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analysis of alleged stimulus

“Consider next the government-spending part of the stimulus package. The Obama administration points to the sharp reduction in the decline in real GDP from the first to the second quarter of 2009 as evidence that the package is working. Economic growth was minus 6.4% in the first quarter and minus 1% in the second quarter, so the implied improvement of 5.4 percentage points is indeed big. But how much of that improved growth rate can be attributed to higher government spending due to the stimulus? If we rely on predictions of models, again we see disagreement and debate. According to our research with modern macroeconomic models, the increase in government spending would add less than a percentage point, a relatively small portion. The model predictions cited by the administration's economists suggest a much larger portion: two to three percentage points. Prof. Barro's model predicts zero.

“So let's look at the data on the contributions of government spending and other components of GDP to the 5.4 percentage-point improvement. By far the largest positive contributor to the improvement was investment--which went from minus 9% to minus 3.2%, an improvement of 5.8% and more than enough to explain the improved GDP growth. Investment by private business firms in plant, equipment and inventories, rather than residential investment, were the major contributors to the investment improvement. In contrast, consumption was a negative contributor to the change in GDP growth, because consumption growth declined following the passage of the stimulus package.”

And more.

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sensible item on economics, allegedly on minsky

Scan recommended.

“There is nothing wrong with macroeconomics that another depression [won’t] cure.”
[Hyman Minsky]

“But not perfect. Indeed, if there’s anything to be drawn from Minsky’s collected work, it’s that perfection, like stability and equilibrium, are mirages. Minsky did not share his profession’s quaint belief that everything could be reduced to a tidy model, or a pat theory.”

related material
selected quotations from John Maynard Keynes

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the car scrappage scheme is not a economic success

Much of the scrappage taxes are going abroad paying for foreign cars, while UK car sales remain over 20% down on a year.

Previous attempts in the UK to subsidise the car industry included the long-term collapse of UK manufacturers.

As usual, the fossil media makes no analysis of the situation, it just reports it.

Some are suggesting that widespread take-up of the car scrappage scheme demonstrates stimulus of the car industry and the underlying strength of the economy. I do not know what is meant by ‘the economy’ in this context, or what part of ‘the economy’ is the car industry (keeping in mind how much of the scrappage payouts are exported).

As for ‘economics’ being a science, as some claim, when approached sanely, economics involves intended objectives. The only clear objective I see here is an attempt to continue to pile inflation on inflation in an attempt to borrow ‘our’ way out of a borrowing crisis. Or perhaps to look at the sitution more cynically, to buy some votes before the coming ‘New’ Labour meltdown, to delay some of the consequences of the Clown Brown’s grand economic bust ahead of the coming election.

When a pound is moved from one pocket to another, one pocket has one pound more, and one pocket has one pound less.

When thieves do the moving, that is no free market. When a socialist government is the great thief, even those who gain are likely to lose!

‘Economics’ does not act in a vacuum. It acts in a context of human behaviour and political objectives.

Vague references to objectives, without identifying those objectives some may describe as “stimulating the motor industry”. While I do not accept the characterisation, I doubt it refers to the world car industry, nor does history suggest such behaviour will indeed work.

Certainly, I cannot see how it could help those who will be paying for this scheme. Neither can I see how it will help ‘the economy’ as the bills come due and as the poorer sections of society lose the purchasing power gained by ‘the car industry’ and by those getting a subsidised car. In fact, the less wealthy can only end up being able to buy and afford less.

How this accords with any ‘scientific’ belief in ‘stimulating’ the economy. Beyond putting off (and increasing) some of the reckoning until an election, I am at a loss to fathom.

In fact, such a scheme is likely to artificially shift car purchases upward, thus very possibly resulting in less car sales in the future (cynically, after an election).

The reality is that these sales are being subsidised from taxes, and the taxes take the form of borrowing, and the borrowing will be offset by inflation and increased taxes.

Those costs will be paid by those who do not buy cars. Those costs will be paid out of subsequent years taxes, and ongoing inflation. The inflation will undermine wages and pensions, especially the wages and pensions of the poor....

In other words, yet again the socialist ‘New’ Labour Party will add to the underclass and further increase income differentials.

The schemers’ scheme finishes (so far) in March next year, just prior to the election.

The fossil media is not educating the public, it is mostly supine and complicit.

Llittle wonder the fossil media is dying as the net gathers strength.

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bankruptcy is little effected by law differences

“What do high bankruptcy rates in states like Tennessee and Utah tell us about the people that live in those places? Not much, according to a new 50-state bankruptcy study published in the latest issue of the Journal of Law and Economics. The study, by Brigham Young University economists Lars Lefgren and Frank McIntyre found state-to-state differences in bankruptcy rates are mostly explained by bankruptcy laws, differences in legal institutions, and broad demographic factors. "Our findings don't say much at all about the people involved in bankruptcies," said Lefgren. "In large part, we found that there are different state policies that affect how people respond to financial crises.”

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the bank of england and controlling inflation

Milton Friedman:

“Inflation is always and everywhere a monetary phenomenon.”

There is only one way to control inflation, to control the money supply.

A basic formula for optimal money supply is very simple, for instance: GDP + 2.75%.
But keeping human control using able central bankers is vital. It is vital because understanding money is not simple, especially in a context of poor education and government lies.

From the great Keynes:

“Lenin was right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” [Keynes, 1919]

Quite obviously, this remains not far from the truth. Clearly, Gordon Brown the Clown is innumerate and venal.

The normal political cycle is, inflate the money supply just before an election and then squeeze it after you are in power. That is one of the ways governments fool the uneducated and innumerate.

Keynes again in 1917:

“I work for a Government I despise for ends I think criminal.”

At the moment we are in deep trouble. To try to correct this immediately would cause chaos.

From Keynes:

“Thus inflation is unjust and deflation is inexpedient. Of the two perhaps deflation is, if we rule out exaggerated inflations such as that of Germany, the worse; because it is worse, in an impoverished world, to provoke unemployment than to disappoint the rentier. But it is necessary that we should weigh one evil against the other. It is easier to agree that both are evils to be shunned. The individualistic capitalism of today, precisely because it entrusts saving to the individual investor and production to the individual employer, presumes a stable measuring-rod of value, and cannot be efficient - perhaps cannot survive - without one.” [Keynes, 1923]

As usual, Keynes is the very core of wisdom.

There is now a mass of relatively ignorant people in deep doodoo, which they haven’t a hope of understanding or of extracting themselves. The government is way in over their head with ‘promises’ they cannot possibly honour. How to bail them out? By more inflation, of course. Thus inflating away the debts that over-committed people can no longer meet.

To quote Milton Friedman again:

“Inflation is the one form of taxation that can be imposed without legislation.”

That is precisely what inflation is, and inflation is now around 20%. That is, the UK government are now meeting about 20% of their ‘borrowings’ from this secret taxation.

Imagine the chaos if that taxation was stopped dead in its tracks. It took Margaret Thatcher years to get anywhere near cleaning up the last socialist mess. Socialism always lives on false ‘promises’ and false accounting. And that always ends in chaos.

Thatcher was extremely unpopular at times. The Conservative Party always has to operate in a context of socialist lies and ‘promises’, ‘promises’ fools want to believe. There is always an over-supply of fools, and venal parasites willing to exploit them. If there were not, there would be no left-wing parties.

It is a myth that government governments rely on interest rates to control money supply. Governments attempt to control interest rates by changing the money supply, they do not set interest rates. Try to get the ½% the UK government is claiming as the current interest rates. Remember the banks are at least half under the thumb of government. The banks are agents, not genuine independent businesses.

Note especially the current control of banks in the UK and the USA, as the governments ‘buy in’ to the banks, or whatever the present pretences are. The banks are in part being bailed out through being given cheap money by the government, and then lending that money to the public at considerable profit.

Some more on markets and interest setting

The banks know full well that the inflation is going to feed through. Thus, they will set loans to make profit as best they can over the whole period of the loan.

Now, as people refuse to pay that much, the banks will tend not to lend to those who will not contract to make the banks an unhealthy profit from swingeing interest rates.

Thus the market is setting the rate by the potential borrowers not being prepared to pay, while the banks will not lend at the market ‘demand’ rates. So this is why the banks are not lending or shifting the money government has offered them.

The incestuous relationship of government and banking

Also keep in mind that the banks are currently getting money at ½% (or even nothing from many depositors), while if they are charging even as ‘low’ as 5%, they are receiving 10 times the rate of interest the central bank is presently charging them.

Meanwhile, a greater that average number of borrowers are defaulting. This is, of course, why banks get into such trouble every time the economy turns down. Whence the government scrabbles to bail out their banking agents with free tax money and by setting up a situation where they can make swingeing profits out of the public. Thus, these agents of the government money cartel effectively put another toll tax on the country. As the funds flow back into the banking system, the government looks to that system for more juicy tax revenues, even to the extent on occasion of what they are pleased to call windfall taxes.

How to get rid of inflation

A problem with inflation is that it is like a drug - the more you do the more you want, getting off the drug is the hard part. There are very serious withdrawal symptoms.

Very crudely, if you borrow £5000 above your income this year, then you can live £5000 better than you otherwise would. To get a similar effect next year, you’d have to borrow £5000 plus your interest payments on the first lot. Of course, it is very likely that by next year your ambitions to live above your income will grow.

And remember, this is just a very crude analogy. This is socialism we’re talking about. Not just your run-of- the-mill feckless idiot, but your raving brainless psychopath way out of touch with the real world! In the UK, it is not only the feckless individuals that have borrrowed way over their heads, the government has been playing the same game with your money. This has made Britain way out the most endebted nation in the West.

It is essential to realise the Clown and socialism are both innumerate and highly irresponsible.

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the web address for this article is
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on trading to a computer model

Article recommended.

“...wrote a model that used price rather than real-world default data as a shortcut (making an implicit assumption that financial markets in general, and CDS markets in particular, can price default risk correctly).”

An almost surreal assumption!

I am reminded of the argument for ‘the wisdom of crowds’, which works under some conditions!

Even the basic hopes for independence, diversity, and decentralisation are breached in herd markets.

These are also not evident in corporations run as dictatorships by salesmen with little sophisticated understanding of probability.

And this is not even attempting to answer a present fact, but trying to predict a future condition!

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on determining uk gross domestic product

Of course, a falling GDP will amplify further the coming inflation in the UK. I am very dubious about the government stats.

I doubt that trading is falling greatly, but trading what for what? Money for gold? Shares for money? Is paying down debt part of the GDP? If not, why not? Doubtless, the paying down of debt was (effectively) added in at (approximately) the point the debt was incurred.

The flat TV screen was purchased with tomorrow’s (borrowed) money. Now tomorrow has come, while another flat screen manufactured yesterday is still standing unloved on the shelf. Is that part of the GDP yet?

How about the purchases made last year out of debt, being allocated to the future GDP when the debt is repaid? Looked at that way, the GDP claimed yesterday was fake.

So, in summary, in my view, GDP is not being allocated sanely. When a factory is closed for three months while stocks are run down, you could think of that in terms of the ‘workers’ overworked last year in order to get a three-month holiday this year.

Are the ‘workers’ educated to think clearly? Not in the slightest! Did the ‘workers’ save while they were on the line? I doubt it. But that is part of the (natural) chaos, confused by government intrusion in 40-50% of the economy. With so much government-generated noise, how can you think and communicate clearly with numbers like GDP?

related material
on mark-to-market

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on mark-to-market

In previous downturns, previous methods of accounting allowed banks, supported by government inflation, to trade through the problems.

The underlying hammer blow this time round was clearly the Fannies (and to a lesser extent, sub-prime loans in the UK).

But anyone realises markets do go through boom and bust, unless you’re a complete Brown the Clown, of course.

In my view, there has been a grave lack of thinking through the consequences of market to market.

There is positive feedback. The effects of that feedback on money supply (available to lend) must be difficult to judge easily. How can you return to ‘normal’ lending with so fundamental an accounting change? And without that accounting change, how does the market return to the (former) normal situation?

The removal of the Chinese walls cannot have improved the situation.

Remember, fear and optimism are contagious. This is not only about fundamentals, it is also about greed and fear.

Just as Tony Bliar kept interfering with the UK laws, thus undermining the rule of law that was founded in part on centuries of experience, some other actors have determinedly interfered with money markets with similar hubris and lack of great forethought. As the saying goes: if it ain’t broke, don’t fix it.

The markets/banks did function before the Basel II Framework [23-page .pdf]. I think the modern willingness to meddle without a clear understanding of why things are the way they are (previously), represents a very great failing of modern education corrupted by, a shallow pride. This failure that resides at the heart of the socialist hubris that has caused such devastation in the modern era.

end note

  1. chinese wall
    An ethical barrier between different sections of financial or other institutions, created to avoid conflicts of interest. These might be between dealers and those making corporate decisions.

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