Category: Uncategorized

Debt-deflation in action

Detroit pensioners will receive 16 cents on their expected retirement dollar:

On Friday, city financial consultant Kenneth Buckfire said he did not have to recommend to Orr that pensions for the city’s retirees be cut as a way to help Detroit navigate through debts and liabilities that total $18.5 billion. Buckfire said it was clear that the city did not have the funds to pay the unsecured pension payouts without cutting them.

“It was a function of the mathematics,” said Buckfire, who said he did not think it was necessary for him or anyone else to recommend pension cuts to Orr.

Are you saying it was so self-evident that no one had to say it?” asked Claude Montgomery, attorney for a committee of retirees that was created by Rhodes.

“Yes,” Buckfire answered. Buckfire, a Detroit native and investment banker with restructuring experience, later told the court the city plans to pay unsecured creditors, including the city’s pensioners, 16 cents on the dollar. There are about 23,500 city retirees.

The secured creditors, by which is meant the banks, received 75 cents on their dollar. In light of this, you may wish to keep in mind that as a bank depositor, you are a similarly unsecured creditor who is loaning money to institutions that no longer have to mark their assets to market. I estimate that the average bank assets are 40 percent lower than recorded, so you should understand that the amount of money you have in the bank is likely 60 percent of what you see on your statement.

At best.

The Detroit pensioners are fortunate the banks were willing to take a 25 percent haircut. If not, they would have received even less, perhaps even nothing.

This is why we are seeing the likes of Paul Krugman waxing increasingly hysterical as they call for More Inflation Now! With the Federal sector finding it increasingly difficult to prop up Z1/L1, (L1-G actually fell for the first time since Q2 2008), and the three main private sectors average 1.1 percent quarterly growth between them, the economic winds are blowing rather cold again.

Homeschool Nazis

Matt Walsh points out the historical reality to anti-homeschoolers:

I’d like to treat you to a look at a few snippets of some emails I received yesterday, after a certain “controversial” segment on my show:

“I never realized you were so anti-education…”

“It figures that a teabagger would hate education so much…”

“….so it seems you would rather have a nation full of illiterates…”

“….I get tired of your anarchist propaganda…”

“I’m sure Hitler would be very proud of you…”

That last one — the obligatory “you’re as bad as Hitler!” charge — is especially ironic, considering the subject that prompted these responses: public education. Specifically, my belief that government education is an unmitigated disaster, and can only be remedied by more and more families deciding to remove government from the equation and educate their children themselves. That last emailer is, predictably, a proud product of public school. But you already knew that, in light of his hilarious historical ignorance.

Contrary to his claims, Hitler would not have been very “proud” of my pro-home school rhetoric. In fact, he would have been quite displeased. In fact, he probably would have expressed that displeasure in a manner which would have left no room for interpretation. That’s because Hitler actually outlawed home schooling (a law that’s still enforced in Germany today, and passionately endorsed by our own Justice Department). The Fuehrer was a huge proponent of public schooling — and that’s not an attempt to compare modern public school proponents to Nazis.

But, you know, if anyone comes close to mirroring the National Socialist Party on this particular subject, it obviously isn’t the home schooling folks…

The whole article is pretty good, as Matt goes on to explain how the public school system is working precisely as designed. The fact is that if you believe in public education, you are every bit as much a Nazi as someone who believes Jews should be oven-baked and every bit as much a Communist as someone who believes in the abolition of private property. Adolf Hitler and Karl Marx were both absolutely avid advocates of public education, in fact, “Free education for all children in government schools” is the tenth plank of the Communist Manifesto.

Public school is systematic child abuse. It is that simple. Don’t ever be defensive about home schooling. When someone asks you why you homeschool, just tell them “public school is child abuse” and give them the opportunity to explain how and why that statement is incorrect. They will not be able to do so.

Anti-Americanism in Europe

It’s completely understandable why average Europeans are beginning to turn anti-American:

US intelligence has been operating a global network of 80 eavesdropping centres, including 19 European listening posts in cities such as Paris, Berlin, Rome and Madrid, the German magazine Spiegel has reported.

The new revelations, which Spiegel said were based on leaked American intelligence documents, are certain to fuel international outrage at the sweeping scale of US international surveillance operations.

Spiegel also reported that the telephone number of Angela Merkel, the German chancellor, has been a target of US surveillance since 2002, when she was leader of the opposition.

Mrs Merkel, who telephoned President Barack Obama on Wednesday to express her anger at reports that her phone had been hacked, was still under surveillance until a few weeks before the US leader Berlin in June, Spiegel said.

Even before the latest reports, Germany said that it would send a high-level delegation to the US this week to demand answer s at the White House and National Security Agency (NSA) about the reports that Mrs Merkel’s phone was tapped. The team will include spy chiefs, German media reported.

I had an interesting experience this weekend that exposed how many Europeans feel about the NSA revelations. My team was playing an away game and I got a little lost trying to find a soccer field. Most villages have signs clearly marking where their main field is, but this one didn’t, so I stopped at a small restaurant where several people were hanging out on the deck, smoking and drinking.

They were obviously locals, so I parked the car, got out, and asked them where the field was. I was wearing my team’s jacket, and as we are known to have a few Portuguese players, one of the men asked me if I was Portuguese, most likely because of my accent. The two women both laughed at that and said: “but come on, look at him, he’s clearly not Portuguese.”

When I explained I was originally from America, the man made a face, held his hand up to his ear like a telephone, and said, “USA? Why are you listening to my mobile phone? Why are you listening to my phone calls?” He was joking, of course, as he promptly laughed, slapped me on the shoulder, and provided directions to the field, but it really startled me to discover that in a tiny village in the middle of nowhere, the immediate reaction to an American would be to bring up the NSA.

And the more elite Europeans aren’t blind to the opportunities presented by the scandal either. I spoke to several high-level investment executives over the last few weeks, and to a man, they see the scandal as being a reason for Europe to make a serious effort to break away from the technology chains of Google, Microsoft, Oracle, Twitter, Facebook, and other American companies that have dominated the world. The larger the corporation, the more determined they are to keep the US out of their emails and servers.

As more and more revelations of tech-enabled spying come out, it wouldn’t surprise me to see nations deciding to subsidize national alternatives and perhaps even eventually banning the use of American software. And why shouldn’t they? How can they possibly accept the status quo? It’s not inconceivable that the long-term result of using the NSA to spy on everyone through international business and the consequential shattering of trust may be a factor in the material reduction of transnational trade.

This isn’t merely a diplomatic or political scandal, it is probably an economic one as well.

Why Iran – and everyone else – needs nukes

Frankly, at this point, I wouldn’t be surprised if countries like Switzerland and Sweden began thinking about developing or acquiring nuclear weapons, as apparently that is the only way to convince the USA and/or Israel to mind their own business:

During a panel at Yeshiva University on Tuesday evening, Sheldon Adelson, noted businessman and owner of the newspaper Israel Hayom, suggested that the US should use nuclear weapons on Iran to impose its demands from a position of strength.

Asked by moderator Rabbi Shmuley Boteach whether the US should negotiate with Iran if it were to cease its uranium enrichment program, Adelson retorted, “What are we going to negotiate about?”

Adelson then imagined what might happen if an American official were to call up an Iranian official, say “watch this,” and subsequently drop a nuclear bomb in the middle of the Iranian desert.

First of all, Iran is not an American problem. If Israel genuinely believes such an act is necessary and justified, they have their own nukes. Second, how can this sort of irresponsible talk not increase the determination of the Iranians to get their own nuclear devices operational as soon as possible?

It certainly makes one glad that the presidential candidate Adelson was almost single-handedly financing did not win. No matter how bad Obama is, there can be little question that McCain would have been worse.

When hope dies

Let none ever say the football gods are not cruel:

In January of 1975, after the Vikings lost to the Steelers in the Super Bowl, Emmett Pearson made a promise. He wouldn’t shave his beard until the Vikings won a Super Bowl. He kept that promise, too.

Most likely, Pearson never figured he’d live another 38 years without shaving – a trim, maybe – and die with his beard intact.

The fan from Welch Township, Minn., who got a bit of attention a few years ago when the Vikings almost made the Super Bowl, died at 83 years old on Monday, according to his obituary.

Pearson was 31 years old for the Vikings’ first season in 1961, and lived until he was 83. And he never saw his team win it all. The Vikings lost four Super Bowls and had a good chance to win it all a few other times, most notably 1998 and 2009, only to fall short in heartbreaking fashion in the NFC championship game.

Anklebiters and other critics would do well to keep this in mind when they’re trying to get my goat: I’ve been a die-hard Vikings fan since I was a little boy. What can you possibly do beyond what the the No-Name Defense, the Steel Curtain, John Madden’s Raiders, Roger Staubach, Drew Pearson, Denny Green, Gary Anderson, Brad Childress, and Tracy Porter have already done?

Some people consider me heartless. But then, what Vikings fan isn’t?

My theory is that it was probably the Josh Freeman debacle that killed the poor guy. When you’re resorting to starting Christian Ponder after exhausting every other possible option, it is eminently clear that there is no hope.

Everything is fine, the Krugman promised

And those four horsemen you see riding this way, they’re just out for an afternoon canter. Keep in mind these soothing assurances come from the same Nobel prize winner who, contra his ex post facto self-congratulatory posturing, didn’t see the 2008 financial crisis coming:

Once upon a time, walking around shouting “The end is nigh” got you labeled a kook, someone not to be taken seriously. These days, however, all the best people go around warning of looming disaster. In fact, you more or less have to subscribe to fantasies of fiscal apocalypse to be considered respectable.

And I do mean fantasies. Washington has spent the past three-plus years in terror of a debt crisis that keeps not happening, and, in fact, can’t happen to a country like the United States, which has its own currency and borrows in that currency. Yet the scaremongers can’t bring themselves to let go….

Look at Japan, a country that, like America, has its own currency and borrows in that currency, and has much higher debt relative to G.D.P. than we do. Since taking office, Prime Minister Shinzo Abe has, in effect, engineered exactly the kind of loss of confidence the debt worriers fear — that is, he has persuaded investors that deflation is over and inflation lies ahead, which reduces the attractiveness of Japanese bonds. And the effects on the Japanese economy have been entirely positive! Interest rates are still low, because people expect the Bank of Japan (the equivalent of our Federal Reserve) to keep them low; the yen has fallen, which is a good thing, because it make Japanese exports more competitive. And Japanese economic growth has actually accelerated.

Why, then, should we fear a debt apocalypse here? Surely, you may think, someone in the debt-apocalypse community has offered a clear explanation. But nobody has.

So the next time you see some serious-looking man in a suit declaring that we’re teetering on the precipice of fiscal doom, don’t be afraid. He and his friends have been wrong about everything so far, and they literally have no idea what they’re talking about. 

First, numerous clear explanations have been offered. It is well-known that Paul Krugman does literally no reading of economics outside his Neo-Keynesian paradigm, as evidenced by his disastrous attempt to criticize Austrian economic theory I addressed in RGD. His grasp on it wasn’t quite as bad as the guy who didn’t understand why such a small country’s economy was so important, but it wasn’t much better.

Second, if there isn’t a potential debt apocalypse on the horizon, then how does Mr. Krugman explain the 5-year anomaly in a 65-year period shown to the left?  I’m not going to bother producing a new graph, because the picture looks exactly the same from 1948 to 2013.

Total Credit (Z1) rose at a very steady rate from 1948 to 2008. Like clockwork, the 60-year quarterly growth rate averaged around 2.3 percent per quarter. In the 22 quarters since Q1 2008, the average quarterly Z1 growth rate has been 0.6 percent, leading to a current credit demand gap of $26 trillion with Zn, which is where Z1 would be now if it had simply continued to grow at its normal 60-year rate over the last five years.

And that $26 trillion gap is despite the Federal sector increasing its outstanding debt from $5.1 trillion to $11.9 trillion during those 22 quarters. The Federal sector now accounts for 20.7 percent of all outstanding debt, more than double its percentage in 2008.  Without the orgy of Federal borrowing and spending, (or in other words, if outstanding Federal debt was still only 10.24 percent of Z1) we would still be in credit deflation rather than the ongoing state of credit disinflation.

So what we are seeing is the gradual socialization of the credit markets. At this rate, if the Federal sector continues to double its share of Z1 every 16 quarters, 100 percent of the outstanding debt in the entire economy will be owed by the Federal government in the year 2023. This may not matter from the Neo-Keynesian perspective, where debt does not enter into the equations, and all spending counts the same and is equally efficient no matter the source or the recipient. But for those who understand the Austrian concept of malinvestment or are cognizant of the history of fully socialized economies, it should be troubling news indeed.

We are already in a state of debt deflation in the private economy. In Q4 2007, the private sector’s share of Z1 was $42.7 trillion. In Q2 2013, that share was $42.6 trillion. (NB: this does not count the large quantity of bad debt assets that have not yet been booked, which I estimate to be around 40 percent based on reported FDIC losses.) That is evidence that there has been no real growth in the economy despite the GDP numbers and the massive government attempts to kickstart it. One cannot push on a string, and as Ben Bernanke belatedly discovered, one cannot print private sector borrowers either.

Krugman is like a man standing in the rain on the banks of a flooding river, ignoring the frantic efforts of thousands of men piling sandbags higher and higher, calmly assuring everyone that no one has to worry about getting their feet wet. I have very little doubt that this is a column Krugman is going to regret having written in the future and very much look forward to reading his attempts to disavow it or otherwise explain it away.

PZ wrestles with SMV, loses

There are few things more amusing than watching a Gamma attempt to criticize some aspect of Game. In this case, PZ provides a fascinating critique of Rollo’s SMV graphic:

The whole concept of “Sexual Market Value”. What does that even mean? It’s dimensionless. He doesn’t have a way to look at any person and say, “Your market value is X”. It doesn’t even make sense to put this into a chart; my sexual appeal to my wife is huge, but negligible to everyone else. Scarlett Johansen may have a reputation as a very sexy woman, but her sexual “market value” to me is zero, and not only is it offensive to propose that her sex is purchasable for some imaginary sum of a million quatloos or whatever, it probably isn’t even a real commodity.

Read the whole thing, including my response, at Alpha Game. But the concept of Sexual Market Value is not a difficult one. The two women on the left are prime examples of women with very high SMVs. They are paid literally millions of dollars every year simply because they happen to represent what most people who are attracted to women find extraordinarily attractive. TL;DR: Brazilian supermodel = high SMV.

What I found most interesting about PZ’s post is an aspect into which I will delve into here rather than at AG since it is more relevant to economics than Game, is the way in which his post reveals that he genuinely does not grasp even basic principles of economics. Let’s take a look at his example of Scarlett Johansson.

Even if we take him at his word and accept that he finds her so totally unappealing that she holds no more attraction for him than an infant or an 85 year-old woman, that does not mean everyone else feels the same way. Hence the use of the term “Market”; SMV intrinsically describes the average of everyone’s subjective perspective concerning an individual. It’s not a literal market complete with prices because prostitution is illegal, but that doesn’t change the fact that the same rules of supply and demand that apply to literal markets measured in prices apply to the sexual market.

So, even though PZ’s sexual appeal to his wife is reportedly huge, because it is negligible to everyone else, his SMV is low. On the other hand, Ms Johansson’s SMV is high despite PZ’s deprecation of her because so many people find her to be exceptionally attractive. I am not one of them myself, but because I no more dictate global SMV than PZ or anyone else, I can recognize her high SMV despite the fact that I, personally, would rate her considerably lower.

These are simple principles of supply and demand. I place a much higher value, monetary and otherwise, on an Intellivision PAL system, than the vast majority of people on the planet. Many people place no value on console games, many people with an interest in console games place no value on long-outdated consoles, and most people who place value on long-outdated consoles live where NTSC is the standard.

So I will obtain a PAL Intellivision console for much less than I would be willing to pay for it because so few others value it as highly. In like manner, PZ is fortunate that he has apparently found a woman who happens to overrate his negligible sexual appeal in the converse of the way that PZ underrates Ms Johansson’s. So, it should be readily apparent that the fact value is subjective in no way means that objective observations and determinations cannot be made about the collective average of those individually subjective values, even when they are relative rather than numerically quantified.

Mastering the monster

Matrix Games announces a quasi-new game that borders upon the breathtaking:

World in Flames is Matrix Games’ computer version of Australian Design Group’s classic board game.  Covering both the European and Pacific Theaters of Operations during World War II, World in Flames is global in scope while simulating each branch of service in detail.  Land units are corps and army level, supplemented with specialized divisions.  Naval units include individual counters for every carrier, battleship, cruiser, and light cruiser in the war. Using 1000+ unique bitmapped images, air units represent groups of 250 to 500 airplanes.  With 6000+ unique units, 250+ countries, and a global map of 70,200 hexes, World in Flames is the premier World War II grand strategy game.

Nine of the eleven scenarios from Australian Design Group’s World in Flames Final Edition are included, and they range from the small 5 turn Barbarossa offensive in Russia and the 5 turn Guadalcanal battle in the Pacific, through to the 36 turn Global War campaign which spans all of Europe, Africa, the Middle East, Asia, the Atlantic, and the Pacific.  You can play either the Axis or the Allied side or take the role of one of the 8 major powers.  Besides solitaire and head-to-head, you can play over the Internet.  The last mode of play is for two players, Axis versus Allies.

In addition to the full set of rules from World in Flames, Final Edition, there are 58 optional rules.  Australian Design Group’s expansion modules Ships in Flames and Planes in Flames are incorporated into the basic game, but the inclusion of other expansion modules, such as Mech in Flames, Carrier Planes in Flames, and Cruisers in Flames, depends on which optional rules are selected.

This simulation models national production from conveying raw resources to factories  using rail lines and overseas pipelines for producing infantry, armor, naval, and air combat units.  Because oil was so important during World War II, there are separate optional rules for synthetic oil plants and deployment of oil reserves to the front lines.

This looks like an incredible blend of boardgame and computer game. No AI, but it is in the works, according to the developer. I have the computerized War in Europe, which was a somewhat similar concept, but this looks considerably more advanced and much more adapted for the Internet era. I think those hardbound rulebooks will look exceedingly nice next to my ASL folders, although I hope they will also include PDF versions for speedier reference.(1) I expect they will eventually add PBEM as well. I do hope you’ll be able to play over the Internet with a single copy.

And an interview with the designer, Harry Rowland, can be found here. It’s amazing to learn that 60,000 copies of the game have been sold over the last 30 years.

(1) Looks like they anticipated this: “The text from this section of the Players Manual is available during
game play as context sensitive help. During a game you don’t need to
leaf through the Players Manual looking for how to use a form, just
click on the Help button to bring up the text from the Players Manual
that describes the form.” That’s smart; it really is an integrated approach.

Mailvox: of God and games

Civilservant asks two questions:

Are man-made morals more arbitrary than god-made morals?  The original question involved “authority” as if that were
synonymous with “legitimate”. People typically view God’s laws (however
conceived) as being “authoritative” and therefore “legitimate”. But
are not God’s laws arbitrary in exactly the same way as Man’s laws may
be arbitrary? As I said earlier anyone may say “My Game, My Rules” with
equal legitimacy but the difficulty is in getting others to go along
with the Rules. Witness the war in heaven and Satan’s disobedience.

Man-made morals are no more arbitrary than God-made morals – and note that the capital G is necessary here – but they are considerably less-informed and they lack all legitimacy and authority.

And as for God’s laws being arbitrary in EXACTLY the same way as Man’s laws, that depends upon the specific sense of “arbitrary” being used.  Let’s consider the four definitions: 

1.subject to individual will or judgment without restriction; contingent solely upon one’s discretion: an arbitrary decision. 

God’s laws are clearly MORE arbitrary in this sense, because His will is less restricted than Man’s.

 
2. decided by a judge or arbiter rather than by a law or statute.

God’s laws are MORE arbitrary than Man’s in this sense; even though the USA, for example, has increasingly become a nation of case law rather than statutory law. God has laid down the laws of the Creation, but in relation to Man, He is more judge than legislator.

3.having unlimited power; uncontrolled or unrestricted by law; despotic; tyrannical: an arbitrary government. 

Again, God’s laws are MORE arbitrary than Man’s laws, since God’s power is less limited than Man’s. 

4.capricious; unreasonable; unsupported

In this sense, God’s laws are much LESS arbitrary than Man’s. Since we are told the wages of sin are death and that all men sin, the fact that all men die is empirical evidence that God’s laws are neither capricious or unsupported. Furthermore, God’s laws are scientifically falsifiable; all a man interested in testing the validity of God’s laws must do is not sin, then die, and they will be falsified.

So, the answer is obviously no, God’s laws are not arbitrary in exactly the same way as Man’s laws. Furthermore, it is totally incorrect to say “anyone may say “My Game, My Rules” with
equal legitimacy.”  God is the creator and owner of the game. The universe is His game, and no man has any more right to say that his rules take precedence over God’s than Adrian Peterson has the right to declare that the next touchdown he scores will be worth 100 points. Whereas, if the entity called NFL decides that a touchdown is henceforth to be worth 100 points, the next touchdown Mr. Peterson scores will, in fact, be worth 100 points.