Sunday, September 26, 2010

Higher Taxes Coming

Eventually the USA will have to deal with the huge debt that is still growing. I see 4 ways the USA can handle it. In order of probability:
1) Raise Taxes
2) Cut Spending
3) Hyperinflation
4) Repudiation

The top tax rate was over 90% for quite some time but now it is below 40%. Democrats are inclined to hike taxes. Republicans refuse to agree on a plan to cut Government spending. So the Democrats will eventually get their tax hike. But I suspect there may be some budget cuts too due to so much waste and incompetence by overpaid bureaucrats. Even Democrats cannot deny it. Republicans are just not effective advocates after they threw away the contract with America and boomed spending 2001-2008.

Poor people like inflation because they are borrowers and could repay their (many) loans with cheaper dollars in the future. Rich do not like inflation because they are lenders and would get stuck with those cheaper dollars. The rich also own the banks that own the Federal Reserve. Why would they allow the Fed to act against their interests? For example, right now the fed could be buying up more bad mortgages and rewriting the terms to let bankrupt homeowners stay in their house for pennies on the dollar. This would put a floor under house prices. However they are not doing much to help the poor but are trying to firm up their own balance sheets by getting rid of the crummy paper they already bought.

Default is possible but is very serious. They would probably print money instead. Probably will not even get to hyperinflation. But there may be some inflation from oil and commodities. Gold is probably in a bubble.

Saturday, September 25, 2010

Recession Over

The Saint Louis Fed provides a free Fred Database with nice graphics abilities. Using this one can see that charts of the three most important indicators reveal the following: 1) Industrial production is recovering sharply and is double what it was in the early 1980s. 2) Employment is recovering and is double what it was in the early 1970s (production grows faster than employment because productivity is increasing). 3) Most importantly real GDP (that includes services) is nearly back to where it was before the crash. The economy has been expanding for over a year. An expansion is the opposite of a recession. A depression is a long and deep recession. USA is not in a recession and therefore not even close to a depression. Some parts of the USA did not even go into recession. This recession was concentrated in areas that built too many, too large, too expensive of homes and cars by using too much debt. This spilled over into areas that loaned money or did the paperwork for the loans, or collected taxes on the loans. Much of the construction and loan activity has halted and the people fired, so a new recession will not happen from new cutbacks in this area.

I lived though the 1960s Vietnam bubble and 1970s oil crash; the 1980s S&L Wall Street bubble and crash; the 1990s tech dot com bubble and crash; and the 2000s Iraq house bubble and crash. Smart money has already reinvested and are starting the next bubble and crash cycle. That's why they call it the bulls and the bears -- an alternating cycle of irrational exuberance and fear. Smart money manipulate the human herd instinct to herd morons toward slaughter. TV, radio, drugs, junk food, junk education, isolation by cars and remote houses are all instruments of mass destruction. The rich will get richer and the poor will get poorer.

Friday, September 24, 2010

Long Recession

The recent recession was the longest since the great depression. I wonder if the current recovery might be weak and the economy slip into more recessions such as the recent Japanese 'lost decade' of working off bad debts? Houses are still overpriced in many areas such as the California Great Central Barrio. These house prices must fall to be competitive with Mexico which has less pollution and crime in many areas and more English speakers. Further there is still new construction at the same time that much of the USA population is moving back to Mexico, moving home to parents, or going homeless, leaving many houses empty. Banks are sitting on large inventories of foreclosed houses and afraid to dump them onto the market or house prices will fall further. Further, commercial real estate is still falling, banks are sitting on mortgages and other assets that are worth far less than face value, as is FNMA GNMA and the Fed. Many businesses still need to contract. Businesses that are looking to hire often cannot find the skilled workers they need. Goods still must be imported from overseas. I suspect the economy is in for some rough times ahead until some of the fundamental disequilibria come back into line. As long as government props up failed agenda it will take longer for the economy to function properly.

Saturday, September 11, 2010

Privatize Infrastructure

Many liberals clamor for a new stimulus, especially for more federal spending on infrastructure. The problem is that this will increase the deficit. So why not privatize infrastructure? This would allow private enterprise to raise private financing and get the job done better without any cost to taxpayers. Particularly, many highway systems are paid for by taxpayers, whereas trains are mostly private enterprise and currently make profits and move as many ton miles as taxpayer subsidized trucking companies. By selling off the interstate highway system the US taxpayer could get out of debt and not be responsible for future maintenance of those highways. Customers can pay tolls by RFID. If they don't like one highway they can take another thus putting pressure on highway managers to do a good job and keep tolls low.

Similarly a wide range of dams, levees, bridges, pipes, and other engineering projects can probably be done better by private enterprise than government bureaucrats. Do liberals want the government to do these jobs to promote some social agenda? Why do they think the government can do these projects right? Don't they have a TV? Did they see New Orléans Katrina? Illegal immigration? Drugs? 9/11? Homeland security failures since 9/11?

Friday, September 10, 2010

Feynman QED

I am looking thru Feynman's book. I like the diagrams. I have been thinking about writing something like this for finance and economics where most writing is obscure, overly technical or political propaganda. They clutter their articles with math and statistics when often a nice picture and well written text would suffice.

Even though the world is headed toward iPhones and online writing, there is much benefit for pdf files on ultra high-resolution paper in black and white. Much easier to read, finding things in indexes, understanding the organization, etc.

Many problems need conceptual understanding more than access to the recent information. Many problems can take a year to write a few pages. Most of the puffed up economic writing is really worth only 1 page with the rest just repeats of past research, bibliographies, summaries, introductions, and a rehash of formulae and tables.

QED: The Strange Theory of Light and Matter
Richard P. Feynman

Sun, Oracle, Hurd, Cloud, Apple, iPhone, iPod

Sun may arise again with the help of Hurd and Oracle. Sun invented Java and popularized Unix, client-server, and the network is the computer
and was talking about "network appliances" circa 1995 so has decades of cloud-like experience. Plus the Oracle database which is a big part of the cloud. Will be more competition in this space.

The Apple iPhone 4 iPod touch is great, especially the screen which needs to be good on such a small device. Small helps for portability. For a lot of people a smart phone is the only electronics they need: phone, camera, game, tv, movies, music, phone book, calendar, diary, email, text, chat, etc. Will cannibalize sales from other product lines but will also get more sales from upgrades, software, services. I am wondering if FaceTime Skype on iPod touch might be the only phone I need? Then how does this compare with all the other smart phones. Then how easy is it to develop apps for those platforms, individually and collectively.

Wednesday, September 8, 2010

War in Iraq

I agree with Joseph Stiglitz. We will be paying for decades. $3 trillion is an underestimate -- we are not out yet. I wonder why he thinks the war only raised oil prices by $10 when it jumped from $25 to $140? The vast amount of fuel to move our military and contractors around, and the procurement, and spending in oil rich countries will all add to fuel demand even long after we are gone. Our military will be complaining about illness for decades. Worst is what should have been done in the USA such as a great wall on our southern border and better financial regulations to prevent the war bubble and crash of 2008.

Friday, September 3, 2010

Economic Data and Models

The best way to approach economics is to avoid all the 'isms' and the schools of thought and the names of economists. All of this is mainly of interest to historians and is covered online at for those with time to waste. Many economists get tenure for explaining how today's popular but deficient theories developed over history. But few care, not even economists, and it is hard reading. Laypersons would get totally confused without 2 or more years of economics classes.

Instead there are 2 important ways for laypersons to approach the economics literature:

A) Just look at the data that is covered in the news. There is unfortunately not very much data. But for what there is, the definitions are available from the originating agencies, cheap paperbacks, and Wikipedia. You can graph it free at the st louis fed FRED project. Good enough for most purposes.

B) Harder is the scientific models that try to explain the data. These fall into 3 types:

1) Time series pattern recognition fit to that data that mindlessly extrapolate history which unfortunately never repeats itself exactly. The problem here is that statisticians will bury you in a maze of non-understandable coefficients and buzzwords for their models while not explaining that their models do not fit very well and that the data look nearly like a random walk.

2) General equilibrium theorists, game theorists and others often use little or no data. They make as few assumptions as possible (to be elegant) and generate a huge amount of math, prove theorems, draw graphics, tell little stories and get a lot of attention, NSF grants, and prizes. Unfortunately if you change the assumptions a little to make the model more realistic then it all falls apart.

3) The macroeconometric models and other applied models try to merge 1) and 2) with mixed success. is one such model. They are essentially the only game in town but have a lot of problems. They do serve as a basis for most government and corporate policy. But the actual models used would be barely recognizable to any of the theorists who write in 1) and 2). 1) is much more popular than 2). Even within 1) and 2) there are warring camps and even friendly camps cannot figure out what similar friendly camps are talking about.

So often trading and economic policies are often done by intuition and politics with a jumble of inconsistent economic theories and approaches offered as the rationale. USA junk economic policies resemble USA junk food, both of which are lowering the quality of life in the USA. Colleges do not require economics or nutrition classes, and most colleges are aimed at recreation, not education. Until the education system is fixed it is not going to get better. Everybody needs to demand better competence and performance of economists, government bureaucrats, colleges, corporate leaders, etc. Most of these are not required to take annual drug tests, credit checks, SAT/GRE tests, continuing education classes, criminal background checks, or any basic competence tests despite the vast amounts of money poured into these institutions.