Thursday, April 30, 2009

Decline of American Hegemony

I am afraid this article is correct. USA is declining as a world power. The enemy Taliban is more dangerous than ever threatening to take over nuclear armed Pakistan, even after 8 years of war against them. Communist North Korea now has missiles and nukes. We do not notice because we are in debt, going bankrupt, foreclosed ... states, companies, people in our economic depression.

The main problem is the low quality of our people. USA has become a nation of uneducated bankrupt debtors, ball players, rap artists, taco cooks, porn stars, video game players, gamblers, oral intercourse artists on radio, TV, movies... Nobody knows how to do real work any more.

Hopefully this depression and plague will force some needed changes and slow the decline. But USA enjoyed a boom 1945-2008 because we our competitors killed each other off in WWII. Now we will have to learn to work again to remain economically viable. But USA has many social problems that it will be hard to stay competitive. Particularly the education system is weak.

http://www.spiegel.de/international/world/0,1518,621979-7,00.html

Thursday, April 9, 2009

Conspiracy for Catastrophe

Why does the liberal news media say nobody knew this crisis was coming until Bush comes on TV with Paulson saying taxpayers have to pay a trillion dollars or the economy would crash?

Can our politicians and regulators be so stupid or did they hide the truth? If they were dishonest then, do we have any reason to believe that they are honest now?

I remember taking classes at Berkeley back in the 1970s where they discussed the "optionality" of stocks and banks where managers can take big risks with bank assets in hopes of getting a big bonus then if the scheme flops they could dump the losses onto stock holders and tax payers. A popular required class for phd was Accounting 223C "agency theory" that went into depth on problems of stakeholders hiring agents, or managers who would then try to act in their own best interests instead of being responsible. Lots of words like "asymmetric information" where one party knows much more than another during negotiations.

Seems like this whole crisis was set up and run according to script. It is also a repeat of the S&L Debacle only now much more jazzed up where the conspirators learned from their past mistakes and made it much bigger this time.

Wednesday, April 8, 2009

Bailout Banks, not Autos? Christian teaching

I am worried Geithner, Summers and other Obama hot shots are too much in bed with the bankers and are collecting money from them and are slanting their decisions in favor of the bankers. Why do taxpayers bailout out banks but not autos? The bankers created much of this crisis with their huge unhedged derivatives portfolios that have bankrupted the banks. They collected their bonuses and retired and have left the taxpayer holding the tab. Shouldn't we just let them go bankrupt as normal? FDIC has procedures for keeping checking accounts working as the bank is liquidated and the culprits are fired. That is Schumpeter's idea of creative destruction that leads to stronger, better banks arising from the ashes. Many banks remain in good shape.

Under traditional puritan Christian teaching, debt and spending was sinful -- theft from god. My parent's generation were much more frugal due experiencing the great depression. One benefit of the current depression is that the savings rate has gone up. It is time to change back to a more traditional lifestyle and stop so much waste.

USA spends far too much money on rap music, basket ball shoes, entertainment, TV, Radio, restaurants, toys, travel... And far too little money on education in science, math, engineering and capital stock for the production of steel, vehicles, and houses that will last longer than the mortgage.

Sunday, April 5, 2009

Cult of Equities, Houses

I studied Realtor.com last night and there are hundreds of cheap houses and condos all over California in such places as Marysville, Stockton, Antioch, Los Banos, Riverside, and even good air Santa Maria in Santa Barbara county! Such massive deflation is an indication that we are in a depression, and prices probably have fallen even more than than they fell in the 1930s.

I am really down on stock reinvestment at this time, and yet, it seems that is all I see on the TV. Earnings are "zilch" and the only prospect is capital gain, and that depends on the zero-sum efforts of all investors, which is zero on the total. So, where is the logic to hold stocks?

I fully agree. We are in a sucker's rally. Our auto, newspaper, housing, banking industries are dead and many more walking zombies essentially dead but have not figured it out yet. The only growth areas are drugs, schools, hospitals, and other mostly government entities which do not issue stock. Eventually they "may" come back but don't hold your breath. Chickens are coming home to roost and problems can no longer be swept under the rug as in boom times. USA people, government, companies are all in debt and much income must be for interest, not spending.

I am tired of hearing the argument that Treasuries are losing with little or no interest return. A little is better than nothing.

I have had that feeling for a long time. Stock market just lost half their value. Treasuries earn little but at least they are going up, not down.

For one thing, Treasuries are not less than inflation.
Absolutely as my house price survey indicated. We are in massive deflation. Lots of fancy clothes, boats, cars going for half off. Computers are astonishingly cheap. Dell netbooks for $350! A fully functional computer that would have been very powerful 3 years ago and unavailable 10 years ago. About the only thing going up is college tuition, drugs, crime, guns, doctors, taxes, lobbyists, and earmarks. Even lawyers are getting fired in droves.

Bills are going for .75 percent, and inflation is currently hovering around that or near zero.

I am getting 2% on FDIC insured 7 month CDs. Not much but better than zero and better than inflation in this environment.

Also, you are right about the "cult of equity" thing. If an investment is not bringing in at least 5 percent, as the saying goes, cultitsts say it is "criminal" to let your money get eaten up by inflation. Where do they get that reasoning???

They are just trying to sell stocks. Mosts texts study post world war II boom data and find stocks get around 15% (with inflation at 20% at one point in that history). They will probably continue to quote high returns and omit the inflation problem and the fact that stocks just fell 50%!

I have been skeptical of these studies for a long time and absolutely critical of them since 1998. The theories and data collection methods have defects. That is what I am now going to write up and submit. Before the crash the chances of publication was nil. Now editors might read it.

Saturday, April 4, 2009

Cult of Equity versus Pensions

The problem of CalPERS and many other funds is pie-in-the sky "cult of equity" that think stocks can continue to get 15% year after year while bonds only get 3%. So they buy lots of stocks and then add to that levered hedge funds and risky derivatives in hopes of getting even more. The stock market fell in half so did most of those funds. Many hedge funds did even worse. It is true that stocks did well for a long time because of the post world war II USA bubble. That seems to have halted and our companies have gone bankrupt or are struggling to compete against other countries.

Pension funds would have been better in Treasury bills for the past decade or longer -- Dow is far below the 10,000 that it was trading at 10 years ago. Bills and Bonds may due better over the next 10 years as well due to the lousy company performance. Stocks pay dividends but those are small and cannot grow much due to the poor profit outlook of companies.

The book below details a theory that the huge debt and deficits of the federal government is just a way of making the rich richer and the poor poorer. Middle and lower income people depend on social security that depends on the government running a surplus -- savings -- so that they will be able to write checks in the future. The deficit/debt means that middle and lower income people will not get their checks. Further their company pensions are disappearing. State government pensions are losing money and the states going bankrupt so those pensions will be greatly reduced or disappear.
Pensions must be fully funded and invested in very safe assets such as Treasury Bills and inflation must be kept under control. Gambling on more risky assets such as stocks will probably reduce pension payouts in the future. There is no law of nature that says that stocks must earn more than Treasury Bills. It is just a happenstance of a particular period in USA history.
Joe

http://www.amazon.com/Capitalists-Workers-Fiscal-Policy-Distribution/dp/0674031679/ref=sr_1_1?ie=UTF8&s=books&qid=1238888817&sr=1-1
Capitalists, Workers, and Fiscal Policy: A Classical Model of Growth and Distribution (Hardcover)
by Thomas R. Michl (Author)

Looks like CalPers will continue to stumble with the investment team they have now. Most Retirement Funds are conservative, but not these guys. New York is in bonds, and that is where CalPers should have gone. Now it is too late, and they are trying to do what the loser does at the crap tables, ... to double up and win back what he lost. What a failed stack of cards!!!

Looks like the clowns at CalPERS are still reporting losses on their alternative investments such as Apollo which is down 50%. The Obama Stock Market Rally will not help these alternative investments and seems to be fizzling anyway. The economy is weak but will get a huge boost
from the Obama budget. Bernanke says he will fight inflation but the cow is already leaving the barn and the monetary spigot is turned on and more stimulus is on its way. Foreign investors may panic and start pulling their money out. Currency collapses tend to happen suddenly as everybody heads for the door at the same time so as not to get trapped in a failed currency. A dollar collapse will permanently stigmatize us as a third world banana republic. Obama's photo-op visit will be quickly forgotten in a collapse. He maybe should stay home and put out
fires instead of burning fuel flying around the world.

Republicans should stop criticizing Obamas deficits after running up big deficits on their own. The most recent surplus was under Clinton. Reagan's deficit was so big he had to reverse course and raise taxes early in his administration. Wait until we see the result of this plan. It will probably run up huge debts but that remains to be seen. To get out of the depression we will need deficit spending. Bush should have raised taxes or cut spending during his boom -- then Republicans would be in a stronger position to criticize.