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Daily Archives: August 18, 2011


No hyperinflation yet

One of the key worries about the Federal Reserve’s policy of Quantitative Easing has been the fear that it would result in hyperinflation at some point. But, Mike Shedlock, writing at Business Insider, asserts that inflation is not what we should be fearing: deflation is. Despite his rather self-centered, Ooh-look-what-a-cool-boy-I-am writing style, he makes an excellent point, and provides some valuable insight.

Shedlock actually has a rather different definition of inflation and deflation than most do, as he doesn’t concentrate primarily on the money supply or price levels, but rather the state of credit markets.

Inflation
Inflation is a net increase in money supply and credit, with credit marked-to-market.

Deflation
Deflation is a net decrease in money supply and credit, with credit marked-to-market.

Hyperinflation
Complete loss of faith in currency.

The first two definitions have nothing to do with prices per se, the third does (by implication of currency becoming worthless).

To determine whether we are currently experiencing inflation or deflation, he uses the following criterion:

Symptoms of Deflation

  1. Falling Credit Marked-to-Market
  2. Falling Treasury Yields
  3. Falling Home Prices
  4. Rising Corporate Bond Yields
  5. Rising Dollar
  6. Falling Commodity Prices
  7. Falling Consumer Prices
  8. Rising Unemployment
  9. Negative GDP
  10. Falling Stock Market
  11. Spiking Base Money Supply
  12. Banks Hoarding Cash
  13. Rising Savings Rate
  14. Purchasing Power of Gold Rises
  15. Rising Number of Bank Failures

He then goes through all 15 criteria and shows fairly persuasively that—according to his definition, at least—we are in the middle of a credit-led deflation, despite the fact that consumer prices are rising. certainly, asset prices are declining.

Which, I think just means we’re having stagflation, if today’s CPI numbers are to be beleived.

In any event, as I’ve been saying since 2008, the danger of our policy mix is not inflation in the short-term, but rather a recreation of the Japanese response to the currency crisis/deflation of 1992 that brought about the "Lost Decade". We’ve actually doubled down on the Japanese policy, and are experiencing the same economic result.

So, businesses and consumers are holding tight to their wallets, adjusting their balance sheets…and waiting.  Yes, there’s tons of cash sitting in banks right now that isn’t going anywhere, and as long as banks have a shortage of credit-worthy customers seeking loans, all of that cash is gonna keep sitting there are excess reserves.

Meanwhile, the one thing that has kept the dollar buoyed as the world’s reserve currency is that there’s really nowhere else to go. As attractive as the Euro might have seemed a couple of years ago, there’s a real chance that the Euro is on it’s way out, except perhaps as the joint currency of France and Germany.

What I would point out, though, is that Shedlock’s definition of hyperinflation is a state that exists as a result of a psychological event, not the result of something one can forecast via some predictive empirical  measurement. That’s unsettling, because you can never quite predict when a psychological breaking point in public trust is reached. No matter how deflationary credit might be at the moment, if we begin seeing a serious, sustained rise in price levels for consumer goods, I’d be a little worried. A steep fall of the dollar’s price in the FOREX market would be worrisome, too. If hyperinflation is the result of a psychological shock disconnected with any sort of statistical measurement, then I’d be careful finding too much comfort in statistics.

The numbers say that deflation is our biggest problem right now, though, and I’d say that’s generally right. If the economy picks up and those excess reserves begin to flow into the hands of consumers though, I’d be looking very hard at the Fed as the velocity of money picks up, to see how they plan to sterilize the excessive growth in the monetary base they’ve created.

~
Dale Franks
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The NYT on the UK riots — the Grey Lady still doesn’t get it

The New York Times published an editorial today that reminds one how  liberally biased the paper’s editorial board is.  In its editorial it claims that all of the problems the UK has recently undergone are the result of the current administration and their austerity measures.

Cameron has been talking tough, suggesting that perhaps eviction or cutting off benefits to looters who are on the public dole might be one means of punishing offenders and making others think twice about committing such crimes again.   He’s even talked about cutting off internet service in areas hit by flash looting mobs to cut their communication links.

The Times finds all of that an abhorrent over-reaction, and there are some good arguments against such moves by government.  But that’s not where the NYT editorial board gets it wrong.  It is here:

Such draconian proposals often win public applause in the traumatized aftermath of riots. But Mr. Cameron, and his Liberal Democrat coalition partners, should know better. They risk long-term damage to Britain’s already fraying social compact.

Making poor people poorer will not make them less likely to steal. Making them, or their families, homeless will not promote respect for the law. Trying to shut down the Internet in neighborhoods would be an appalling violation of civil liberties and a threat to public safety, denying vital real-time information to frightened residents.

Britain’s urban wastelands need constructive attention from the Cameron government, not just punishment. His government’s wrongheaded austerity policies have meant fewer public sector jobs and social services. Even police strength is scheduled to be cut. The poor are generally more dependent on government than the affluent, so they have been hit the hardest.

What Britain’s sputtering economy really needs is short-term stimulus, not more budget cutting. Unfortunately, there is no sign that Mr. Cameron has figured that out. But, at a minimum, burdens need to be more fairly shared between rich and poor — not as a reward to anyone, but because it is right.

This is utter nonsense.  As with most on the left the Times prefers to cast blame at those who they disagree with ideologically instead of actually analyzing the problem and admitting that perhaps it is their ideology which has led to these problems.

Point one – these riots weren’t a result of several months or even several years of austerity.  They are the culmination of a decades long social engineering project that has created a culture and is dependent upon government for everything.  It has coddled it, excused its behavior and now finds it can’t afford it.   The socialists have finally run out of other people’s money and are now paying the price for such foolhardy social engineering.

Point two – the answer to the problem isn’t now nor has it ever been more “public sector jobs and social services”.  Instead the answer is to entice the private sector into these areas and have them produce productive jobs.  Of course, if the benefits program, i.e. the dole or “the game”, continue as it has, there’s absolutely no incentive for anyone to take a job.   One of the standing jokes is about an government appeal for businesses in the UK to hire Brits instead of Eastern Europeans.  But British businesses know that Eastern Europeans will actually show up, on time and work, whereas Brits won’t.   That is a cultural problem – not an austerity problem.   And it is a cultural problem that has been caused and nurtured by the likes of those who write editorials for the New York Times.

Point three – it won’t get better by doing the same thing again.   As has been said by many, the definition of insanity is doing the same thing over again and expecting different results.   This is a social engineering project that has failed.  Committing money they don’t have to recreate it is the height of idiocy.

The Times also stoops to a bit of class warfare by claiming David Cameron is a product of “Britain’s upper classes and schools”.  The implication being he has no concept of the problem, being so far removed by class, and thus “he has blamed the looting and burning on a compound of national moral decline, bad parenting and perverse inner-city subculture”.

Janet Daley at the UK’s Telegraph rips into that premise and calls the Times on its hypocrisy:

Yes indeed he has, thus putting himself in agreement with about 90 per cent of the British population. But the New York Times in as uninterested in the overwhelming majority of British public opinion as it is in the great mass of American public opinion. It is as smugly and narrowly orthodox in its Left-liberal posturing as its counterparts in Britain. (If the BBC were to be reincarnated as an American newspaper, it would be the New York Times.) So it carries on in class war mode with accusations about Mr Cameron’s blithe imperiousness: “Would he find similar blame – this time in the culture of the well housed and well-off – for Britain’s recent tabloid phone hacking scandals or the egregious abuse of expense accounts by members of Parliament?”

Well as it happens, the MPs’ expenses scandal is pretty small beer by comparison to the “pork barrel” and lobbying scandals which have dogged the US Congress for generations. Would the New York Times like to opine on how much relevance the class backgrounds of Washington legislators have to those problems?

If the Times could find an angle that would help it push its outmoded ideological argument, probably so, but her point is well taken.  Dailey concludes with the real reason for the editorial, fact free as it is – it’s all about certain politics:

The remedies which it criticises Mr Cameron for adopting are, in fact, not within his personal power at all: evicting tenants from council housing is a matter for local councils not for the Westminister government. And he has not proposed “shutting down the internet in neighbourhoods [where there is civil disorder]“. As far as the New York Times is concerned, the riots of last week were all about the state of the economy and the Government’s spending cuts: an argument so untenable that even the Labour party does not advance it. In its pious conclusion, the editorial states unequivocally that “what Britain’s sputtering economy really needs is short-term stimulus, not more budget cutting.” Barack Obama couldn’t have asked for a more generous endorsement. And that, one assumes, is what this ludicrous exercise in Schadenfreude was all about.

I couldn’t have said it better myself.

~McQ

Twitter: @McQandO


Obama job approval poll numbers — the downward trend continues

The polls haven’t been kind to any politicians recently.  Congress has netted its worst approval rating ever.  And Barack Obama hasn’t been an exception as the latest Gallup poll on his job approval ratings show.  If he hasn’t figure out “it is the economy, stupid” someone better wake him up. The fact is there is a discernable trend, and that trend for him is down.  To the the numbers:

A new low of 26% of Americans approve of President Barack Obama’s handling of the economy, down 11 percentage points since Gallup last measured it in mid-May and well below his previous low of 35% in November 2010.

Obama earns similarly low approval for his handling of the federal budget deficit (24%) and creating jobs (29%).

Gallup goes on to point out, in relative terms, the President’s foreign policy ratings are fine.

The president fares relatively better on foreign policy matters, with 53% of Americans approving of his handling of terrorism and roughly 4 in 10 approving on foreign affairs and the situation in Afghanistan. Also, 41% approve of Obama on education.

However, the primary issue of the day sees his numbers in the dumps.  And, most importantly, the constituency he most needs, independents, are none to happy with his performance, or lack thereof.

 

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Nothing particularly surprising about the numbers from those identifying with the two major parties.  But that middle column spells big trouble for the incumbent if the primary issues in November of 2012 remains jobs, the economy and the deficit.  And at this point, there’s little to point to which says they won’t still be the top concerns for voters.

~McQ

Twitter: @McQandO


Congressional Black Caucus: “Unleash us” on Obama

The Congressional Black Caucus, a mostly Democratic caucus in Congress that focuses almost exclusively on the black community in America, is not particularly happy with the President.  So while the President is on a midwestern bus tour, the CBC is on a permission tour.  

Meaning?  Well they’re politicians seeking permission from the black community to “unleash” on the President according to Rep. Maxine Waters.

"We don’t put pressure on the president," Waters told the audience at Wayne County Community College.  "Let me tell you why. We don’t put pressure on the president because ya’ll love the president. You love the president. You’re very proud to have a black man — first time in the history of the United States of America. If we go after the president too hard, you’re going after us."

The problem, Waters said, is that Obama is not paying enough attention to the problems of some black Americans.  The unemployment rate for African-Americans nationally is a little over 16 percent, and almost twice that in Detroit.  And yet, Waters said, the president is on a jobs-promotion trip through the Midwest that does not include any stops in black communities.  "The Congressional Black Caucus loves the president too," Waters said.  "We’re supportive of the president, but we’re getting tired, y’all.  We’re getting tired. And so, what we want to do is, we want to give the president every opportunity to show what he can do and what he’s prepared to lead on. We want to give him every opportunity, but our people are hurting. The unemployment is unconscionable. We don’t know what the strategy is. We don’t know why on this trip that he’s in the United States now, he’s not in any black community.  We don’t know that."

She joins the rest of America wondering  “what the strategy is”.  The President has talked all around it, but as usual, has offered nothing concrete, nothing in writing and certainly nothing the CBO could score.  That would provide a record, and it appears this President wants to avoid such things.  It would also provide leadership, something this President has avoided like the plague during his tenure. 

The CBC still loves him, but they just don’t think he’s doing as well as he could (a sentiment shared by many in varying but overwhelming degrees).  So, fingers firmly in the wind, the CBC is asking permission to launch on the Prez:

As she discussed her dilemma — frustrated with the president but hesitant to criticize him lest black supporters turn on her — Waters asked the crowd for its permission to have a "conversation" with the president.  "When you tell us it’s alright and you unleash us and you tell us you’re ready for us to have this conversation, we’re ready to have the conversation," she said.  Some members of the crowd immediately voiced their approval.

"All I’m saying to you is, we’re politicians," Waters continued.  "We’re elected officials.  We are trying to do the right thing and the best thing. When you let us know it is time to let go, we’ll let go."

"Let go!" some in the audience yelled.

Indeed.  But don’t expect the same sort of treatment the CBC would give a GOP leader to be “unleashed” on Obama. 

It is interesting, though, to analyze situations like this and to realize that there are very few if any constituents who are pleased with the President’s performance and leadership.  All have different reasons – to far left, not left enough, etc. – but almost all seem to agree he’s provided little if any leadership during his presidency. 

As for the CBC and their constituency – they’ll still vote for Obama and will support him to the bitter end, which many hope is January of 2013.  However, like many communities of voters on the left, their enthusiasm isn’t at all what it was when it was Candidate Obama they were supporting.   And that lack of enthusiasm could be fatal to Obama’s reelection hopes next year.

~McQ

Twitter: @McQandO