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.