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Mailvox: Deflation vs inflation

JB inquires regarding the matter:

Congratulations, it looks like you’re right about deflation vs. inflation. I thought based on the historical example of other systems going belly up that inflation was always the final scenario. But your grand graphs of credit implosion are everything a rubbernecker could wish for in twisted limbs and crashed clunkers.

I’m still not clear on what’s going on, and I’d like to run a few questions by you. Credit contraction is ~ to GDP contraction, yes? So if deflation is keeping pace with reduction of goods and services, then prices should remain constant, right? Consumer goods are a subset of that. Are you predicting deflation from the consumer’s perspective, and if so, why? What I’m getting at is that even though the credit bubble’s magnitude dwarfs all other considerations, its implosion doesn’t logically necessitate consumer deflation, as far as I can understand. I guess your main reason there won’t be inflation, besides the impossible magnitude of the credit bubble, is that the Fed is private and won’t order the whirlybirds aloft. Why do you think a legal technicality like that is going to stop the Fed’s big brother, the US Federal Government? Given the trend, shouldn’t we be more surprised if any banks at all manage to remain private?

First of all, let me say that the question is far from settled. I understand the inflationary case and it is a perfectly reasonable one, albeit based on general principles that I do not believe apply in the specific case of the peculiar U.S. monetary system. I’m going to address the matter in more detail in a column and explain why I expect the debt-money supply to decrease to a certain, specific level at a minimum. However, the easiest way to achieve a basic understanding of the issue is to look at this chart which incorporates the latest Federal Reserve flow of funds account of total debt outstanding.

The red line amounts to the case for inflation. This is the Federal spending that the inflationistas assume can grow indefinitely and has, in fact, increased by $2 trillion since the third quarter of 2008. However, even this 35% increase in 18 months has not been sufficient to counterbalance the ongoing credit contraction in the household, financial, and state & local government sectors. Moreover, that Federal spending increase is now coming to an end even as the contraction in the financial sector doubles its speed and state & local spending hits the insolvency wall.

In answer to your questions, GDP contraction is not equal to debt contraction even though debt is a primary factor in sustaining GDP growth. Because GDP is disproportionately weighted towards government spending and because the G component of GDP is dependent solely upon the growth in government debt rather than overall debt, GDP can increase even in the face of overall debt contraction. But it cannot do so for long, as the chart above indicates. As far as the banks go, because they are insolvent by every meaningful accounting measure, they have already been quasi-nationalized because although their profits remain private, their losses are charged to the public.

Reading in the real world

While I admire the generous purpose behind John Scalzi’s The Big Idea posts, in which he provides space to an author to explain The Big Idea underlying his newly published book, I have to admit that I have tended to have little interest in most of books that have been featured there because I simply don’t read much SF/F anymore. I increasingly find that I’d rather play it.

Since John doesn’t do much the way of non-fiction at Whatever and because the Ilk tend to be more interested in exposure to more serious subjects than the latest attempt to adultize angst-filled teen vampire/wereseal novels, it occurs to me that a similar feature might be welcome here, especially in light of how Mr. Rockwell was kind enough to provide me with space at his site to introduce RGD the week it was published. So, if you are the author of a non-fiction book in the field of history, politics, economics, or science that has been published since August 2009, I’d like to invite you to email me a 500 to 2,000-word account of what you believe to be worthy of note about your new book accompanied by a link to an image of the cover.

On a barely tangential note, this afternoon I had what I thought to be a fantastic idea for my next non-fiction book. Reflecting on the missing Life of Epaminondas, I completely cracked up over the thought of writing Godwin’s Lives, which would be a set of parallel Lives ala Plutarch purporting to compare one classic historical figure with a modern one, albeit every classic figure would be compared to Hitler. Needless to say, this is why Spacebunny seldom asks me to share what I’m thinking.

And to return to the subject, more or less, I’m presently reading Makers of Ancient Strategy, edited by Victor Davis Hanson. It’s a very good collection of essays and I will post a review of the book next week. However, it was a little startling to encounter VDH’s brief rebuttal – a fairly effective one, to be honest – addressed to the “many commenters” who had referenced the Athenian attack on Syracuse in criticizing the American invasion of Iraq. I suspect he may have had this column in particular in mind.

Letter to Vox Day VIII

Luke continues our dialogue. In case you haven’t figured it out yet, this isn’t going to end anytime soon. I will respond before the end of the month, but in the meantime, I will put a few of Luke’s commenters straight:

1. Vox happens to be a genius by the dictionary’s numerical definition. Nevertheless, Vox does not believe he is a genius because he rejects that definition in favor of alternative and less specific definitions that are based upon uniquely superlative intellectual accomplishments. Writing the occasional novel, demolishing the central New Atheist arguments, and correctly anticipating the global financial crisis are certainly intellectual accomplishments, but they are neither unique nor superlative.

2. As will eventually become clear, Vox is not rejecting any of the suggested criteria out of concern for their potential effect on his theories. As a general rule, it is a mistake to project one’s own predilection for intellectual dishonesty on others; at the very least, one should wait to see what the justifications are before passing judgment.

3. Vox has no authority on these matters and has no problem whatsoever with having his epistemology examined or exposed. This accusation is ironic, for as Luke and many of the VP readers know, it is usually the atheist camp that prefers to avoid epistemological examinations.

4. The fact that you don’t understand a point Vox made is not prima facie evidence that Vox is being obscure or even insufficiently clear. If a majority of the readers understood it without any trouble, logic dictates that you consider the probability you are either insufficiently informed or insufficiently intelligent to understand it.

Above the law

It’s a “gimmick” when banksters do it. It’s criminal fraud whenever anyone else does:

Lehman Brothers Holdings Inc used accounting gimmicks and had been insolvent for weeks before it filed for bankruptcy in September 2008, but there was not extensive wrongdoing, a court-appointed examiner has found.

In a 2,200-page report made public on Thursday, examiner Anton Valukas, chairman of law firm Jenner & Block, reported the results of his more than year-long investigation into who could be blamed for the firm’s collapse, which deepened the global financial crisis.

The examiner said that while some of Lehman’s management’s decisions “can be questioned in retrospect” and the firm’s valuation procedures for its assets “may have been wanting,” those responsible for the firm had used their business judgment and were largely not liable for the firm’s collapse.

So, Lehman’s management ran the company into insolvency, then committed weeks of fraud to hide that fact, but somehow they “were largely not liable” for the collapse of the company? How is that even remotely credible? Especially in light of how the FDIC has made it perfectly clear that most banks are fraudulently hiding their present insolvency by assigning hugely exaggerated values to their assets. Even by the FDIC’s overly conservative measure of “estimated losses”, it is obvious that there is a huge gap between reported assets and actual assets.

This can be computed by subtracting the average FDIC-seized bank’s deposit liabilities from its reported assets, then adding the estimated losses. In 2009, this average asset gap was $505 million against reported assets of $1,229 million, or 41.1%. In 2010, the average asset gap is presently running $272 million against reported assets of $638 million, or 43.7%. This indicates that the smaller banks are every bit as insolvent as the bigger banks. As are the giant banks; Karl Denninger explained the probable extent of their balance sheet fraud a few days ago:

So let’s be generous and assume that the “big banks” are over-valuing their assets by 25% – the lower end of the range of what the FDIC says is, through actual experience, what’s going on, and add it all up.

Bank of America shows $2.25 trillion in assets.

Citibank shows $1.89 trillion in assets.

JP Morgan/Chase shows $2.04 trillion in assets.

And Wells Fargo shows $1.31 trillion in assets.

This totals $7.49 trillion smackers.

The FDIC’s experience with seizing banks thus far suggests quite strongly that all four of these entities are lying about these valuations, and that were they to be seized the loss embedded in them (and for which you, the taxpayer would be responsible) is somewhere between $1.49 and $2.99 trillion dollars.

Based on the last two years of data, the actual gap between the assets and liabilities of the Big Four is actually more like $3.2 trillion, or roughly the size of Citibank and Wells Fargo put together. Despite their failure to act, the FDIC obviously knows about this. By way of evidence, here was the FDIC’s response to one of the Market Ticker’s readers who asked about the difference between bank-reported assets and FDIC-reported estimated losses: “That’s the value the bank had them on their books on their year-end financials, but the true value is much less. It is similar to someone in Las Vegas saying that their house is worth $300,000 because that’s what they paid for it three years ago, but the reality is, if they had to sell it in today’s market, they’d only get $250,000 for it. The FDIC has to sell assets in today’s market.”

The end of entitlements and the occupations

After looking at the books, do you still think democracy in Iraq and Afghanistan is a priority?

50% of the federal budget right now goes to entitlements.

This last month we posted a record $220.9 billion budget deficit. We took in $107 billion but spent $328 billion.

Isn’t that special. We only funded 32% of expenditures?

Remember – entitlements were half of that $328 billion.

So let’s see if we can do the math here.

Entitlements were about $164 billion last month in spending. The rest was, of course, the rest.

But we only took in $107 billion.

So even if we eliminated all entitlement spending we still did not have enough money to cover the rest.

The insane thing is that the only pressure from the American people to date is to fight entitlement reduction even though eliminating all entitlements isn’t enough to stem the financial bleeding. One certainly can’t say they aren’t going to get what they deserve. Correct me if I’m wrong, but my impression is that even the Tea Partiers don’t want to cut back on military spending.

Quality sports hate

Even if you don’t care about baseball, you have to loathe the Yankees after reading this tale of attending a Yankees game:

My father-in-law was thrilled when we reached our seats. He couldn’t believe it. He’d never had seats this good. “Hey,” he said with a twinkle in his eye, “maybe we’ll catch a foul ball.”

I looked around. “We got a shot,” I said.

“You know,” he continued, “I’ve been coming to Yankees games for 65 years. Never caught a foul ball.”

Never caught a foul ball? Celebrating his 71st birthday? My father-in-law? Kids, we have a mission.

So we got to the seats, and remember, these were crazy good, expensive seats. Sitting behind us in Row 2 were four kids who I’d guess were between the ages of 8 and 10. A couple of things immediately stuck out about these kids:

1. They were bragging to one another about all the different toys, vacations, servants, whatever they all had.
2. There were no parents in sight.

Apparently, they were just dumped there or something. I know baseball is America’s pastime and kids are cute, but let me tell you something, and I’m not gonna lie. These kids were superannoying. They came across as spoiled, rich kids. They were loud, demanding and, just like you would expect of unsupervised children, completely without a care about anyone around them.

They were discussing foul balls and bragging to one another about how many they had. This one had five, this one had three, a third had four, so on and so on. They apparently came to these seats a lot.

The game started, and we were close enough that the players could hear us. The kids knew this. And started screaming at the players.

“Throw us a ball! Give us a ball! Hey, mister, we want a ball! Give us a ball! Hey, throw the ball here! We want a ball! Please, mister, throw us a ball!” On and on they went. “Hey, mister! Mister! MISTER! GIVE US A BALL!”

If you think that is annoying to read, imagine it being screamed during the game, constantly, inning after inning, directly behind you. In the bottom of the fourth inning, the Yankees went 1, 2, 3 with the final out a ground out. As the Blue Jays ran off the field, first baseman Carlos Delgado (told you it was a while ago) tossed the ball up into the stands. Many folks went for it, but I came down with it.

I turned to my father-in-law, all smiles. “Here’s your ball, Joe.”

As he looked at the ball, the kids started yelling. “Can we have the ball? Hey, mister, we want that ball. Give us the ball!” “We’ve been yelling,” and so on. My father-in-law turned to me and said, “If you want to give the kids the ball, that’s OK.”

Hells. No.

My father-in-law was a softy. I’m not. And I was not going to give up Joe’s first foul ball in 65 years so some spoiled brats could add it to their collection. Just because you beg for something in an annoying manner does not mean your efforts are rewarded. Learned that while dating in high school.

But some wise guy a few rows behind the kids started a chant. “Give-the-kid-the-ball. Give-the-kid-the-ball.” It picked up steam. “Give! The Kid! The Ball! Give! The Kid! The Ball!” Soon, the whole section was chanting this. GIVE! THE KID! THE BALL! GIVE! THE KID! THE BALL!

I ignored it and tried to watch the game. The kids turned from annoying to nasty. “Hey [mouth-washed-out-with-soap word No. 1]! Give us the ball, [mouth-washed-out-with-soap word No. 2]! He was throwing the ball to us, [mouth-washed-out-with-soap word No. 3, which, frankly, I’m not sure where an 8-to-10-year-old kid would learn].”

We continued to try to watch the game.

Then the food bombardment started. Peanuts, hot dogs and beer were thrown at us. Repeatedly. Security was nowhere to be found. We asked folks to stop, which made it worse. We tried to ignore it. But the food, beer and insults kept coming.

Order was finally restored a half-inning later when the first-base umpire came over and handed the kids some balls. The kids bragged to us. “Told you we’d get a ball, a–hole.”

And that’s why I hate the Yankees.

It’s not just the team and the way it is run. It’s not just its owner or the cheating, performance-enhancing drug users A-Rod and Andy Pettitte.

It’s the collective known as Yankee Nation.

I came away from that game with a hatred of the Yankees and was absolute in this belief: Yankees fans are subhuman. Everything they and the Yankees stand for was represented during that half-inning. Like the kids, they are spoiled and demanding and see things only from their self-indulgent point of view. Like the adults, they act out when they don’t get their way.

Of course, there is a better reason to despise the Yankees. They are, after all, the New York Yankees.

The end of medical privacy

I wonder what the average over/under is on how long it takes a government to misuse, abuse, or publicly release the statistical data it originally gathered under the aegis of keeping it completely secret:

Patients’ medical records go online without consent

Patients’ confidential medical records are being placed on a controversial NHS database without their knowledge, doctors’ leaders have warned. At present 1.29 million people have had their details placed on the system. A further 8.9 million records are due to be added by June. By the end of next year, the NHS hopes to have more than 50 million uploaded. The “summary” records contain basic medical information including illnesses, vaccination history, and could include medication patients have been given. Ages and addresses are also included.

Seriously, who still falls for the idea that government can collect data without abusing it in some way, shape, or form? Where are the usual suspects? Forget the libertarians, you would think the pro-abortionists and gays, at the very least, would be totally up in arms about anyone being able to go online and see how many infants a woman has murdered and find out who is rolling with six strains of herpes in a suspicious location. And what bizarre mutation of “liberalism” could possibly entail placing the most intimate information about millions of people in the public’s hands?

Keep in mind that this is almost surely going to be a consequence of Obamacare. Once you give the government complete control, you can expect absolutely no ability to influence whatever madness results.

Murdering girls for women’s rights

As I have said many times before, calling a feminist a feminazi is an insult to the German National Socialist Worker’s Party. Abortion is a global human holocaust that dwarfs the scale of the Endlosung by an order of magnitude, and it is a predominantly anti-female holocaust.

According to CASS, China in 2020 will have 30m-40m more men of this age than young women. For comparison, there are 23m boys below the age of 20 in Germany, France and Britain combined and around 40m American boys and young men…. And, as is becoming clear, the war against baby girls is not confined to China.

Parts of India have sex ratios as skewed as anything in its northern neighbour. Other East Asian countries—South Korea, Singapore and Taiwan—have peculiarly high numbers of male births. So, since the collapse of the Soviet Union, have former communist countries in the Caucasus and the western Balkans. Even subsets of America’s population are following suit, though not the population as a whole.

Abortion simply must to be banned for what it is and has always been, first-degree murder. The feminist fall-back position, protecting a woman’s right to choose so long as she chooses in an approved manner, is not only a moral monstrosity, it is a logical absurdity.

I am often falsely accused of being misogynistic because I point out the readily apparent economic and societal infelicities of the modern mythology of sexual equality as well as the way the American legal system abuses men, particularly fathers. But if I genuinely hated women, then surely I would celebrate the ongoing destruction of millions of baby girls instead of opposing it so vociferously. And it is eminently fair to ask, in return, how anyone can reasonably be considered a supporter of women’s rights when they are in favor of permitting literally millions of baby girls to be put to death around the globe.