Archive for the ‘Uncategorized’ Category
June 18, 2013
U.S. financial markets have been increasingly skittish in advance of the Federal Open Market Committee meeting scheduled for Wednesday June 19. Will the Fed or will it not begin to taper its $85 billion monthly purchase of Treasury and federal-agency bonds? When eight males and four females meet to determine whether an extended exercise in socialism will end or will continue, millions of individuals fidget with their wealth portfolios. Traders around the world, who in better free market times considered a wide range of variables, now focus on a single one, Federal Reserve policy.
In bygone days of free markets, stocks tended to move counter to bonds as investors switched from one to the other in order to maximize yield. But in the new world of Bernanke-rigging, they often head in the same direction. That is not good for investors or for capitalism.
Bondholders surely expect bond prices to fall and yields to rise if the Federal Reserve removes its socialist prop. However, they also worry whether the 15,000 Dow may be a Bernanke bubble that will also deflate as the Fed taper begins. Let us follow the money to see how this may occur.
The Fed makes its Treasury bond purchases from the primary ‘dealer’ banks. The proceeds boost the banks’ deposits at the Fed far in excess of legally required reserves. To encourage the banks to hold this base money sao that it will not entrer the credit markets and destroy the value of the dollar, the Fed pays the banks a quarter of a percentage point interest on their deposits.
But it is far from easy to contain $2 trillion in inflationary cash. Many analysts believe that excess deposits are a direct factor in the run-up in stocks since March 2009. Banks have constant dealings in the shadow market with non-bank entities, like money-market, hedge funds and other big money pools. It is a short stretch to imagine these institutions accessing excess bank reserves as collateral to raise money for stock market speculation. Margin debt at the New York Stock Exchange reached a record high of $384 billion in April 2013 – and that means that the stock market is receiving heavy support from borrowed money.
If the Committee of Twelve decides to pull the plug tomorrow, watch out for significant declines both in bond prices and in the Dow and the S & P 500. The enormous quandary now confronting the Fed is a direct consequence of the constructive rationalism of Ben Bernanke and his colleagues at the Fed. Like all socialists, as Friedich von Hayek observed half a century ago, their fatal conceit now threatens the green shoots of a fragile economic recovery.
Hat Tip: George Melloan, ‘How the Fed Turned the Market Skittish’, The Wall Street Journal, June 18, 2013
Tags:Bernanke socialism at the Fed, collapse in stock prices, collapsew in bond prices, constructive rationalism, end of QE4, fatal conceit
Posted in Bank Regulation, failure of macroeconomic theory, monetary policy, relevance of economic knowledge, Uncategorized | Leave a Comment »
June 17, 2013
The Western media is currently fawning over the newly-elected president of Iran, the ‘Smiling Mullah’, Hassan Rohani. Surely he should be a step forward from his predecessor, Mahmoud Ahmadinejad. But the new president is highly unlikely to shift Iranian politics away from its path to perdition.
Iran remains a theocratic dictatorship and its presidential ‘election’ fully reflects that reality. Iran’s presidential election kicked off in May 2013 when an unelected body of 12 Islamic jurists disqualified more than 600 candidates. Woman, naturally, were automatically excluded, as were Iranian Christians, Jews and Sunni Muslims.The remnants from that purge, including a former president, were largely removed for possessing insufficient revolutionary zeal. Eight regime loyalists made it onto the ballots. One of those loyalists, Hassan Rohani, emerged victorious.
Hassan Rohani is a 64-year-old cleric, former nuclear negotiator and security apparatchik. Born in 1948, he entered religious studies in Qom as a child, but went on to earn a law degree from Tehran University in 1969. He spent Iran’s revolutionary days as a close companion of the Ayatollah Khomeini and held top positions throughout the Islamic Republic’s first two decades in power. For 16 years, starting in 1989, Mr. Rohani served as Secretary of Iran’s Supreme National Security Council. During this period, Mr. Rohani led the crack-down on the 1999 student pro-democracy uprising and helped the regime to evade Western scrutiny of Iran’s nuclear-weapons program.
Mr. Rohani, whether now ‘reformed’ or not, is fully aware of the tight leash that will encircle his neck throughout his presidency. The current regime’s theocratic structure – with a Supreme Leader, the Ayatollah Khameenei who is a throw-back to the 14th century, and numerous unelected Islamic fundamentalist bodies, together overseeing elected officials – will quickly remind Iranian voters and Western governments as well as Hassan Rohani, that the new president has little or no room for political maneuver, even should that be his desire.
Hat tip: Sohrab Ahmari, ‘Behind Iran’s ‘Moderate’ New Leader’, The Wall Street Journal, June 17, 2013
Tags:Ayatollah rule, Hasan Rohani, reforms unlikely, Soviet-style elections
Posted in nature of an autocracy, political philosophy, progressive socialism, Uncategorized, war and peace | 2 Comments »
June 16, 2013
We now understand just how bad the IRS has become in the United States. We are aware that the agency illegally harassed existing conservative groups and illegally discriminated against would-be conservative groups applying for tax exempt status during the run-up to the 2012 elections.We are aware that the agency wastes vast sums of taxpayers’ dollars on boondoggle conferences, including at least one that featured its employees dressed up as Star Trek characters. That is all part of the recent past.
More ominous are expectations about the future. A July 2012 report by the Inspector General for Tax Administration stated that ‘the IRS needs to make improvements to stop billions of dollars in fraudulent or improper tax refunds resulting from identity theft and erroneous claims for tax credits.’ Although this statement does not specifically address the implications of Obamacare, that is where the IRS cess-pit truly will open up.
Let us put the pending crisis into perspective. The IRS claimed that it could not handle an increase of 1,700 applications for tax exempt status, and that spurred its targeting of conservative groups. Under the Affordable Care Act, premium subsidies – the tax credits in Obamacare designed to defray the cost of purchasing health insurance – will go to some estimated seven million tax filers and flow to households earning as much as $94,000 a year. The credits are advanceable and refundable, meaning that the IRS will pay them first and verify the claims later: what some call pay and chase.
The IRS has never been able to handle refundable tax credits in other programs. A lot of such payouts go to households inappropriately and are never pulled back. The Earned Income Tax Credit is a good example. The Treasury department’s inspector general for tax administration reported in April 2013 that improper payments accounted for 21 to 25 per cent of total EITC payments in 2012.
If we apply that percentage to the approximate $1 trillion that will be spent on Obamacare credits in the decade beginning in 2014, the math shows that between $210 billion and $250 billion will be distributed to ineligible households. Since the IRS has no system in place to verify reported households income, most these outlays will never be reclaimed.
Hat Tip: Orrin Hatch, ‘Think the IRS Is Bad Now? Just Wait’, The Wall Street Journal, June 15, 2013
Tags:earned income tax credit fraud, IRS corruption, IRS inefficiency, Obamacare premium subsidies, pay and chase
Posted in health care legislation, political corruption, political philosophy, progressive socialism, redistributive politics, relevance of economic knowledge, Uncategorized | 1 Comment »
June 15, 2013
This week Rupert Murdoch filed divorce papers on his third wife, Wendi Deng. At the same time, the newspaper mogul showed the exit door to David Devoe, News Corporation’s chief financial officer for the past 23 years. These two family dismissals are all the more surprising because at the same time, Rupert Murdoch reminded Australian investors of the constant factor in his personal and corporate life: ‘News Corp retains the Aussie spirit of a family company.’
Wendi Deng is Rupert’s third wife. She married him in 1999 and is the mother of two of his children. At 44 years of age, Wendi is in perfect shape and stunningly beautiful. He is a decrepit-looking 38 years her senior. Rupert was in such poor physical condition some two years ago when he was physically attacked during a Parliamentary Committee hearing, that he failed to defend himself. Valiantly, Wendi floored his attacker with a perfectly-timed left hook, earning the name ‘Tigress Wife’ for her intervention. The divorce papers are Rupert’s kind of recognition for protecting her husband from humiliation and potential charges of cowardice under fire.
David Devoe has stood courageously by Rupert’s side as the press mogul has reeled before charges of impropriety. Defoe has played the pivotal role in restructuring News Corporation into separate entertainment and publishing businesses on June 28, 2013. ‘Bye-bye David’, is Rupert’s supremely generous response.
Rupert’s loyalty has been more than a little fragile both before and after the News of the World scandal erupted in 2011. Two central figures had already been shown the exit door prior to the scandal. Peter Chernin was ousted as chief operating officer in 2009 after 13 years of loyal service. Gary Ginsberg, who ran marketing and corporate affairs was forced out in 2010 after a decade of licking Rupert’s boots.
When the crisis came to a head in July 2011, Rebekah Brook, the chief executive of the News International UK newspaper arm – described by some former colleagues as a fifth Murdoch daughter, fell on her sword for Daddy.The same day, Les Hinton, who had worked for Rupert for 52 years, since he fetched him sandwiches as a 15-year-old copy boy at Rupert’s first newspaper, was removed from his new position in charge of the recently acquired Dow Jones.
There may be some lessons to be learned from all this family upheaval. Most especially, one should understand that when Rupert talks about his ‘family’, he really means himself. Rather like Charles de Gaulle whose frequent references to La France were truly references only to himself: L’etat, c’est moi.
Tags:David Devoe, family values, Les Hinton, loyalty at a low ebb, Rebekah Brooks, Rupert Murdoch, wendi Deng Murdoch
Posted in media rhetoric, property rights, relevance of economic knowledge, Uncategorized | 3 Comments »
June 14, 2013
In a world grounded on the concept of sovereign nation states – and that is essentially the world since the Treaty of Westphalia in 1648 – nation states should consider circumspectly before deciding to intervene in the affairs of another nation. Specifically, they should consider only the interests of their own citizens. And by interest, I mean narrow interest, revolving around the lives, liberties and properties of their people. They should also reflect carefully as to whether any form of intervention feasibly can affect those interests in a favorable direction, with the benefits outweighing the costs of such intervention.
From this perspective, a case can be made ex ante that military intervention by the United States in Iraq was justified. There was a reasonable expectation that Saddam Hussein had stockpiled weapons of mass destruction and that he was prepared to use such weapons against direct United States interests. There was the certainty that Iraq sat on large reserves of oil and that Saddam Hussein may have been willing to manipulate such reserves against United States interests, or simply shut them down. So a short-term strike, designed to eliminate Saddam Hussein and his regime, and then to withdraw surely should have been on the U.S. policy-table. Under no circumstances,should a long-term attempt at nation-building have followed. That was a major error on the part of the Bush Junior administration – an error that his father had not made.
No such case for intervention exists as a consequence of the so-called Arab Spring. Libya is blessed, or cursed, with oil reserves, but there was no clear threat to the U.S. from the Gadaffi dictatorship. Surely the Gadaffi regime could be and was taken down by U.S. intervention. But U.S. interests are worsened by that outcome. A reluctant ally has been replaced by a Muslim fundamentalist government that is ill-disposed to the West.
Egypt, again offered no U.S. interest that justified toppling the Mubarak dictatorship. Egypt has no worthwhile natural resources that could have been directed against the U.S. Mubarak was a long-term loyal supporter of U.S. policy including the protection of Israel. The outcome of meddling is that a hostile Muslim fundamentalist majority now poses a significant threat to Israel, a threat that would force the U.S. into a major war, should it be implemented.
The U.S. has no national interest in meddling in Syria. Syria has no natural resources and a sequence of drone strikes could put their nuclear program back into the stone age. Bashar al-Assad is a repellent chinless-wonder dictator, willing to turn weapons of mass destruction onto hos own people. But there is no indication that the rebels would not follow suit if such weapons fell into their hands. The country is a shambles and from the perspective of the U.S that may be the safest condition, given the malevolence to the West displayed by almost all segments of the population, not least the Muslim majority. If the U.S. desired to help itself, it could open its own borders to the best trained scientists and scholars from Syria, further depleting the country’s chances of ever pulling out of abject poverty.
Real-politik strongly indicates that the Obama administration should stand on the sidelines and let Syria sort out its own internal divisions. Only if a direct threat to the U.S should arise once the desert dust has settled, should the U.S. make strategic strikes to eliminate the facilities and the individuals that constitute the threat.
Tags:Arab spring interventions wrong, national interest must dictate intervention, Syria does not merit U.S. intervention, Treaty of Westphalia
Posted in economics and public choice, liberty and classical liberalism, political philosophy, property rights, relevance of economic knowledge, Uncategorized, war and peace | 3 Comments »
June 13, 2013
For the first time in modern history, more white Americans are dying than being born. This suggests that so-called ‘minorities’ and newcomers will play an increasingly important role in fueling any population growth in the United States.
The number of non-Hispanic white Americans who died in the year ended June 2012 exceeded the number born during that year by 12,400, the first ‘natural’ decrease for this group. Even during the great influenza epidemic of 1919, there was no such ‘natural’ white decrease.
The big driver in this phenomenon was not rising death rates but significantly lower white births, which declined about 13 per cent last year from the 2000 figure.While a majority of American children under five years old are still white – 50.1 per cent – this proportion is expected to decline because the majority of births have been minority children for two years in a row, a trend driven by Hispanic and Asian births.
As the nation’s white population ages, there are fewer white women of child-bearing age – a trend that is unlikely to change.At the same time young adults, whether white, black or Hispanic, are having fewer children. America’s replacement level – how many children it takes to keep population constant – is approximately 2.1 births per woman. The fertility rate of U.S. women is approximately 1.9.
This implies thst U.S. population growth depends entirely on immigration. There are now 14 states where the majority of children under 5 are non-white. In 2000, only the District of Columbia and four states had minority ‘toddler’ populations.
Sooner, rather than later, there will be no meaning to the majority-minority designations of America’s diverse population.
Hat Tip: Neil Shah, ‘More White’s Dying Than Being Born’, The Wall Street Journal, June 13, 2013
Tags:majority-minority designations meaningless, popullation growth depends on immigration, US white population in decline
Posted in immigration policy, Uncategorized | 2 Comments »
June 12, 2013
As the age of democracy truly dawned, during the eighteenth century in Britain and the United States, political philosophers feared tyranny over minorities by majority coalitions. Edmund Burke noted that ‘the majority of the citizens is capable of exercising the most cruel oppressions upon the minority.’ America’s founding fathers- men such as Thomas Jefferson and James Madison – expressed similar concerns. The naive ambitions of the French revolutionaries quickly degenerated into mob rule, the Terror, and Madame Guillotine. Alexis de Tocqueville, evaluating democracy in the fledgling American republic, actually coined the phrase ‘the tyranny of the majority.’
Yet the term ‘tyranny of the minority’ seems a better description of 21st century democracy.Because most voters demonstrate little time or energy for politics, small groups with a strong commercial, personal or ideological motivation exert disproportionate influence. Politicians respond positively to policies that offer concentrated benefits to a few while dispersing the associated costs across a wider public. They do so because money and votes pour into their pockets while the rationally ignorant wider public are unaware of what has happened.
John Kay (Financial Times June 12, 2013) cites a powerful instance of such a minority-based tyranny. On election night in 2001, a promising political career came to an abrupt end. The British member of parliament for Wyre Forest in England’s Midlands was overwhelmingly defeated by a retired doctor, campaigning on the single issue of the closure of facilities at Kidderminster hospital. The lesson is engraved on the hearts of every British politician. When any similar proposal is made for rationalization of the National Health Service, the local member of parliament is always and everywhere at the head of the protest demonstration.
Well, you may think, far-sighted politicians should be willing to withstand such minority pressures in the interest of the nation that they represent. Such indeed was the judgment of Edmund Burke when he publicly outlined the requirements of a genuinely functional democracy in an address to his electorate in Bristol:
“Your representative owes you, not his industry only, but his judgment, and he betrays instead of serving you, if he sacrifices it for your opinion.”
“Burke asserted that parliament was not a congress of advocates of competing interests, but a deliberative assembly seeking to identify a common interest. Vulnerable to the exigencies of campaign funding, besieged by lobby groups and obsessed with news headlines, the modern politician has drifted a long way from that ideal.” John Kay, ‘A tyranny of the minority in an age of single-issue obsessives,Financial Times, June 12, 2013
Tags:concentrated benefits and dispersed costs, politicians betray their constituents, tyranny of the majority, tyranny of the minority
Posted in do well while doing good, economics and public choice, media rhetoric, poltical corruption, relevance of economic knowledge, Uncategorized | 1 Comment »
June 11, 2013
President Obama and Google CEO, Erich Schmidt, potentially can access almost every email message transmitted across the United States and well beyond. Barack Obama is a left-leaning Democrat. Erich Schmidt, in 2012, maxed out his political contributions in support of Barack Obama. So he also must be presumed to be a left-leaning Democrat (or a wealth-seeking hypocrite, take your pick).
So do you trust Obama/Schmidt to refrain from utilizing this available information for left-wing political purposes? Do you think that they might do so, if such data were likely to swing votes in favor of the Democratic Party? Do bears defecate in the woods?
We know for sure that President Obama did not come clean with respect to the data mining that his administration has established, under the guise of monitoring terrorism. In itself, this demonstrates utter contempt for the people, who have hired him as their lackey to represent their interests. We know that Erich Schmidt did not voluntarily disclose the extent of Google’s monitoring of internet activity, even though Google supposedly is in a contractual relationship with its clients.So basically, they already have reputations somewhat inferior to second-hand car salesmen.
How comfortable are you when dealing with a second-hand salesman at some backstreet big city garage? Would you leave your wallet or your handbag on the table when visiting the washroom in such an establishment?
Bravo, Edward Snowden for whistle-blowing on Obama! Bravo, Putin’s Russia, for offering Edward Snowden political asylum as he runs for his life, hotly pursued by vengeance-seeking U.S. snoops.
Remember Jason Bourne, anyone?
Tags:Barack Obama, Erich Schmidt, political corruption, right to privacy, snooping on americans
Posted in economics and public choice, law, legislation and liberty, liberty and classical liberalism, Personality Disorders Among Politicians, political corruption, political philosophy, pro-union policies, progressive socialism, redistributive politics, relevance of economic knowledge, Uncategorized, war and peace | 3 Comments »
June 10, 2013
The International Monetary Fund has now poured cold water on Greece’s bailout focusing attention on excessive optimism about economic growth. This fundamental error caused other serious misjudgments – about deficit reduction, financial sector stress, the speed of reforms, and debt sustainability. The fundamental error was not the result of bad luck. It was the result of crass stupidity and gross wishful thinking on the part of all actors in the saga.
The IMF now concludes that more debt relief is required than was originally countenanced – some 7 per cent of gross domestic product – to meet the debt sustainability target of 124 per cent GDP in 2020 and of 110 per cent in 2022. This is in addition to the hole of 4 per cent acknowledged in the 2012 agreement, a hole which has yet to be plugged.
In reality, the target of 124 per cent of GDP is itself arbitrary and illusionary. It is arbitrary because there is no economic rationale for this number. It is an illusion because investors no longer view Greek debt as sovereign, but as sub-sovereign. Sub-sovereign entities, like for example the individual US states, cannot sustain the same debt-to-GDP ratios as sovereign nations, because they lack the ability to print their own money. A figure in the range of 60-80 per cent of GDP is more realistic.
From this perspective, Greece will remain stuck in a vicious circle of recession and debt deflation until it exits the euro-zone and defaults unilaterally on its debt. Politically, this will become the only feasible solution as established targets fade into irrelevance. Greek politicians will have a vote-seeking reason to quit the euro just as soon as the country achieves a primary budget surplus and has implemented labor market reforms sufficient to return an economic benefit from devaluation.
This is not the message that was passed out in 2012 by the IMF, the European Commission and the European Central Bank troika in forging the 2012 bailout settlement. It is not a message that Angela Merkel desires to hear just prior to major German elections. But it is the truth, as only the Oracle at Delphi can tell it.
Hat Tip: Wolfgang Munchau, ‘Hail the outbreak of honesty about Greece’s bailout’, Financial Times, June 10, 2013
Tags:Greek bailout, Greek exit from the euro-zone, sovereign versus sub-sovereign debt
Posted in budget deficits, economics and public choice, relevance of economic knowledge, Uncategorized | 2 Comments »
June 9, 2013
On June 7 and June 8, 2013 Xi Jinping met with Barack Obama at Sunnylands for a high noon confrontation. The outcome of this face-off is of crucial importance for war and peace in Asia and the South Pacific and for the future economic performance of the world economy. The stakes could scarcely be higher.
If the talks fail, it is likely that Sparta (the United States) will end up in a state of war with Athens (The People’s Republic of China), not because either party desires war, but because, as the Greek historian, Thucydides noted, the Spartans feared the growing influence of Athens.
President Xi Jinping brought some heavy artillery to the showdown, while Barack Obama nervously fingered the six-shooter at his hip. Xi arrived in California via Mexico, Costa Rica and Trinidad and Tobago. If Barack Obama claims now that the United States is an Asian regional power, Xi demonstrates that he is setting up outposts in America’s traditional backyard. As America’s banker, China is now in a powerful position to squeeze the U.S. economy by offloading U.S. Treasuries on a significant scale, if the U.S. does not conform to his China dream. Creditors typically hold the better cards when dealing with their profligate debtors on the international stage. That holstered pistol at Obama’s hip looks increasingly futile at this crossroads meeting. Even if Obama proves to be the faster on the draw, Xi has a million men under arms, whereas the United States sadly has only a few increasingly ragged, under-provisioned divisions.
So negotiations will have been somewhat one-sided at the crossroads. Obama will have requested an end to China’s hacking of intellectual propertry. Fat chance of that when such hacking is a major source of China’s growing economic presence on the world stage. Obama will have pled for China to prevent North Korea from placing nuclear tips on its inter-continental ballistic missiles. Fat chance of that given that China still views North Korea as an important piece on its weiqi-board. Obama will have asked China to retreat from its territorial threat to Japan’s island specks. Such a retreat would not go down well with the People’s Liberation Army, a special interest that Xi Jinping would ignore at his peril.
In retreat, Obama will have offered to facilitate China’s economic incursion into North America, allowing such successful Chinese companies as Huawei and CNOOC further to penetrate the American market-place. He will have offered to scale back American use of the World Trade Organization to curb China’s market dominance in key markets. He will have been wise to retreat in this way. For such retreats enabled China’s ancient dynasties to survive repeated incursions from the West at a time when the West had the guns and the divisions and the Middle Kingdom did not.
“the lesson of history is that everybody loses if the world allows legitimate worries to get out of hand. More than 2,000 years ago Greece was torn apart by Sparta’s failure to manage the rise of Athens. A hundred years ago Europe was torn apart bu its failure to manage the rise of Germany. If the 21st century is to be more peaceful than the 20th, America and China must learn to co-operate better.” ‘The summit’, The Economist, June 8, 2013
Tags:Barack Obama, Britain versus Germany, showdown at Sunnylands, Sparta versus Athens, US in retreat, weiqi board, Xi Jinping
Posted in do well while doing good, nature of an autocracy, relevance of economic knowledge, Uncategorized, war and peace | 1 Comment »
