October 29, 2011

Parking Lot Science Comes to Analysis of the EuroZone Crisis

Posted in Economics, Financial Markets, Social Commentary at 9:56 am by Doug Brockway

There’s a joke about a drunk who drops and loses his car keys in a parking lot.  He then goes and looks for the keys under a street lamp not because it’s near the where he lost them but because that’s where the light is.  The point being that one should look for keys, or data and answers, where the keys are likely to be not just where you can easily look… or easily frame an issue.

This story came to mind while I was examining a decision tree developed by STRATFOR, a private intelligence company that was distributed by the renowned investor and analyst John Mauldin‘s weekly e-mail letter.  The decision tree examines what are the real likely outcomes that the Eurozone, and the rest of us, will experience as they wrestle with the sovereign debt crisis currently centered on Greece and its debt.

This is a chilly, scary, and as far as I can tell accurate representation of what’s to come.  I truly wish I knew what, if anything, I can practically do about it as an individual for my own account.  But, in addition to that, it occurs to me that this image is but one side of the coin and could easily have been laid out from an entirely different perspective.  Instead of asking “What to do about Greece?” the creditor, what if we asked “What to do about Sovereign Debt Lenders?”  That image might look like this:

Take it as a given that the standard story line about feckless Greek legislators making unwise deals with lazy workers and outdated unions is true and the individual Greeks have been behaving badly as Michael Lewis’ Boomerang might suggest.  My personal guess is that the image is overwritten.  My deeper point is that the lenders are not the naïfs here.  It is the lenders who have the years and years of financial experience, deep data, analysis skills and resources, …. and lawyers.

The negotiations in Europe have been slowed by how much of a haircut the lenders will take on the debt.  50% was the target this time and deemed too much by the lending community.  Think it through. If the lender’s bets are not written off the tax payers must come up with the difference.  Whether you look askance at bailouts as the Tea Party does or at the riches of the 1% as Occupy Wall Street does you have to wonder why Step 1 isn’t to wipe out the feckless lenders.  Of anyone, they knew what they were doing.


February 19, 2011

‘Splain Yourself on Taxes

Posted in Economics, Financial Markets, Social Commentary tagged , , at 11:14 am by Doug Brockway

Inspired by some snarky-serious commentary by Paul Begala about the Conservatives’ positions on taxes I recently challenged a friend from Louisville to “’splain Kentucky and its ‘leaders.’”  As Begala pointed out some of the leaders in the US Senate and Congress on the Republicans’ side of the aisle who are most vocal about the wasteful spending in Congress hail from a state that, “according to the Conservative Tax Foundation ….received $1.51 back from Washington for every dollar it paid in federal taxes.”  Begala suggests we start by aligning tax payments with tax benefits.

My friend’s less than on-the-point response about Mitch McConnell, Rand Paul and Paul Rogers (head of the House Appropriations Committee) was that “they are bringing home the bacon and taking advantage of a broken system.  Nevertheless, we would all be better off with lower taxes and less pork.”

Well, as a tacit observation, the Republican leadership on the issue of spending and taxes is not nearly, not remotely as principled as it claims… and that, of course, puts it in the same boat as what the Democratic leadership does on the same issues most days.

So far most of the debate about how to reduce the deficit has the air of a farce.  I happened to catch a bit of Real Time With Bill Maher last night (that’s a strange show…).  Strangeness aside he had a fantastic visual aid: a plate of fried chicken (thigh and breast), mashed potatoes, and a very little bit of vegetables.  The pieces of chicken were labeled Social Security and either Medicare or Healthcare, I forget, but you get the idea.  The potatoes were labeled Defense.  The small bit that was vegetables was everything else.  He said that the plate is the budget and we’re trying to reduce it then, picking up one of those mini-cocktail corn cobs and said, “but we’re spending all our time arguing about this.”

We can’t seem to get to sensible conversations.  My father, who was a published economist and, like me, had the more proper, left-leaning politics….  wrote years ago, late ’80’s/early ’90’s, that Social Security should be means-tested and the retirement age of 65 was too fixed and too young.  There are plenty of people on the Left who understand and agree with this.  Similarly, there are likely many otherwise politically forlorn and twisted people, you know, Conservatives…. who understand that the US spending as much on Defense as the next 20 or so countries combined is nuts.  Secretary Gates seems to see that.

Instead we’re grousing about funds for NPR and protecting the US Army’s program to advertise by supporting NASCAR.

It’s like a business executive bringing rampant spending under control by working through the priorities in an obscure corner of the corporation that consumes less than 5% of the budget.

What’s going on in Wisconsin is a related and classic example of some good ideas and some reaching too far.  Most people I know think that public pensions are too rich, earned too early, and too burdensome for their benefits or for the public good.  Get a little deeper into it and you can see that unless something like bankruptcy can be engineered for US States they’re in a very hard place.  Its fairly clear to me that public workers of all stripes will have to accept significant adjustments simply to bring them closer into alignment with the general public (though reports are that the unions in Wisconsin that supported the new governor are exempted from his laws…).

Why any of that means that individuals shouldn’t be allowed to get together for their common good is beyond me.  I understand the argument about an implicit labor monopoly and it’s not too convincing in the face of the right to free assembly and the right to congress.  Does that make for dicey discussions and grey areas?  Sure.  But I don’t understand the move to restricting individual rights as appears to be the aim.

I wonder how long the new governor in Wisconsin actually thought about not reducing taxes, which he just did on February 1, in the face of his budget calamity or actually trying to recover from Wall St. the billions stolen via the sale of fraudulently designed CDO’s, based on clearly flawed sub-prime mortgages that were sold to his state pensions thus accelerating their default status.  OK, I understand the second idea has its practical challenges (even though it’s morally sound…) but it’s quite a bit myopic to grind so hard on state workers as if they are the sole cause or sole solution to his woes.

As a former colleague often said, “no fools, no fun.”

January 12, 2011

Is “the new normal” about dim sum?

Posted in Economics, Social Commentary tagged , , , , , at 8:51 am by Doug Brockway

In a recent posting on the NY Times’ Economix Blog, Catherine Rampell wrote about “the new normal.”   Her post, “The New Normal is Actually Pretty Old” is about whether what is happening now is, in fact, as new as people say or just another, to-be-expected turn of economic cycles.

What I found interesting was two graphs she included in her post.  The first showed a Google Ngram of the use of the term “new normal” over the past 100 years.

What I saw was a rough alignment of the first major spike in the use of the term with the ascendancy of the US on the world stage.  Certainly the US was a dynamic and important economic power since soon after the end of the Civil War but US global impact in diplomatic and military influence began with Theodore Roosevelt and the Russo-Japanese War and our establishment as the world’s most dominant economy occurred through the first quarter of the 20th Century.

Look at the right hand side of that chart and think about Asia.  Think about China in specifics.

Its not clear to me that the 21st Century will be the Chinese Century though if you’re going to pick one new candidate they’d be a good choice.  What may have more legs is the 21st Century as the GLOBAL Century.  The chart above aligns not only with China emerging onto the global stage but with a widely discussed sense that we are more entwined, region by region than ever before.  If you do an nGram of China it peaks in the middle of the 20th Century.  Here’s the graph for “Global”:

Of course, it could all be piffle.  The right hand side of the chart is rather short.  Who knows what the future holds?