Unite Arab Emerites to default?

Dubai's government says it will default on the debt it owes vie Dubai World.

Very interesting. The rich oil sovereigns will stiff western bankers, but western governments make good on the debt carried by the Chinese capitalists. The story here is that our government was fairly more honest than Arab oil sheiks. It will be a few years before Western banks trust Arab sheiks again. But, default is generally a good thing to do, though the best hing is to avoid borrowing so much.

Do Keynesians understand the Yield Curve?

My hordes of readers know that I come from a signal processing background, adaptive linear filters and minimum variance equilibrium. So, coming to economics I had to ultimately see the real Yield Curve as a measured output of the system. The Yield Curve is really a partial Fourier Transform with the negative terms hidden.

What does this mean for the investor? Well, the first point is that the investor is watching two things, the planned growth of an investment, the upper left quardant of Fourier and the risk of reversal, the negative right side terms. The investor is publicly told about proposed positive growth, and analysts fill in the potential for reversal in the investment. But we only publish measured positive growth.

The yield curve, in frequency space is a Normal distribution of frequencies, a bell shape. The result derives from the minimum phase condit6ion which says that at equilibrium inventory levels are minimum. The investor sees the published right side of this distribution and has to individually estimate the negative terms on his/her own. That is the key to investing, and good investors do it automatically with out realizing they are performing a Fourier Transform.

Looking at Yield from frequency space rather than term space is instructive. The shortest possible term is overnight, and that has a frequency of 365. The update frequency of the central bank is 4, equivalent to 3 months. The signal between 365 and 4 is generally noise. So in frequency space the string is truly long.

Now Kling says that we are mostly in a liquidity trap, Krugman says a liquidity trap is unusual. The realdefinition is that the economy is never in a liquidity trap, it always measures the Yield Curve, either the bankers yield curve or the shoelace yield curve, it is always measured.

So what to they mean by liquidity trap? They mean that the point at which the shortest term on the bankers Yield meets the noise floor on the X axis. That point represents the bandwidth of the Central Banker, and that bandwidth is generally about three months, allowing the central bank to track economic movements on scales longer than six months (bandwidth is 1/2 the sample rate). That point, where the noise floor and the shortest term meet always exists if the economy exists. We are never in a liquidity trap, there is always a bandwidth point at which the central bank is effective.

What does this mean for the Taylor rule? The Taylor rule is likely the best norm for meeting Congressional dictate, but is will be cyclic. The only equilibriating response is for the Fed to select the sample rate it needs by noting where the short term meets the noise floor. Then in frequency space, make that term interest rate fill in the nominal Bell Shape we need from the yield curve, and ignore Congress in the process.

Ho-fung Hung does good reporting on China

Here, he lays out the internal conflicts with clarity. After reading his essay I come away feeling that China is the next deflation we should expect. They suppress their own rural consumption in favor of the American market. A long history of the PRC harming the rural population. Unfortunately, China may have to start its deflation with a major uprising. (found this link from some comments at Thoma's blog)

More notes of the Republican Communist Party

First, CATO's Dan Mitchell once again points out, correctly, that the federal budget mess is entirely due to Republican big government spending.

Then we have new stories about Grandad Bush, the Nazi traitor who was almost arrested for treason. The new twist is grand-dad Bush may have actually attempted a military coup while working for the nazis.

Then, or course, there is the long standing business relationship between the Carlyle Defense group, Daddy Bush, and one of the key Al Queda Bin Laden brothers.

Just to remind ourselves that Republicans are both Communist and Traitorous.

News about pensions

Bloomberg reporter David Evans won the London-based Foreign Press Association’s 2009 Media Award for best financial story this week, for “The Hidden Pension Fiasco.”

An interesting story about how public pension fund managers have been making up current funding shortfalls with bond issuance. They cover the shortfall, but very quickly rack up continuing debt service for the taxpayer. This policy creates cliff diving phenomena. When future growth is overestimated, the realization comes suddenly and the deflation of government operations swift. California is in this process with debt service rising, consideration of a two tier employment structure, and each budget failing to balance after a few months.

Congratulation Dave Evans

Bruce Greenwald and the Depression

Arnold Kling points me to Bruce Greenwald on a diagnosis of the Great Depression:

Since about 1870, productivity growth [in agriculture] had been 4% to 5% and demand growth had been 1% to 2%. Agricultural prices had been up before and during the first World War, and then they were down. But the inexorable trend had been down, with all this growth in productivity and limitations on demand, and sooner or later prices were going to collapse. Approximately 35% of the US population was either in farming or in farm towns or were supporting a farming enterprise, and they were going to be marooned.

My problem here is how do productivity increases create poverty? Small farmers were bought out, to create economies of scale, but the over all sector would have been wealthier. Rationally invested small farmers would get better estate prices for the aggregation of the sector. Many of them would have been re-employed in related agricultural transportation and mechanics. Others should have left the farm with some net cash.

I was in Bakersfield when the migrants were raising their kids. I saw that work picked right up for the migrants in highway and housing construction, transportation, auto servicing, retail, and small manufacturing in the post war period. Other than war, the post Depression period was a period of job growth and opportunity.

The problem in the Great Depression was the mismatch between communication technology and transportation technology. Somewhere between 1927 and 1928, mass market commercial broadcasting begin and the utility of the car as a shopping device skyrocketed, but the roads could not meet the task. Downtowns literally stopped moving when the broadcasters began advertising.

Sue the Bots!

Is my knee jerk reaction to the problem of robots going out of control and killing people.

In other words, should robot manufactoring in the USA get some partial immunity from robot accidents? Kenneth Anderson gets into it at the Volokh Conspiracy. He references a CATO scholar who thinks robot immunity will advance the technology base in the USA. (HT Instapundit)

I think not. Robot need to stand on their own with no change in TORT. As robots and humans introduce themselves to each other, the relationship must start with equality so that the economy can appropriately adjust where and when robots yield the most good. Besides, I am generally in favor of Tort over Regulation.

How's the Dollar?

Trading around the 15 year average. It is also trading about the 2 year average. I see little panic.

Ezra Klein posts nonsense

"The public option is not an entitlement"

Says Ezra Klein. The argument is that government subsidies for the public option, or private option in health care are not entitlements.

What does that nonsense mean, and why is he writing for a national journal? Ezra, go read the constitution, there is no such thing as an entitlement, it is a political creation and subject to the same cost overruns as any other political football.

Get real, and quit writing nonsense in public. This is the same semantic nonsense Thoma and Krugman use to get their ideology past economic theory. If we wonder why we are in this mess, look no further than so called economic scientists twisting their theory to get an ideology they like.

How government plans health care

Congress making healthcare decisions.

"On page 432 of the Reid bill, there is a section increasing federal Medicaid subsidies for “certain states recovering from a major disaster.”

The section spends two pages defining which “states” would qualify, saying, among other things, that it would be states that “during the preceding 7 fiscal years” have been declared a “major disaster area.”

I [Jonathan Karl] am told the section applies to exactly one state: Louisiana, the home of moderate Democrat Mary Landrieu, who has been playing hard to get on the health care bill."

Liberal economists making healthcare decisions:

"I think it's important to have a public option in the bill in some form, even an unsatisfactory one, because it will be much easier to expand the option once it's in place than it would be to pass new legislation in the future that creates a public option."

US Department of Health and Human Resources making healthcare decisions:

New guidelines saying women between the ages of 40 and 50 should not receive mammograms to screen for breast cancer have met a groundswell of rejection from many medical centers, breast cancer survivors and numerous doctors -- some of whom have advised their patients to ignore the recommendation.

Just three recent stories I picked up, and I expect these stories to repeat themselves for 20 years. Congress selling health care for votes, liberal economists claiming inefficiency as superior, and doctor monopolies manipulating the cost control system. Welcome to the horrid mess of Congress managing the medical industry.