WND column

Deflation vs Inflation

After last week’s report on CPI-U core inflation from the Bureau of Labor Statistics, which was either -0.1 percent or 0.1 percent depending upon whose mathematics inspires you with more confidence, and the Federal Reserve’s decision to raise the discount rate to 0.75 percent from 0.50 percent, the attention of the markets is more closely focused on the question of inflation versus deflation than ever before.

Because the mainstream economic models, both Neo-Keynesian and Monetarist, are constructed around tax rates and government spending on the fiscal policy side and interest rates and money supplies on the monetary policy side, the inflation-deflation debate is almost invariably limited to contemplating interest rates and money supply. However, these analytical approaches also happen to leave out what is easily the most sizable and important factor, which is the amount of debt in the economy and the ability of the various economic actors to service their debts.



Econoblogger query

It has become entirely apparent that I simply can’t manage two blogs. So, rather than simply shut down the RGD economics blog or quit blogging here and focus on all economics all the time, I’m interested in finding out if there are one or two economically aware bloggers who might be interested in becoming co-bloggers there. I’d like to see it become a statistical and analytical resource, like Calculated Risk, only more focused on the factors I consider to be more relevant. My thought is that I would direct the content, including the schedule of economic data releases, produce the graphs for the data I track on a regular basis, and generally serve as the editor, but the brunt of the daily blogging would be done by the co-bloggers. There should probably be three or four posts per day, including the statistical releases with historical charts incorporated.

While there are a lot of decent econoblogs on the Internet, only CR comes close to what I think of as a one-stop statistical shop. What I’d like to see is something that is a mix of CR, Mish, and the Market Ticker, albeit with a more international flavor. Ideally, there would be one European, one American, and one Asian blogger to cover all the bases.

Anyhow, if this may happen to be of interest to you, you possess a basic knowledge of economics, and more importantly, the time to post a few times per day, let me know in the comments here. Or shoot me an email. If no one is interested, that’s fine, it’s certainly not a problem. But I thought the idea was worth throwing out there in case there is a stat geek or two with an Austrian inclination.


But, but… he’s UNELECTABLE

Ron Paul wins the CPAC straw poll:

U.S. Rep. Ron Paul, R-Texas, a stalwart foe of government spending, won a blowout victory Saturday in the annual Conservative Political Action Conference presidential straw poll. With participants naming “reducing the size of federal government” as their top issue, the 74-year old libertarian hero captured 31 percent of the 2,400 votes cast in the annual contest, usually seen as a barometer of how the GOP’s conservative wing regards their potential presidential candidates.

Former Massachusetts Gov. Mitt Romney finished second with 22 percent of the vote, ending a three-year winning streak at CPAC. Former Alaska Gov. Sarah Palin finished third with 7 percent of the vote, followed by Minnesota Gov. Tim Pawlenty at 6 percent and Indiana Rep. Mike Pence at 5 percent.

Needless to say, this straw poll win won’t be trumpeted by the NY/DC Axis Republicans the way it would have if Romney or Jindal had won. It is astonishing how they continue to argue that a liberal Mormon from Massachusetts or an Indian from Louisiana is going to have more national appeal than the libertarian Texan who everyone now knows was correct about the failed World Democratic Revolution, correct about the financial crisis, and correct about TARP and the banking bailouts.

Ron Paul would have beaten Obama because his positions were in alignment with the American people rather than with the financial elite. John McCain couldn’t because his weren’t. McCain had the election and threw it away by siding with Goldman Sachs, Citigroup, and the Federal Reserve rather than with the voters. Look at the alternatives now. Romney is a liberal Mormon; he’s about as electable as an Aztec priest. Palin is a political rock star, but she’s a lightweight and won’t be running if she has any sense at all because she’d be throwing away a very lucrative career in what passes for political commentary these days. Jindal is a lightweight who looks and talks funny. Pawlenty is an unprincipled snake, which is probably why the neocons are talking him up. I don’t like Huckabee, but he’s probably the only other serious candidate in the bunch.

With apologies to Ann Coulter, if you call yourself a conservative but don’t support Ron Paul due to his foreign policy, you’re neither economically literate nor are you truly conservative. It doesn’t matter how afraid of Iranian nukes you are or how sexually aroused you become at the thought of invading foreign lands because the great terrorist hunt and the world democratic revolution are rapidly coming to an end for lack of funding. This will become abundantly clear with the first failed Treasury auction or when the bank meltdowns begin to pick up speed. Ron Paul is the only Republican candidate who realizes this, which is precisely why he is the only viable Republican candidate in 2012 in much the same way that he was the only viable candidate in 2008.

Running another Wall Street-approved, neocon-vetted presidential candidate is about the only way the Republicans can guarantee an Obama victory in 2012. So, it won’t surprise me in the least if that is precisely what they do. If, on the other hand, they actually want to win, the ideal candidacy would probably be a Paul-Palin ticket. The economic situation is not about to get better, so the bipartisan appeal of Paul’s message is only going to grow.

It seems Robert Costa is, along with Jonah Goldberg and John Derbyshire, one of the few remaining voices of sanity at National Review: “There may have been some boos, but Paul was by far one of the more popular speakers at CPAC this year. “End the Fed!” was one of most-heard chants and his “Campaign for Liberty” group was everywhere… Unlike the 2012 wannabes, Paul doesn’t play coy: He has a manifesto and wants to broadcast it. Period. No worries about the media spin or whether the speech gets headlines (see Pawlenty, Tiger doctrine). And, instead of the usual anti-Obama talk, Paul framed a hefty chunk of his CPAC address upon a critique of Woodrow Wilson. And the crowd dug it.

Some older CPAC attendees don’t seem to care much for the Texas congressman, sure, but many young activists seem to regard him as a hero of sorts. When he talks about the debt, like he did on Friday, calling it a “monster” that will “eat up” our future, it was with a passion that you can’t fake in politics. He also didn’t mind challenging many of the room’s security hawks on foreign policy. “There is nothing wrong with being a conservative and having a conservative belief in foreign policy where we have a strong national defense and don’t go to war so carelessly,” Paul said. That line was met with a lot of silence, some nods, but, based on my conservations with activists afterward, strong respect from many for not simply pandering.”


Inflation manipulation

Karl Denninger calls shenanigans on the Bureau of Labor Statistics:

Remember the market’s “cheering” of the “-0.1%” CPI-U reading (core) yesterday?

There’s a problem – it was wrong.

Look at the highlighted numbers. Let’s multiply them up.

(5.966 x 0) + (.769 x -2.1) + (25.206 x -0.1) + (.347 x 0.4) / 32.288 = -0.12%, or -0.1%.

But it was reported as -0.5% in the line directly above (inverted tone.)

Oops.

I didn’t re-run the weightings for the entire series but a quick “eyeball” of the table shows that this should result in a CORE reading of 0.1% (positive), not the negative number reported.

Will the BLS admit to this error? Who the hell knows, but if you have a calculator, you can verify that yet another game to “boost” the market was run, with desire effect – a roughly 1/2% spike in the S&P 500 futures right on the BOGUS data release…. We now officially live in a world where intentionally-incorrect data is published by our government for the specific intention of misleading the markets.

It’s entirely possible. I certainly wouldn’t put it past them. On the other hand, given the BLS’s autopodiatrical assault chronicled in RGD, when they proved their own CPI-U numbers to be less reliable than the Shadowstats statistics they were incompetently attacking, it doesn’t stagger the imagination to think they just got the number wrong because they’re stupid government bureaucrats.

Of course, either way, you have to be an idiot yourself to put any credence in their reports. It simply doesn’t matter what the official paper count happens to be, because debt-deflation is well on its way.


Ashes on the dollar

Americans continue to opt out of the financial system:

Hoskins told News 5’s Courtis Fuller that he issued the bank an ultimatum. “I’ll tear it down before I let you take it,” Hoskins told them. And that’s exactly what Hoskins did. The Moscow man used a bulldozer two weeks ago to level the home he’d built, and the sprawling country home is now rubble, buried under a coating of snow.

If your life is being financially destroyed by the bankers and bureaucrats anyhow, there’s really not much reason to avoid repaying them ashes on the dollar. With 10.5% of all homes already delinquent or in default, what are the banks going to do when people simply refuse to leave or pay for them, beg the Feds to put 6.6 million homeowners in jail? And who is going to pay the costs of their imprisonment?

In 2008, the bankers, bureaucrats, and politicians tore the veil of the unwritten American social contract that permitted our debt-based economy to function. While the deck was always stacked to the benefit of the financial elite, it wasn’t always so egregious. But in ramming through TARP and the bailouts over the furious objections of the American people, they shattered the illusion of relative fairness. So now, they have absolutely no response when the American people stop playing a game that is stacked so heavily against them. The parasites came to believe they were invaluable and in doing so forgot the very first rule of parasitism: do not harm the host.

It’s almost surely too late to salvage the present financial system, but it is still worth attempting to restore the broken American social contract. The first step in doing so is to follow the Market Ticker’s advice of arresting, prosecuting and asset-stripping every member of the financial elite that can be proven to have committed criminal fraud over the last decade. The second step is to audit the Federal Reserve and open the books to the public. The third step is to unwind the banking bailouts and tax all of the bailed-out executives and employees 100 percent while making it clear that no such bailouts will ever be permitted to take place again. These measures will be totally unacceptable to the banking class, but the alternative will be much worse for everyone.

The vast majority of Americans are never going to bulldoze their houses. But millions of them – or rather, tens of millions more – are simply going to stop paying their debts and transform themselves from productive members of society into societal parasites. The time for playing economic charades is over, everyone knows that the system is crumbling because they can see the signs of it all around them. Extend and pretend simply isn’t an option anymore and the risks of refusing to deal with reality are only going to continue to grow with time.


Dante’s Inferno – Cantos IV and V

I will readily admit that one of the questions is not, strictly speaking, fair, as the correct answer is not directly provided in the actual text of the canto. That being said, I will nevertheless not have the least bit of sympathy for anyone here who has read the canto and still manages to get that question wrong. Next week’s reading is Cantos VI and VII.



Not over

The Market Ticker does the math:

Mortgage Bankers Association: 15% of US mortgages were in foreclosure or delinquency (remains a record); with loans 90 days past due also a record

Oh that’s nice.

70% of homes have a mortgage on them (the other 30% are “paid off.”) This implies that approximately 10.5% of all all homes are delinquent or in foreclosure.

One in ten. No, the housing mess is not over.

Don’t forget that all that is keeping many banks technically solvent is the fact that they are still keeping these delinquent and defaulting loans on their books as performing. It’s not over. It’s not even CLOSE to over.


The totalitarian feedback loop

Paul Krugman inadvertantly explains the Order ab Chao mechanism:

None of this should come as a big surprise. Long before the euro came into being, economists warned that Europe wasn’t ready for a single currency. But these warnings were ignored, and the crisis came.

Now what? A breakup of the euro is very nearly unthinkable, as a sheer matter of practicality. As Berkeley’s Barry Eichengreen puts it, an attempt to reintroduce a national currency would trigger “the mother of all financial crises.” So the only way out is forward: to make the euro work, Europe needs to move much further toward political union, so that European nations start to function more like American states.

It works like this. The government enacts a stupid policy doomed to failure. When the policy inevitably fails, the government swoops in to fix it by expanding its power. Repeat as needed. The European Union has been attempting to turn itself into a continent-wide empire for decades; now that the inherent contradictions of the Euro that were known to every economist since the idea was first broached have revealed themselves, they are being used to justify eliminating the last vestiges of national sovereignty that remain to the “member states”. There is no government failure so big that the government will not attempt to use it to expand the scope of its power. Regardless of whether their policies fail or succeed, both results are cited as evidence that more centralized power is required. On a side note, Krugman is incorrect. Spain was not fiscally responsible and could easily have prevented both its housing boom and subsequent bust despite its lack of control, (which you will recall it gave up of its free accord), over its own currency.

As for the fate of the Euro and the European Union, I suspect that the “unthinkable” will not only become entirely thinkable, it will eventually become the reality. Krugman’s refusal to contemplate the breakup of either isn’t based on any political or economic analysis, it’s mere ideological ostriching.