]

I never would have known, I could have spent my entire life thinking this song was written by some lilly white cowboy.It was Wiki that told the truth.

Euler vs Shannon

Brad Delong says the Fed's QE is not that risky. When I assume the Fe4d acts fairly fast, and markets value is a nice rounded bell curve, then I see the Fed costing about a half point of GDP by distorting the curve. The Fed research itself posits a change in rates of less than a point, even less than a point. Big Whoopie.

Unless... we are deliberately illiquid. When that is the case phase shift in the Fed sampling bandwidth, look here, creeps suddenly out of band, and volatility blows. On that post I referenced, here, look at that volatility in interest costs. See it explode? It is exploding as the Feds become relatively late in doing its update.  That rising volatility in the US budget is a killer, Congress can never handle that, believe you me.
I call it Shannon, because this is a channel problem in government, DC is not going to make its shipments.

The price of freedom

I think the New Six Californias should accept a 2.5 trillion dollar liability for its freedom. The new states should guarantee DC the freedom to tax the highest wealth income among the Californians, for 20 years, or until our 2.5 is paid off. DC, in return, gets a guaranteed annuity to help it through bankruptcy court. By traxing California, differentially from the remaining 50, the current states get a direct payoff. As far as Texas. Texas wants to share its capital among its five states. Make them pay an additional 25% premium for the priviledge. Repeat with Florida, some 5 trillion is covered. Hey, you got the debt back to where Obama was three years ago.

I see no way DC has much of a choice in this, frankly. Bankruptcy is the lack of liquidity, and by the next census Congress will no longer work, liquidity zero, or bandwidth zero. We have gone over this. The very mechanism that is causing the secstags can't help much without structural reform. But the cause worsening, and takes a great leap badly in 2020.  

El Congreso estadounidense está en bancarrota y los grandes Estados de sunbelt deben fianza. Estados de sunbelt obtenemos 28 senadores más que nos represente en la capital estadounidense. Trato justo.

Classic Mexican

Bankers and control theory

Like Janet.

Its all about spectrum and bandwidth.  What is the bandwidth of the central banker, the bandwidth of Congress and the bandwidth of various sectors of the economy.  Inadequate bandwidth results in dead cat bounce.  It the Euler stuff, but its not correct, I do it because people like Janet do it, and it really simplifies everything.  It allows to talk cycles. We can watch the tub fill at the end of the cycle, abnd look at noise sinals, see the wave, and draw smooth lines.  Greatr stuff, very explanatopry. and when you have consistent data, it is predictive.

Economists need channel theory if we squirrels deliberately limit bandwidth, do the dead cat bounce. Having all the bandwidth you need is infinitely expensive, and as a bonafide representative agent, yes, I limit the bandwidth. In fact, as a representative agent I sometimes sit around for months and don't do much. That means, generally, the model is channel theory, adn the opertions are channel enciding to minimize transactions.

But, infinite bandwidth control theory is fun, h is how I do control theory, using the handwavy, eyebally type of analysis.

Hank

California freedom in the hands of Congress!

Which is how Time draper wrote it:

Although Congress would ultimately make the decision about whether to divide the state into six states, and would also ultimately determine what the new boundaries would be, and what the new states would be called, the Draper initiative proposes these names and divisions:
Central California, Jefferson, North California, Silicon Valley and South California

Congreso puede dividir de California en los Estados sixe, y todos nos nuestros propios senadores y nuestro propio gobierno en lugar de los oligarcas.

Reviewing the stimulus of 2009

The red line is extra federal spending designed to get total economic growth up, the American Recovery act. The green line is the total federal expenditures, percent change.   But we slowed down federal spending in mid 2009 and total federal spending stayed at that spending level for the subsequent years.  There was no real simulus at all, except for the first half of 2009.

What happened to federal spending? Likely Lower interest expenses; but I have to go back and review the budgets. Looking at this graph we see interest expenses dropped from 14% of the budget to 10% of the budget, eliminating the stimulus effect. In effect, we had a short six months of stimulus spending.

The real stimulus was a drop in interest costs, courtesy of low growth, and then the Fed, the effect was to grant Congress a free increase of 4% in spending, which is now ending. Menzie misses that effect in his post on multipliers. There little plotting by expert economists, this was Congress simply taking advantage of lower interest costs.

Euler

 This is rather technical. Noah Smith says this equation does not work, it is the basis upon which economist model a collection of agents.   It says that the interest rates and the value of time should be correlated in a real economy.  For example, if we buy shoes every six months more or less, then their is an inventory of shoes that covers the 'more or less', enough spare shoes so that when we randomly arrive to buy a pair, there are some in stock.  If we buy our shoes with a credit card six month loan, then there must be an inventory of money to match.  The variation in both inventories will be the same when everything is balanced.

So, the inventory cost of a six month shoe supply is the six month interest rate. The economists say the theory doesn't work.
The banker needs to sample the shoe inventory often enough to set the interest rate soon enough to keep the probability of inventories going to zero small. If the banker receives the inventory level every two months, then both the shoe inventory and money inventory vary every two months, the residual error we can call it.


The figure above is also from Noah Smith, and the red dotted line is what the bankers should be setting the interest rate at, if the equation worked. When the red dotted line is high, consumption is low. But consumption increases when rates are rising. There seems to be a delay between the time interest rates are set and consumption changes. If you move the red dotted line left by five years, thing line up.

Here is nominal GDP and the one year rate. Is the banker keep up with the economy? Yes, until 1990, Greenspan waited until he updated the one year rate to match the falling growth rate.  Then again in 2001 he held it low, then in 2010 Ben never raised it.

Why did the central bank slow down its update rate? The economy became congested and the inventory levels never reverted to Guassian. The bankers were increasing looking at delayed values for nominal GDP. The congestion is government caused.

This is an under sampled economy that will oscillate on the government inventory cycle, which seems to be about five to eight years.

 Here we see what happened to government by looking at its interest expenses. The interest expense in the budget is increasing volatile. It varies about 20%, and that is about 1/3 of GDP growth, and it happens on a two and four year cycle. 

The entire economy suffers a volatility in growth, induced by this interest expense. Hence the large reserves the private sector needs.

 We see that the change in interest expense divided by the change in nominal gdp, the blue line, is growing as the debt to gdp rises, red line. The entire economy has to set aside reserves to cover the demands on GDP growth from the government debt machine.

Fischer vs Fisher

Stanley Fischer saved Israel from the Great Recession. Now Janet Yellen wants him to help save the U.S. This is one Fischer.

 Fed’s Fisher: Glad Fed Tapered, but First Cut Should Have Been Bigger

Now still have this one.  Names are going to be confusing for a while. 

Roll over risk

Treasury Secretary Jack Lew called on Congress Thursday to move soon to raise the nation's debt ceiling to ward off any risk of a U.S. default, saying the crunch will come by the end of next month.

The nation's borrowing limit is suspended until Feb. 7. After that, unless Congress has authorized an increase or has chosen to extend the suspension, the Treasury Department will have to deploy special accounting maneuvers to continue to pay all the country's bills in full and on time.

Originally Lew had estimated that those "extraordinary measures" could last until sometime between the end of February and early March.
But on Thursday, in a public interview at the Council on Foreign Relations, Lew said he now believes it's most likely he'll run out of wiggle room by the end of February.

Congress will be unable to pay the interest costs under any growth scenario.

Citizens fight the Meth cartel

Calm after the storm: Tender moment between Mexican vigilante and girlfriend as fighters vow NEVER to give up the fight against Knights Templar cartel

Daily Mail:

• Mexico's government has pledged to take control of a violent western state after days of fighting between masked vigilantes and members of one of the country's most powerful drug cartels
• Vigilante groups in the state of Michoacan have moved deeper into territory controlled by the Knights Templar cartel
• Interior Minister Miguel Angel Osorio Chong urged the vigilante groups to withdraw from the battleground so federal forces could take control
• The government appeared to tolerate the so-called self-defense groups, apparently in the hope they could oust the cartel and help restore order
• More than 100 vigilantes stormed the town of Paracuaro at the weekend in an attempt to reclaim the city

This is why I have become pacifist, I approve of citizen revolts against the meth cartel, the meth cartel is one nasty breed of zombie. Once I start supporting violence in one context, it is hard to refrain in another, like fighting back against the murderous Orange County Nazi Police.

Which reminds me, how is the Tea party doing in Orange County? Are they defending the citizens from these police thugs? We have had, and may continue to see, similar problems here in Fresno.

Getting the NYU Stern School of Business reschooled

Tom Cooley and Kim Schoenholtz, professors at NYU Stern School of Business missed the secstag memo. They quote Ben in 2002:

The best strategy is to prevent deflation from getting started in the first place. But what can a central bank do if deflation has set in and the policy interest rate has sunk to zero? Bernanke cited four approaches: (1) expand the balance sheet through loans or open-market purchases of assets; (2) lower long-term yields by committing to keep short-term interest rates low or by announcing a cap on government bond yields backed by unlimited willingness to purchase securities; (3) pursue monetary expansion in cooperation with fiscal stimulus; and (4) currency devaluation.

My recent chart showing nominal gdp going down as debt to gdp ratio goes up. Why? Because Ben's strategy causes increased borrowing by government, and somehow more government debt associates with less growth, not more. And what do you know, Ben followed his own strategy, debt to gdp went up and growth went down. Waddya know!

Orange County Cops murder homeless man, full video

Evidently Orange County police assholes beat homeless people to death for no reason, film it and then get a local jury to acquit. I suggest we boycott Orange County and anything down there.

How the Kelly Thomas Killing Sparked a Citizen Revolt

The surveillance tape caught the horrifying confrontation in vivid detail. We see a large officer named Manuel Ramos approach the scraggly Thomas, who is suspected of breaking into some cars. Thomas gives him some lip, but doesn’t act in a threatening way. Ramos then puts on what the district attorney calls a “show” as he slowly slips on latex gloves, twirls his baton and then says, “[S]ee my fists ... these fists are going to f... you up.”

Some claim Orange County is a Tea party country. I will find out, then I will find out if the Tea party is going to do anything about this crap.

Yes, here we go, the Orange County California Tea Party, the city where cops murder innocent people. The Tea Party will  stop  the bullshit right away? Lets check the web site periodically and watch the Tea Party of Orange County put an end to murderous nazi police activity. If not, I will hound them as socialist nazis.

Robots collaborate to help dimwitted engineers

Telegraph: The first demonstration of a “World Wide Web for robots” that allows machines to share information and learn from each other will take place this week in the Netherlands.

Cloud-based RoboEarth aims to help robots benefit from the experience of other machines. For instance, if one robot has spent time developing an accurate map of a room it can upload the data so another machine entering it for the first time has a navigational head start.

Passing around JSON expression graphs and joining them with Match, Pass Collect and/or Replace operations.

Islamic nutcases are not popular

Syria says West talks to Damascus about Islamist rebels

BBC:

Western intelligence agencies have visited Damascus for talks on combating radical Islamist groups, Syria's deputy foreign minister has told the BBC.

Faisal Mekdad said there was a schism between Western security officials and politicians who are pressing President Bashar al-Assad to step down.
The growth of jihadist groups among rebels fighting President Assad has caused international concern.

Fine and dandy except the Eastern end of the alliance still belongs to cowardly Iranian Mullahs psychotic dudes.

Jerry and the Unions have a legal problem with pension payments

Sacramento owes about 4.5 billion a year in pension payments.  Jerry and the teachers want to skip the payments, instead spending that money on salaries today. That is a known fact among current bankruptcy judges.  When the next city files for relief from pension payments, the judge will remember the dead beat politicians and immediately give relief to the city.

Los políticos en Sacramento quieren saltarse sus pagos de pensión a los fondos de los maestros, entonces la clase media más tarde, en California la cuenta para los pagos perdidos.

Government debt slows nominal GDP growth

Well, that is a surprise.  Nominal GDP is the orange, debt to GDP is the red. The red rises the orange drops. Long term trend of nominal GDP, down, long term trend of debt to gdp, up.

Deranged Muhammed nutcase refuses to shave

Captured by American GIs in Afghanistan he was charged with failure to shave and sent to CIA waterboarding school. From his prison cell, Mohammed Shake Alot released a revolutionary manifesto urging all moral beings to desist from shaving and limit bathing to once a week. The American military command reiterated the war policy; "We will continue our war against unclean, unshaven swarthy Mohammeds."

Selenium poisoning in West Virginia and California

Wiki: Selenium is a chemical element with symbol Se and atomic number 34. It is a nonmetal with properties that are intermediate between those of its periodic table column-adjacent chalcogen elements sulfur and tellurium. It rarely occurs in its elemental state in nature, or as pure ore compounds. Selenium (Greek σελήνη selene meaning "Moon") was discovered in 1817 by Jöns Jacob Berzelius, who noted the similarity of the new element to the previously known tellurium (named for the Earth). Selenium is found impurely in metal sulfide ores, where it partially replaces the sulfur. Commercially, selenium is produced as a byproduct in the refining of these ores, most often during copper production. Minerals that are pure selenide or selenate compounds are known, but are rare. The chief commercial uses for selenium today are in glassmaking and in pigments. Selenium is a semiconductor and is used in photocells. Uses in electronics, once important, have been mostly supplanted by silicon semiconductor devices. Selenium continues to be used in a few types of DC power surge protectors, baby formula, and one type of fluorescent quantum dot.

Why do I care about selenium? Because the topic is going to come up with respect to mountaintop coal mining in West Virginia. Hence, before the hysteria gets to strong, we should know a few things about it. In West Virginia, selenium drains into streams from coal mining, and kills a lot of fish. Consider the following toxic substance:

Polychlorinated biphenyls (PCBs) were widely used as dielectric and coolant fluids, for example in transformers, capacitors, and electric motors. Due to PCBs' environmental toxicity and classification as a persistent organic pollutant, PCB production was banned by the United States Congress in 1979 and by the Stockholm Convention on Persistent Organic Pollutants in 2001.^[1] According to the U.S. Environmental Protection Agency (EPA), PCBs have been shown to cause cancer in animals, and there is also evidence that they can cause cancer in humans.^[2]

Now pcbs are very bad indeed, a much small concentration and humans get cancer. PCB is a manmade combination of a petrochemical, benzene and chlorine. Now pcbs have been spilled, misused and have caused great harm. The chemical that Freedom industries spilled in West Virginia is likely nasty stuff, it is also a manmade organic compound, a solvent designed to clean coal. It spilled from a storage tank and Freedom industries will likely go bankrupt as a result.

Here is what you need to know. Large concentrations of selenium in fresh water makes selenium water in which fresh water fish cannot survive. But fresh water fish also are poisoned by salt water run off. Fresh water fish do not survive in the great Salt Lake of Utah. But selenium, like salt, is naturally occurring and generally harmless, like salt. So when the debate about selenium pollution begins remember, this is more a water cleanliness problem and less a real toxic issue.

The main problem in West Virginia, the one I would object to, is the back filling and damning of streams as a way to dispense excess dirt and rock from coal mining.  I would like to see that stopped first, and worry the selenium second.