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Financial Skeptic Bulletin, October 2013

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[Oct 28, 2013] Survey Small business owners appear poised to flip the switch to growth mode


Stagflationary Mark wrote on Fri, 10/25/2013 - 5:55 pm (in reply to...)

emergency hotdog wrote:

but if it was at an apex it would be a blow off top. we're too good at finding reasons to be bearish.

Been bearish 9 years so far. No complaints. Long-term treasuries have treated me very well, as did gold and silver from 2004 to 2006.

some investor guy:

Most small businesses don't grow or shrink much. They are either happy where they are at, or complain and blame others.

At a prior employer, we had a middle markets group. There were several types of clients:

  1. Long term family owned functional business. Slow to no growth.
  2. Franchises. Not much growth at each one, but sometimes more and more franchisees.
  3. Mean, disfunctional, and under the impression that they shouldn't pay much for anything. They wanted to have everyone else compensate for their poor planning, disorganization, drinking problem, or untreated psychological issues.
  4. Smooth growth, mostly on internal funds. Usually good people to work with.
  5. Explosive growth. Moved to our large client group within a few years. Many software companies in this group.

some investor guy

1 currency now -yogi:

And if they shrank much, they'd be out of business, because they are small

I used to be a small business. One of my clients hired me at a pretty good rate. When you hear that stat that 85% of small businesses are gone in 5 years, remember, many of them closed for happy reasons. Hired, bought out.

[Oct 27, 2013] Economist's View Democrats Will Have to Swallow Entitlement Cuts

foosion said...

Trading permanent changes in Social Security and Medicare for some short-term spending is stupid, both as a matter of policy and politics.

It's long been a mistake to sell your birthright for a mess of pottage.

Darrell said in reply to foosion...

Except that we can get the spending now, and roll back the cuts later.

Any cuts to SS and MC will be targeted for 10+ years from now, as you need at least half of boomer support.

A few years from now, demographics will better support rolling back the cuts.

ilsm said in reply to Darrell...

It is the death of a thousand cuts.

Thirty years ago Reagan with Tip O'Neill, Moynihan and Greenspan sold increased age and increased payroll taxes to keep SS for the Boomers.

That the extra money was squandered!

No benefit cuts and no payroll increases, they will be squandered and another "entitlement" crisis will be 10 years off.

Don't appease them they have been after SS since 1937.

ilsm said in reply to Aaron...

Put politicians aside, their tool is misdirection. 40% of US government outlays are other than "mandatory" and all projections keep them steady even though the pentagon's half of the 40% is twice the burden it was in 2000.

The largest part of the safety net trust funds' "t-bills" paid for war profits, more money for the funds will be more of the same and 5 years in the future there will be more about "actuarial soundness".

The answer to long term actuarial "stability" of medicare and social security is not short term revenue increases or safety net outlay "reform". That extra cash hides deficits, misspending for war profiteers' wars of choice, tax cuts and crony capitalism.

If anyone really cares about long term stability of the great society build the middle class, eliminate war profiteering, shutter the empire, and raise progressive taxes.

First step, tell the pentagon safety net for the needy is more important than the health of the war industry and a new occupation command in Africa.

What Christiaan Hofman said!

Michael Pettengill -> Min...

When I was a teen in the 50s, SS wasn't going to exist by the time I got old, but next month I qualify for full SS and the claim is it will run out of money in 18-20 years and then only pay 75% of the stated benefit.

But the irony is President Reagan is the hero of those who seek to destroy SS, but three decades ago he said:

"Today, all of us can look each other square in the eye and say, ``We kept our promises.'' We promised that we would protect the financial integrity of social security. We have. We promised that we would protect beneficiaries against any loss in current benefits. We have. And we promised to attend to the needs of those still working, not only those Americans nearing retirement but young people just entering the labor force. And we've done that, too.
"So, today we see an issue that once divided and frightened so many people now uniting us. Our elderly need no longer fear that the checks they depend on will be stopped or reduced. These amendments protect them. Americans of middle age need no longer worry whether their career-long investment will pay off. These amendments guarantee it. And younger people can feel confident that social security will still be around when they need it to cushion their retirement.

"These amendments reaffirm the commitment of our government to the performance and stability of social security. It was nearly 50 years ago when, under the leadership of Franklin Delano Roosevelt, the American people reached a great turning point, setting up the social security system. F. D. R. spoke then of an era of startling industrial changes that tended more and more to make life insecure. It was his belief that the system can furnish only a base upon which each one of our citizens may build his individual security through his own individual efforts. Today we reaffirm Franklin Roosevelt's commitment that social security must always provide a secure and stable base so that older Americans may live in dignity."

EMichael said...

The problem is that the right has grouped SS and Medicare together under entitlements, and from the posts in here, it seems the left has fallen for their trap.

We have to separate those two programs when we talk about entitlements. When we allow them to be lumped together, we make both look like they are fundamentally flawed and need to be fixed. That is not the case.

99% of our problem has been the escalation of healthcare costs. So let's talk about those and Medicare and leave SS out of the mix.

We play into the hands(budget scare) of the right when we allow the two programs to be joined at the hip.

ilsm said in reply to EMichael...

On the 8 Nov the past two year GAO's financial audit of the public debt is released for the FY just completed on 30 Sep.

Waiting to see this years!

Last year SS was up $87B to `$2.6T, while medicare was down to ~$400B in holdings. All that represents money that should not have gone to phony wars!!

The other two big federal pensions have combined ~$1.3T with the OPM having a tiny bit from employee contribution the rest is appropriated which keeps those funds actuarially solvent.

Maybe a bit of appropriated funds for Grandma instead of Lockheed.

Min said in reply to EMichael...

"99% of our problem has been the escalation of healthcare costs. So let's talk about those and Medicare and leave SS out of the mix."

Social Security is neither broke nor broken.

As for Medicare and medical costs, Medicare is part of the solution. It is much more efficient than private medical insurance. It is part of the solution, not part of the problem.

Roger Gathman said in reply to drb48...

Yes yes and yes. Jamie Galbraith has been pushing for increasing ss benefits for a while - in fact, it would have been a great way to inject money into the system in this period of slumpiness. And of course the cost of medicine in the US is a scandal, as compared with other countries. If competition is supposed to be about the efficiencies gained by letting the deregulated price system work its magic - than the US system must be the most uncompetitive in the world. Or perhaps the price system doesn't reflect competitiveness, and perhaps the US medical system persistently pretends to be a free market one when it is of course a guild system, with a government supported and enforced guild making up the healthcare labor force. The argument about socializing or not socializing medicine is, frankly, simply ridiculous when you have a guild controlling medicine.

I think AARP should simply run ads that are simply 30 seconds of President Reagan saying what he said April 20, 1983. That might get Reagan redefined as a radical leftist socialist Democrat....

[Oct 25, 2013] Paul Farrell Explains Why The Fed-Wall Street Complex Will Self Destruct

Blast from the past...
10/05/2010 | Zero Hedge

Some rather scary predictions out of Paul Farrell today: "It's inevitable: Wall Street banks control the Federal Reserve system, it's their personal piggy bank. They've already done so much damage, yet have more control than ever.Warning: That's a set-up. They will eventually destroy capitalism, democracy, and the dollar's global reserve-currency status. They will self-destruct before 2035 … maybe as early as 2012 … most likely by 2020. Last week we cheered the Tea Party for starting the countdown to the Second American Revolution. Our timeline is crucial to understanding the
historic implications of Taleb's prediction that the Fed is dying, that it's only a matter of time before a revolution triggers class warfare forcing America to dump capitalism, eliminate our corrupt system of lobbying, come up with a new workable form of government, and create a
new economy without a banking system ruled by Wall Street
." And just like in the Hangover, where the guy is funny because he's fat, Farrell is scary cause he is spot on correct.

Handily, Farrell provides a projected timeline of events:

It gets worse: Farrell postulates that the closer we get to the Mad Max moment, the less those in charge will discuss this "optionality" of the end of the world trade.

In this rapidly unfolding scenario, the Fed cannot survive. Why? Not because the Fed is at the center of America's economic problems, beyond repair, a dying institution. But because the Fed is a pawn of Wall Street's Happy Conspiracy, which is incapable of seeing the train wreck that it set up.

This out-of-control, conspiracy of greedy Wall Street bankers, corporate CEOs, corrupt politicians and Forbes 400 billionaires will, in the near future, trigger the third catastrophic meltdown of the 21st century, a collapse that paradoxically can transform America into a new, stronger post-capitalist economy … but only after a revolution and brutal class warfare. But few will talk about what's coming.

The problem is that by using a simple metric suggested by Nassim Taleb, there is nobody Americans can trust to be the bearer of bad news, which is why everyone is and will be responsible for their own well being.

Here's Taleb's "simple metric for judging whose economic opinions are worth his time: 'Did someone predict the crisis before it happened" in the past? "If the answer is no, I don't want to hear what the person says. If the person saw the crisis coming then I want to hear what they have to say" about future crises.

Taleb target No. 1: Treasury Secretary Tim Geithner, who spoke just before Taleb at the forum. Of course, experience tells us you really can't trust anyone in government. All politicians fudge the numbers, cherry-pick data to suit their personal goals, biases and political rhetoric.

Remember Hank Paulson, Wall Street's Trojan Horse inside Washington? Earlier he had made over half a billion as Goldman's CEO. Back in July 2007 before the meltdown he bragged to Fortune that this is "the strongest global economy I've seen in my business lifetime." Never trust anything "leaders" like him say. Never. Worse, he and our clueless Fed Chairman Ben Bernanke later lied to the public that the subprime crisis was "contained." No, my friends, you cannot trust politicians and government insiders. Never.

Others whose opinions can be summarily dismissed include economists and authors:

Taleb warns: Nobel economist Krugman not only supports Keynesian deficit spending, he favors the "transformation of private debt, with all the moral hazard it entails, into public debt" that's toxic from a "risk standpoint." Worse, it's "immoral." Our "grandchildren should not bear the debts of the grandparents." OK, add Nobel economists to the list of people Taleb says you can't trust to speak "the truth.

Actually, using Taleb's "metric," you can't trust any economists. Why? Because all economists, even the best, are capable of making catastrophic errors: Remember Greenspan's sad apologies during congressional hearings after undermining America for 18 years. And remember Michael Boskin's classic $12 trillion error? Bush Sr's chairman of the Council of Economic Advisers, a respected Stanford economist, attempted to justify some cockamamie logic that his newfound Social Security savings would lower America's debt, giving a political boost for his party. He was $12 trillion wrong.

No, folks, you can't trust any economists, they're just average humans. Most have strong political biases. They're hired mercenaries who say whatever their employers ask them to say, pawns working for some Wall Street bank, corporation or politicians.

Yes, Allan reveals another character Taleb can't trust for economic advice. Prizewinning authors like NY Times columnist Tom Friedman who's book, The World is Flat is "very bad for society," misleading, having failed to "assess risk." So scratch celebrity authors from the list you can trust to tell you the truth about the future of America.

The circle of mistrust obviously includes all the corrupt idiots who control over the sheeple:

Taleb is merciless when it comes to politicians like President Obama, Congress and The Fed chairman: You can't trust any of them. Earlier Bernanke's reappointment "stunned" Taleb: He "doesn't even know he doesn't understand how things work or that the tools he uses are not empirical," wrote Taleb in HuffPost. But it's "the Senators appointing him who are totally irresponsible ... The world has never, never been as fragile," and we're stuck with an economist running The Fed whose methods make "homeopath and alternative healers look empirical and scientific."

Obama's reappointment of Bernanke left Taleb so distraught he "withdrawing into the Platonic tranquility of my library, to work on my next book, find solace in science and philosophy, and … structure trades betting on the next mistake by Bernanke, Summers and Geithner."

Taleb's "metric" essentially warns Americans to trust no one, certainly not Washington and Wall Street insiders. The vast majority fail his simple metric, "Did someone predict the last crisis before it happened? ... If the answer is no, I don't want to hear what the person says. If the person saw the crisis coming, then I want to hear what they have to say'."

Follows listing of some of the biggest hypocrites in the world:

To be sure, some continue to spit in the face of docile complicity and warn the world about what will happen:

These twenty did warn America between 2000 and 2008. Although few listened: We reported on warnings from economists Gary Shilling, Marc Faber and Nouriel Roubini, the St. Louis Fed president (Greenspan ignored him, just as Bernanke is ignoring the Kansas City Fed president today), former Nixon Commerce Secretary and SEC chairman, billionaires Warren Buffett and oilman Richard Rainwater, institutional portfolio managers Jeremy Grantham, Bill Gross and Robert Rodriguez, and major cover stories in Fortune, Harper's, Vanity Fair, The Economist and The Wall Street Journal.

However, at the end of the day, everyone has an agenda:

So who can you trust? Nobody, not me, not even Taleb. Why? In the final analysis the Buddha said it best: "Believe nothing, no matter where you read it or who has said it, not even if I have said it, unless it agrees with your own reason and your own common sense."

The problem is that if left to the average American, the looting will not finish until well after the end:

Unfortunately, America is losing its capacity to reason, its common sense, its values, its vision of the future.

Which is why the silent minority is best advised to stock up on popcorn, and watch the cannibalization and the race to the bottom resume at an unprecedented pace, as everything unravels: the best we can do is hope for some amusement as the endgame approaches the finale.

[Oct 25, 2013] Is A Major Correction Coming

Zero Hedge

Submitted by Lance Roberts of STA Wealth Management,

I recently posted an article posing the question of whether, or not, the markets had entered into the "3rd Stage Of A Bull Market?" In the article I stated:

"Are we in the third phase of a bull market? Most who read this article will immediately say "no." However, those were the utterances made at the peak of every previous bull market cycle. The reality is that, as investors, we should consider the possibility, evaluate the risk and manage accordingly."

During the radio program last night I was discussing the long term trends of the market and discussing the deviations from the long term moving averages. Moving averages are like "gravity" to stock prices. The farther away (deviation) from the moving averages that prices get; the greater the probability becomes for a reversion back to the mean. The chart(s) of the day is a monthly analysis of the S&P 500 Index and the very broad Wilshire 5000 Index from 1970 to present.


It is worth noting that currently both markets are pushing deviation extremes only seen four times previously. The difference has much to do with the "secular market" within which these deviations occurred. The deviation extremes were much shorter lived during the secular "bear" market of the 70's which effectively ended in 1982. With interest rates and inflation falling the secular "bull" market of the 90's, combined with the "irrational exuberance" of the "tech bubble", the markets were able to sustain extreme deviations from the long term average for an extended period. Ultimately, however, those extremes have always been reversed.

The current deviation from the long term average, fueled by Federal Reserve interventions, is approaching extremes in both deviation and duration. As I stated above - as investors we should always remain mindful of the risk.

My friend Cullen Roche, Pragmatic Capitalist blog, picked up on an additional concern that had also caught my attention:

"I have to admit that I start to feel a bit uneasy about things when I see all news reported as good news because it either means the economy is getting better or more QE is coming. That wouldn't bother me so much if corporate earnings were still booming and the economy was growing strongly, but neither one is occurring. In fact, the market is just driving higher on what looks like sheer optimism of continued QE; and little else.

You can see this optimism in two indicators you'll recognize. The first is Warren Buffett's favorite valuation metric – total market cap to GNP. The latest reading of 110% has only been surpassed by the Nasdaq bubble.

I'll be honest – I've never really understood the obsession with equities and being a macro guy I probably never will because I have so much love for so many asset classes and approaches. But if I were 100% allocated in equities at this point in the cycle I would feel rather uneasy about my positioning."

I have to admit that I start to feel a bit uneasy about things when I see all news reported as good news because it either means the economy is getting better or more QE is coming. That wouldn't bother me so much if corporate earnings were still booming and the economy was growing strongly, but neither one is occurring. In fact, the market is just driving higher on what looks like sheer optimism of continued QE and little else.

You can see this optimism in two indicators you'll recognize. The first is Warren Buffett's favorite valuation metric – total market cap to GNP. The latest reading of 110% has only been surpassed by the Nasdaq bubble.


I have to admit that I start to feel a bit uneasy about things when I see all news reported as good news because it either means the economy is getting better or more QE is coming. That wouldn't bother me so much if corporate earnings were still booming and the economy was growing strongly, but neither one is occurring. In fact, the market is just driving higher on what looks like sheer optimism of continued QE and little else.

You can see this optimism in two indicators you'll recognize. The first is Warren Buffett's favorite valuation metric – total market cap to GNP. The latest reading of 110% has only been surpassed by the Nasdaq bubble.


I agree with his concerns, and this is something I addressed previously in "There Is No Asset Bubble?"

The only missing ingredient for such a correction currently is simply a catalyst to put "fear" into an overly complacent marketplace.

In the long term, it will ultimately be the fundamentals that drive the markets. Currently, the deterioration in the growth rate of earnings and economic strength are not supportive of the speculative rise in asset prices or leverage. The idea of whether, or not, the Federal Reserve, along with virtually every other central bank in the world, are inflating the next asset bubble is of significant importance to investors who can ill afford to lose a large chunk of their net worth.

It is all reminiscent of the market peak of 1929 when Dr. Irving Fisher uttered his now famous words: "Stocks have now reached a permanently high plateau."

Does an asset bubble currently exist? Ask anyone and they will adamantly say 'NO.' However, maybe it is precisely that tacit denial which might be an indication of its existence."

The Worst Ex-Central Banker in the World

Economist's View

John Cummings:

I suspect from a capital flows pov, there is nothing Greenspan thinks he could of done.

But from a regulatory pov, yes, there are things he could have done.

Outside the policy rate and bond swapping, the only other real "tool" the FOMC has is regulatory.

Oupoot said...

Textbook free markets makes completes sense & it will work perfectly if not for humans. Its free market fundamentalists like Greenspan who completely (conveniently?) ignore to include human nature in their modeling, i.e. Greed, self interest, thirst for wealth power over fellow human beings, etc. Etc.

I also belief in free markets. My understanding of free markets however takes into account human nature & realise achieving free markets is rather more complex with all this human nature interference.

bakho said in reply to Oupoot...

All markets have rules, or they would not function. "Free Market" refers to the set of rules preferred by the Malefactors of Great Wealth.

kievite said...

One review of Greenspan's book on Amazon
=== start of quote ===
History repeats itself, first as tragedy, second as farce. Those immortal Marx's words are fully applicable to Chairman Greenspan.

The book actually reads as a typical Soviet Politburo memoir, partially ghost written, mostly hagiographic, and filled with spicy animosity toward former peers. Nixon's portrait (the latter shrewdly did not appoint Greenspan to the coveted position) in the book is actually quite revealing about Greeenspan's personality.

Like Bolshevik's theories, neo-classical economic theories Greenspan preached have the power of shaping (and distorting) the economics of the country. In this sense Greenspan, like members of Soviet Politburo, played a destructive role by forcing the economy of the USA (mal)adapt to a superficially attractive but unrealistic economic doctrine.

The extremes and absurdities of financialization of the economy, government interference with the stock market, as well as financial market deregulation of the last twenty years neatly correspond to the extremes of Bolsheviks policies after they came to power in perfect "tragedy vs. farce" fashion. As in "extremes meet" cases, the promise of brighter economic future brought lemmings on board and (later) off the cliff (extreme centralization and restoration of feudal rule under smoke screen of leash for banksters and parasitic rents in case of Bolshevism, extreme deregulation and restoration of the "Law of Jungles" under smoke screen of "free markets" propaganda in case of Greenspan).
Greenspan's commonality with members of Soviet Politburo runs deeper then the merely superficial similarities such as being over the age of 60 when elected to the position (Greenspan was 61 when he was appointed by Reagan as Fed Chairman).
First of all, as revealed by the book, the personality of Greenspan pretty well resembles the personality of members of Soviet Politburo. His failure is also very similar and is an apt manifestation of the failure of a broader class of economic messianism and a lack of humility in the face of the complexity of the economic world, coupled with an aggressive, quasi-platonic desire to shape the world according to the particular economic ideal.

Among striking commonalities:

- Compulsive, almost sociopathic careerism. Ability to change views on the spot when it is conductive to career objectives (Greenspan's views on gold is one example). Relentless desire to preserve his position at all costs. Actually this typical "member of the Politburo" trait was pretty skillfully exploited by the Bush administration and colored the presentation of actions of Bush administration (famous "Iraq war was about oil" statement) and whitewashing of his own actions in promoting Bush tax cut in the book.

- Extreme, sociopathic evasiveness and hypocrisy; the tremendous ability and skill in diverting the blame for blunders from his own person. As for hypocrisy, here is a man preaching laissez-faire who repeatedly intervened in the market to save the wealthiest Wall Street players. Like members of Soviet Politburo who send their wives for shopping in Paris and sons and daughters to study in Oxford, Greenspan actually used his laissez-faire clichés as a smokescreen to mask his real intentions, the same way the Politburo members used communistic slogans. Another analogy is that Greenspan used Ayn Rand positivism philosophy in the typical way Marxism was used in the USSR by aspiring candidates to Politburo: as a magical "Sesame" word that opens the door to high office for ruthless careerists. Actually Ayn Rand positivism has a lot of common with Marxism: while Marxism presents working class as a hero and demonize capitalism, her heroic version of Capitalism includes demonizing socialism or even the milk of human kindness. Ayn Rand's capitalist entrepreneurs are depicted in the idealized fashion uncanny similar to "the fearless fighters for the right of working people" in communist literature. You need just to replace the key hero of The Fountainhead with the director of Soviet factory to get Onion's style parody on Soviet literature with its still characters and artificial dialogues. This was also the way I see "free market" fundamentalism ideology was used by Greenspan, who in reality was promoter of corporatism, or at least state capitalism. Like Politburo members, he was far from "true believer" -- rather he was simply a careerist, serving ideas that he never fully personally supported himself. In the same venue his association with Ann Rand was just "marriage of convenience", an association useful for promoting his career and we will read too much into it if we assume that he really shared her positivist views. Similarly it was a popular saying in the USSR that there was fewer Marxists in the Soviet Politburo then in any Montmartre cafe at any time of the day.

-- The same brilliant Machiavellian-style political abilities. Greenspan book reveals him as a masterful political tactician, a real master of Washington politics chess. At the same time much like members of the Soviet Politburo he was pretty average in his specialty, a shallow economist unable to read or accurately forecast the markets trends (a standing joke in his private practice) despised by some talented hedge fund managers like Jim Rogers.

-- Enjoyment and active pursuit of the role of the "Grand Inquisitor" of economic profession suppressing any dissent in best Soviet Politburo style ( the Brooksley Born and Alan Blinder stories are two well known examples and just the tip of the iceberg).

-- A pathological desire for admiration, narcissism. Greenspan suffers from common with members of the Soviet Politburo inclination toward cult of personality. And his desire for admiration includes equally common with the Politburo members uncanny ability to make pretty destructive for the country moves to ease political pressure. For example, Greenspan did not enjoy being slapped by the Senate Subcommittee for the slow recovery of the economy after the dot-com crash, and that might partially explain devastating for the country Fed policies he adopted to stimulate the economy, such as keeping the interest rate too low for too long and, as a result, inflating enormous housing bubble. Even now at his pretty advanced age, Greenspan is relentless in trying to protect and "interpret" his legacy in the most favorable way possible.

- Like the Soviet Politburo, Greenspan tried to sell ghosts of the past as robins from the coming bright future. Much like Bolshevism was a neo-feudal doctrine (in a very deep sense, revenge of feudalism over capitalism ;-) with the fig leaf of Marxism on top, Greenspan libertarianism was in reality just a variant of old "might-makes-right" philosophy of jungle capitalism, the brutal, direct dictatorship of big corporations and the rich with the fig leaf of "free market" philosophy on top ( what is so "free market" in centrally controlling price of money and suppressing interest rates ? ). In no way Greenspan was/is a proponent of "free market", he is a proponent of unlimited freedom of action for big financial corporations: socialism for rich. Actually a variant of socialism for "nomenklatura" that Soviet Politburo practiced for 70+ years. Now one can reread Animal Farm for really striking depiction of similarities of Soviet system and socialism for rich dominated by financial oligarchy.

Manipulation of statistics to exaggerate growth and make his policies more acceptable ( the rate of inflation in one such measures in Greenspan's case: Like Arthur Burns he promoted the completely unscientific "core inflation" ). He also was susceptible to the "Cult of GDP" so typical for the Soviet Politburo.

All this makes reading Greenspan's memoir much like reading a former Soviet Politburo members memoir. Somewhat fascinating but equally disturbing.

One amusing detail is that he himself is blissfully unaware of the stark similarities of his position to the position of members of the Soviet Politburo (the most powerful unelected official in the country) which makes reading his assessment of Soviet economic nomenklatura really funny and worth the price of admission. Actually it's just one cent in the used hardcover market, which just about the fair market price of a typical memoir of any discredited Soviet Politburo member.

All in all the book is about the "triumph and tragedy" of a pretty talented person who betrayed everything to achieve career success. A cautionary tale about the value of moderation in personal pursuits and desires as well as importance of self-knowledge in personal success and happiness.

=== end of quote ===

Matt Young said...

Clinton/Greenspan, a solid 3.5% YoY real growth, upward concave real growth at 4% in the end, both G and the banker outperforming the market. The only dynamic duo to accomplish the feat. Congrats to them both.

kievite said in reply to Matt Young...

Is this a joke ?

anne said in reply to Matt Young...

January 15, 2013

Annualized Growth Rates

Alan Greenspan

1987 to 2005 Real GDP = 3.17%
1987 to 2005 Real GDP per capita = 2.04%

Clinton - Greenspan

1993 to 2000 Real GDP = 4.06%
1993 to 2000 Real GDP per capita = 2.85%

anne said in reply to Matt Young...

The quickest economic growth during a Presidential term from 1945 till the present came during Kennedy-Johnson, then came Clinton, then Reagan. Kennedy-Johnson was easily the quickest, while Clinton was far quicker than Reagan.

Typepad is holding the data.

kievite said in reply to anne...


During 1992-2000 period even drunkard Yeltsin would perform well as a US president. There was a unique confluence of several factors:

1. It was the triumph of neoliberalism (collapse of the USSR happened in 1991) which gave international corporations and especially US corporations carte blanche for foreign expansion

2. It was period of dollarization of xUSSR space where assets were bought for pennies on a dollar. Dollarization of the xUSSR space also suppressed/eliminated inflation in the USA. It is very difficult not to show decent growth figures during such a period.

3. It was period of internet revolution where the US hardware and software were sold at large premium all over the globe. And was one of the two (the other was financial sector) of the USA real growth industries (which went into a bubble, but that's another story).

4. During this period outsourcing became especially profitable due to the revolution in telecommunications and growth of power of computers, which simplified logistics.

5. Introduction of 401K provided large publicly traded corporations (along with Wall Street) with systematic infusion of money, that helped to finance capital projects (and helped to increase bonuses for the brass). It also led to tremendous growth of mutual fund industry, which was the main beneficiary of decimation on old pension plans that started at this period.

[Oct 10, 2013] Global Capitalism October 2013 Monthly Update

An excellent lecture...


I really like this guy. Makes sense with no bullshit

Robin Roth

As always, informative, urgent, interesting. I wish more Americans examined Richard's works. We badly need reform. What will it take? The people should be the priority!

Matières à Réflexion For Tuesday 9 October

October 9, 2013 | Jesse's Café Américain
Once again I resort to this format since Google is toddling towards a fix, but slowly. I may add things here, top down, throughout the day.

"He who makes a beast of himself gets rid of the pain of being a man."

Samuel Johnson

"Truly, this earth is a trophy cup for the industrious man. And this rightly so, in the service of natural selection. He who does not possess the force to secure his Lebensraum in this world, and, if necessary, to enlarge it, does not deserve to possess the necessities of life. He must step aside and allow stronger peoples to pass him by."

Adolf Hitler

For Wednesday, 9 October

Jesse's Café Américain SP 500 and NDX Futures Daily Charts - Edgy Trade, Light Volume, As Usual

I think the slogan for the US might become 'we reject your reality and substitute our own.'

At least I heard that expressed about twenty or thirty times on Bloomberg television today, and too often from the mouths of guest economists.

Is there something in the water, or the phases of the moon? While driving to and from the hospital today I saw more foolishly aggressive driving from people than I have seen in some time. And I am not fussy or unused to busy roads. This was almost gratuitous aggression, speeding up to cut other people off and gain nothing, and I am not even counting those who were obviously texting.

Have a pleasant evening.

Jeffrey Sachs Interview at The Guardian About Economics and Ethics

07 October 2013

I have started this interview after an introductory discussion, some words about the World Bank and its role in the world, and some innovative work that Sachs and others have been doing to improve the life of people in sub-Saharan Africa.

He begins to move now into a more general discussion now of economics and ethics after some explanatory comments on the Millenial Village movement in Africa.

If you wish to hear something more, here is a link to a talk which Jeff Sachs gave at the London School of Economics about the ideas in his book, The Price of Civilisation.

[Oct 02, 2013] Shutdown GOP Extremists Are Hijacking the Government, Says Blodget

Bushevisks of course are extremists but I am not sure that this is not good cop, bad cop show.

"Wall Street looked at Washington and saw a group of fighting children, knew exactly what was gonna happen and this is all baked into the stock market," says Blodget.

But the worst is yet to come he insists. "Our government is actually considering defaulting. This is just preposterous...our government has been hijacked by a group of hostage takers," he argues.

[Oct 02, 2013] Republicans Should 'Take Hostages' Over Debt Ceiling; U.S. Won't Default, Says Stockman

David Stockman, former head of the Office of Management and Budget under Ronald Reagan, a former member of Congress, and author of The Great Deformation: The Corruption of Capitalism, insists the shutdown is a "sideshow."

(Check out the video to see why his background in the OMB and experience with shutdowns leads him to say this.)

... ... ...

And the first thing the government will do, he says, is spend $30 billion paying the interest on the debt (according to Stockman, the government could also pay social security retirees, the armed services, and medicare reimbursements despite broaching the debt limit).

"It is a complete red herring to say there will be a default," he tells us. "There will never will be a time in which there is not enough cash to pay the interest."

[Oct 01, 2013] Remember When Republicans Were Worried about Uncertainty

Economist's View

Matt Young
(Reuters) - JP Morgan chief executive Jamie Dimon is headed for a scheduled meeting, along with other bank executives, with President Barack Obama on Wednesday, the Wall Street Journal reported.

While talking to WSJ, an industry participant said concern over the debt ceiling battle would be raised during the meeting.
On the first day of shut down my true love gave to me
One JP Morgan CEO

Matt Young

Wolf Richter: Bubble Trouble: Record Junk Bond Issuance, A Barrage Of IPOs, "Out Of Whack" Valuations, And Grim Earnings Growth

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.

When Blackstone's global head of private equity, Joseph Baratta, said Thursday night that "we" were "in the middle of an epic credit bubble," the likes of which he hadn't seen in his career, he knew whereof he spoke.

Junk bond issuance hit an all-time record of $47.6 billion in September, edging out the prior record, set in September last year, of $46.8 billion, according to S&P Capital IQ/LCD. Year to date, issuance amounted to $255 billion, blowing away last year's volume for this period of $243 billion. The year 2012, already in a bubble, set an all-time record with $346 billion. This year, if the Fed keeps the money flowing and forgets about that taper business, junk bond issuance will beat that record handily.

Junk-bond funds got clobbered in July and August as retail investors briefly opened their eyes and realized what they had on their hands and fled, and they went looking for yield elsewhere, but there was still no yield in reasonable places, and so they held their noses and picked up these reeking junk-bond funds again. Cash inflow doubled over the last week to $3.1 billion, the most in ten weeks.


I wonder if Dimon and Obama will notice that ginormous bubble in the market?

Matt Young


U.S. stock-index futures advanced, signaling the Standard & Poor's 500 Index will rebound from a three-week low, as investors weighed the impact of the first partial government shutdown in 17 years.

Merck & Co. jumped 2.9 percent after the company announced an overhaul that will eliminate 8,500 workers. Under Armour Inc. increased 0.9 percent as JPMorgan Chase & Co. upgraded the maker of workout clothing. Symantec Corp. lost 2 percent after saying its chief financial officer left.
Shutdown? What shutdown?

Matt Young

Yesterday, provided its annual update - this time to the 2010 three year and 2011 two year cohorts - and to nobody's major surprise, learned that things just got even worse. To wit: "The national two-year cohort default rate rose from 9.1 percent for FY 2010 to 10 percent for FY 2011. The three-year cohort default rate rose from 13.4 percent for FY 2009 to 14.7 percent for FY 2010." Putting this in context, according to Bloomberg defaults have risen to the highest level since 1995.

This is what has been driving JP Morgan out of the business for the past few months.

Fred C. Dobbs

(True Believers are always Right.)

Conservatives With a Cause: 'We're Right'
NYT - September 30, 2013 - ASHLEY PARKER

WASHINGTON - ... Senator Harry Reid, the Nevada Democrat and majority leader, had his own colorful, if somewhat skewed, metaphor about why much of the government was about to grind to halt in a take-no-political-prisoners fight over what is essentially a simple six-week funding bill, attributing it to the emergence of a "banana Republican mind-set."

Mr. Reid's language was evocative, and the implication was serious. With Democrats controlling the White House and Senate and with millions of dollars spent getting the health care law to the starting line, what gives House Republicans the idea that they can triumph in their push to repeal, or at least delay, the Affordable Care Act when so many veteran voices in their party see it as an unwinnable fight?

"Because we're right, simply because we're right," said Representative Steve King, Republican of Iowa, one of the most conservative of House lawmakers. "We can recover from a political squabble, but we can never recover from Obamacare."

Representative Raúl Labrador, Republican of Idaho and one of the original proponents of the so-called Defund Obamacare movement, was similarly sanguine. "We can always win," he said Monday afternoon, as he jogged up the stairs to a closed-door conference meeting, where House Republicans gathered to plot their next move.

Representative Pete Sessions, Republican of Texas and chairman of the House Rules Committee, hinted that Republicans were unlikely to give up without at least another round since they see their campaign against the health care law as something of a higher quest. And many, if not most, people they talk to - colleagues, friendly constituents, activists, members of advocacy groups - reinforce that opinion, bolstering their belief that they are on the right side not just ideologically, but morally as well.

"This isn't the end of the road, guys," Mr. Sessions said with a grin. "This is halftime." ...

American Debt, Chinese Anxiety, Elaborated


That is an analysis perfectly appropriate for 2013, with the Fed embarked upon quantitative easing, extended guidance, and the economy with lots and lots and lots of economic slack.

My point was that an increase in default risk will induce China -- and perhaps more importantly all foreign central banks and private entities -- to have reduced demand for dollar assets over time, relative to what would have occurred in a world without a group of people hell-bent upon Treasury default (technical or not). If that reduction in demand shows up at a time (say five years from now) when demand for credit is rising, then interest rates will rise above what would otherwise occur. Figure 2 depicts projected Federal interest payments and ten year yields, from the February 2013 CBO Budget and Economic Outlook (data for figures).

Figure 2: CBO forecasts/projections of net interest payments as a share of GDP (blue, left scale), and ten year Treasury yields (red, right scale). Source: Budget and Economic Outlook (February 2013) data for figures, figures 1-3, 2-4.

The net interest payments were projected to be 2.5% of GDP in 2018 if the ten year yield were 5.2%; compare against the 2.6% recorded on 10/18. Now, who knows how much of a default premium is built in, and how much more if the Ted Cruz faction can produce yet more debt ceiling standoffs (or an actual default).

Coming back to China, current projections from the IMF (see Article IV report from July) are for an increasing current account balance from the relatively small levels of 2012 -- up to 2.7% of GDP in 2014, and 4% by 2018. By 2018, reserves will be increasing on the order of $668 billion. However, this forecast is clearly predicated on moderate progress on structural reform and a constant real exchange rate. If there is anything the Chinese government has demonstrated, it is that when the political will is summoned, it can undertake substantial changes in policy direction. The alternative, with structural reforms and continued RMB appreciation, the current account balance to GDP ratio could be as small as 1% by 2018.

Figure 3: Chinese current account to GDP ratio in the baseline (blue) and alternative scenario (red). Source: IMF, People's Republic of China: 2013 Article IV Consultation, IMF Country Report No. 13/211, (July 2013), p.9.

So, imagine a US economy close to potential GDP five years hence, with a considerably smaller demand for US Treasurys, partly because we have made US government debt less attractive. This will result in some combination of a weaker dollar and a higher long term interest rate. Not a good outcome (a weaker dollar due to from a higher exchange risk premium might not be such a bad thing, as Krugman points out). Then we might worry about crowding out, and some of that crowding out will be directly attributable to the actions of those who had no worry about Federal government default.

Background on international currencies here. For more on the RMB as an reserve currency, see here; increasing trading, here; and for a statistical analysis of the RMB as an invoicing currency, see this paper.



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