Sunday, July 29, 2012

Shifting Sovereigns...

...One of the primary functions that defines a sovereign is the ability to apply both soft (via diplomacy) and hard (via kinetic conflict) power.  It is obvious, however, that effectiveness of the former is almost exclusively dependent on the credibility of the latter.

What is interesting to me is that current format of nation-states applying soft and hard power is extrapolated into the future as the only conceivable format that serves as an engine to further the aggregate desires of various peoples.  We see this phenomenon being played out in the Middle East currently, but I expect Religion to become a much more important player on the world state in this century.  With just about every developed nation in the world experiencing various economic and political crisis, it is natural that their citizens will prefer something different.

It has not always been this way throughout history, and I note that publishing cycles are leading indicators for a wide variety of subjects.

This is why the following will be required reading for me:

The Pope's Soldiers: A Military History of the Modern Vatican 
The Pope’s Soldiers opens with a reminder that during the Renaissance the Holy See had been a military power with which to reckon, but had then declined rapidly.  During the mid-nineteenth century, however, papal military power revived, becoming a credible force for several decades, though one surprisingly over-looked by historians. 

Friday, July 27, 2012

All the king's horses...

...a continuing series.

With today's release of GDP and deflator numbers, one would think the "QE is inflationary" crowd would capitulate.  However, intellectual dogma more often than not adheres to the rules of emotion, not reason.  Just as the defenders of Greek astronomy invented more and more appendages to explain planetary movements (working within the prevailing doctrine of the day, instead of jettisoning assumptions and starting anew), so do they defend traditional (and hopelessly out of paradigm) Economic trade analysis.  Exception after exception, addendum after addendum to explain events within a framework that does not include the simple observation that fiat currency issuers are by definition monopoly suppliers of their own currency.

One need only look at the map of epicycles created by ancient astronomers to see what a convoluted mess things had become...and unfortunately, William of Ockham's comments on this phenomenon would not be heard until 1700 years later...

Life imitates art...

I have always been a fan of the movie "The Road Warrior", a film Chicago-based critic Roger Ebert claims is  "one of the most relentlessly aggressive movies ever made".  A voice in the beginning (implied to be the future adult version of a feral child who befriends the central protagonist) sets the plot thusly:

"...They'd built a house of straw. The thundering machines sputtered and stopped. Their leaders talked and talked and talked. But nothing could stem the avalanche. Their world crumbled. The cities exploded. A whirlwind of looting, a firestorm of fear. Men began to feed on men..."

Now, I am not advocating Apocalypse, quite the opposite in fact given the general themes explored by this blog, but it is always amusing to observe the next political appointee attempting to use rhetoric and speeches to succour the masses into believing the underlying problems are "under control".  In the case of Europe, the below remarks by Mr. Draghi are only yet another attempt to manage the news cycle.  Given multiple downgrades of EU member debt, and the fact that large institutions typically are forbidden to hold anything approaching junk status, there will be plenty of opportunity for the ECB to go on a buying spree.

Mario Draghi, president of the European Central Bank, has promised that it will dowhatever is necessary to preserve the euro. This appears to be a not very veiled promise that the central bank will buy euro-zone sovereign debt.
After days of further market attacks on the single currency through selling of Spanish and Italian sovereign debt, Mr. Draghi has had enough.
The single currency is “irreversible”, he said, adding that the “euro zone has the power to defeat market speculation.”

Thursday, July 26, 2012


There are always entreaties amongst the intelligensia during difficult social times for a "new" solution to the "problems" of inequality and "injustice".

The doctrine of "Distributism" is another attempt to re-package centuries old ideas into something more palatable and tractable for the contemporary audience.

The debates that follow form a litany of assumptions regarding the human condition and its "progress".

In his book "The Moral Landscape" Sam Harris provides a nice starting point for the assumptions made  with respect to human society:

"All question of value (right and wrong, good and evil) depend upon the possibility of experiencing such value.  Without potential consequences at the level of experience - happiness, suffering, joy, despair, etc.- all talk of value is emtpy.  Therefore, to say that an act is morally necessary, or evil, or blameless is to make (tacit) claims about its consequences in the lives of conscious creatures (wether actual or potential)."

These kinds of doctrines (The origins of the several theories matter not: Harris is an atheist, and Distributism itself is a product of the Catholic Church) seem to correlate well with general peace and stable hyper-powers.  Victorian sensibilities of decency and morality reigned during Britain's height of power, and the current skein of "global progress" continues today under the might of the U.S.A.

Power, interest, greed, envy, and the competitive nature of humans do not simply vanish in this type of environment either.  Searching for the Utopia which "progress" seeks to find is tantamount to reading a Pynchon novel;  there is much thought involved, perhaps you have learned a thing or two, but finding the main theme proves as elusive as the Shangri-La in Against the Day.

Friday, July 20, 2012

Manifest Destiny, v. 2.0

"There are plenty of Pilgrim Fathers among the Anglo Saxon race yet, and when America is filled up with their descendents, who shall say that Africa...shall not be their next resting place?"

Henry Morton Stanley, How I found Livingston: Travels, Adventures and Discovery in Central Africa,   1913.

The new battle for Africa has already begun.  The natural resources and relatively untapped markets present one of the more interesting growth opportunities for the G20.  The problem is, of course, that the current economic conditions presage competition more than cooperation.  It is more like Chess (or Stratego!) now.  Winner take all and devil take the hindmost.

Since civilization has "evolved" into its current manifestation, consumer markets, as opposed to raw territory or industrial capacity, has created the most wealth (and consequently granted the most power) in developed and emerging economies alike.

And so it is that Africa (especially sub-saharan Africa) remains something like central Asia was in the 1800s when large corporations and Empires struggled to extract the wealth of India.

The pieces on the board are all in place.  All that remains is the opening.

You know Krugman... jettisoning any pretension of non-partisan rationality when he rants the below.  Shifting the burden of proof ("has there ever been a president with Swiss bank accounts?***) to the audience he seeks to persuade is bad form.

This, coupled with the usual asymmetrical character assessments (it is "right" for Romney to disclose every financial transaction he has ever been involved with, but "wrong" for Obama to disclose academic records, grades, etc.) destroys this articles credulity.

It is also very interesting that Mr. Krugman believes his political judgement merits serious least to his editors.

[***99% likely, and if not Swiss then somewhere else.  Does he not know the history of this country, how it started, the relationships it has enjoyed, and the folks who have been President??  44 Presidents, with the likes of Hoover, Kennedy, Johnson, et al.  In addition, the question should include presidential candidates.  This significantly raises the total pool of people with possible Swiss bank accounts, and would certainly snag at least one unlucky politico who dared to place private assets in non-domestic jurisdictions.]

Put it this way: Has there ever before been a major presidential candidate who had a multimillion-dollar Swiss bank account, plus tens of millions invested in the Cayman Islands, famed as a tax haven?
And then there’s his Individual Retirement Account. I.R.A.’s are supposed to be a tax-advantaged vehicle for middle-class savers, with annual contributions limited to a few thousand dollars a year. Yet somehow Mr. Romney ended up with an account worth between $20 million and $101 million.
There are legitimate ways that could have happened, just as there are potentially legitimate reasons for parking large sums of money in overseas tax havens. But we don’t know which if any of those legitimate reasons apply in Mr. Romney’s case — because he has refused to release any details about his finances. This refusal to come clean suggests that he and his advisers believe that voters would be less likely to support him if they knew the truth about his investments.
And that is precisely why voters have a right to know that truth. Elections are, after all, in part about the perceived character of the candidates — and what a man does with his money is surely a major clue to his character.

Paper making the rounds... regarding Money Market Funds.  If ever a sector of an industry were under attack, it is MMFs considering the recent LIBOR, et al.

The problem with the proposed reforms below is, of course, pricing this new lack of liquidity into an already low-margin business.

This paper introduces a proposal for money market fund (MMF) reform that could 
mitigate systemic risks arising from these funds by protecting shareholders, such as retail 
investors, who do not redeem quickly from distressed funds. Our proposal would require 
that a small fraction of each MMF investor’s recent balances, called the “minimum 
balance at risk” (MBR), be demarcated to absorb losses if the fund is liquidated. Most 
regular transactions in the fund would be unaffected, but redemptions of the MBR 
would be delayed for thirty days. A key feature of the proposal is that large redemptions 
would subordinate a portion of an investor’s MBR, creating a disincentive to redeem 
if the fund is likely to have losses. In normal times, when the risk of MMF losses is 
remote, subordination would have little effect on incentives. We use empirical evidence, 
including new data on MMF losses from the U.S. Treasury and the Securities and 
Exchange Commission, to calibrate an MBR rule that would reduce the vulnerability of 
MMFs to runs and protect investors who do not redeem quickly in crises.

More engineered dissention...

...amongst the Eunach Class, with no self-awarenss of the ultimate epistemological questions...

(from Paul Krugman's Imperial sounding board)

Wren-Lewis’s first post concerns the obsession with microfoundations. As he says, this obsession is at this point deeply embedded in the academic incentive structure:
If you think that only ‘modelling what you can microfound’ is so obviously wrong that it cannot possibly be defended, you obviously have never had a referee’s report which rejected your paper because one of your modelling choices had ‘no clear microfoundations’. One of the most depressing conversations I have is with bright young macroeconomists who say they would love to explore some interesting real world phenomenon, but will not do so because its microfoundations are unclear.
So where does this come from? The “Lucas critique” has been a big deal in the profession for more than a generation. This says that even if you observe a particular relationship in the real world — say, a relationship between inflation and unemployment — this relationship may change when policy changes. So you really want to have a deeper understanding of where the relationship comes from — “microfoundations” — so that you won’t be caught off guard if it does change in response to policy.

Ants go marching...

...Fitch follows the "early adaptors" into the misguided notion that the credit rating of the U.S. is somehow dependent on its ability to "get" dollars from foreign "creditors" in order to satisfy its dollar-denominated bonds.

July 19 (Reuters) - Fitch Ratings Service said on Thursday
it affirmed certain municipal ratings directly linked to the
United States 'AAA' sovereign debt rating, outlook negative.
    Short-term ratings that are directly linked to the
creditworthiness of the United States or its related entities
are affirmed at F1-plus, Fitch said in a statement.
    Included are the following categories of debt:
    -Debt obligations whose repayments are guaranteed by the
United States; 
    -Pre-refunded bonds whose repayments are wholly dependent on
'AAA' rated United States government and agency obligations held
in escrow;
    -Municipal bonds that are wholly secured by 'AAA' rated
United States government and agency obligations held in escrow.

Wednesday, July 18, 2012


I have, since the creation of this blog, referred to myself in my profile as a "philomath", which means "lover of knowledge".

Never.  Stop.  Learning.

For this, the below sites have been extremely useful.  Its always beneficial to stretch your understanding of things, and to compare and contrast how similar tools are used to engage extremely disparate problems.  The history of Finance and Economics can accurately be described in the same fashion...a history of the conflict of mechanisms.

Khan Academy
MIT (open source)
Stanford (open source)
Code Academy

Friday, July 13, 2012

Galbraith's Bezel...

Making the rounds in large banks, and even sunny San Bernardino...

July 13 (Bloomberg) -- Law enforcement officials are
investigating possible crimes in San Bernardino’s city
government, which almost drained special funds to prop up its
     The near-bankrupt state of the community of 209,000 east of
Los Angeles came to light when a new finance director discovered
that previous officials shifted money for workers-compensation
and liability insurance to the general fund, said Andrea Travis-
Miller, interim city manager.
     “The city has relied on a whole variety of one-time
measures to balance its budget,” Travis-Miller, who began her
job in May, said yesterday. “There have been transfers to the
general fund with the expectation that they would be repaid.
That became difficult.”

The Divine Right of Technocrats

Bit of a rant today.

The history of ("well known"***) philosophy is basically a history of apologetics.  From Socrates to Augustine, to Jean Bodin, Hegel, Rawls, et al.  Philosophy has always been a warm and inviting home to those who would legitimize the current form of rule, whatever its form.

The Divine Right of Kings ("DROK") was one of the more silly episodes in the history of power.

The DROK's basic premise was (and likely will be once more) that God has given sovereign powers on earth to a certain set of people.  These people then rule unencumbered by accountability, oversight, or limitation.

It guarantees massive excesses and basically commits entire nations to the particular whims of people who do not experience chastening or emotional discipline.

Today, there is this fascination with Technocratic skill.  Jean Bodin would be pleased to note the dominance in his native France of the Grand Ecole's on its political say nothing of the reverence we in the U.S. hold for the various government agencies, bureaus, boards, and commissions that monotonically wave from rule to decision.

This "Divine Right of Technocrats" ("DROT") derives its legitimacy from competitive education.  The problem, as is often the case with these forms, is one of scale.

An intensely competitive, disciplined environment is excellent for, say, Medicine, where the problems are more tractable and the patient is a singular being.  The problems of society and its formation are of an entirely different character than illness or injury.

And yet, society simply believes that these "well qualified" people can solve problems in the same fashion merely because of credentials.

So we live in the age of the DROT.  It likely won't last long in historical terms.

***I think philosophy, much like art, suffers from "popularity" bias: the random fashions and tastes of the age determine what is "good" and "bad" art/philosophy/literature/music, etc.  To the extent that there are other countervailing examples in the age, they are relegated to the dustbin of history.  Historians of philosophy and economics often find that their "new" ideas are not new...they were only unpopular in previous epochs.

More "downgrades" for the U.S.?

Much talk today of further putative downgrades for U.S. debt.


At this point, absolute credit levels should be completely disregarded in favor of relative levels of safety.  Something along the line of my own "Sovereign Debt Tier List" would be more useful than simply stating "The credit ratings of Western (and soon Eastern, Southern, etc.) Civilization are officially downgraded".

The bond and equity markets of the U.S. are evidence enough.

Broken record

Today's PPI signals another note in the long and distinguished path of Deflation the world is currently locked into.

Again, all those pundits who forcasted massive inflation due to "money printing" have it all wrong.

My stance on this has been clear for years.

Wednesday, July 11, 2012

I'm not sayin'

...I'm just sayin'

I will refrain from the usual "who dat" or similar boisterous antics when discussing the "remarkable" lowering of bond yields in the U.S. in the face of "crippling" deficit numbers.

Monday, July 09, 2012


...channels Peter the Great, except now its America as opposed to Great Britain.

In a biennial speech to Russian ambassadors, Putin also took a shot at the West by condemning any unilateral actions to solve international disputes and underlined the importance of resolving such conflicts through the United Nations.
His remarks suggested that Russia, a veto-wielding permanent member of the Security Council, would keep on defending ally Syria at the United Nations over its military crackdown on an popular uprising that has evolved into an armed insurgency.
"Domestic socio-economic problems that have become worse in industrialized countries as a result of the (economic) crisis are weakening the dominant role of the so-called historical West," Putin told a meeting of Russian ambassadors from across the world.

Its Official...

...the Paper Dragon has now capitulated somewhat.  Recall all those silly tomes designed to induce fright regarding the downfall of America and the rise of China as the ascendent hyper-power.

It is Russia that will suprise us with Imperial ambition, not the Middle Kingdom.

HONG KONG — Premier Wen Jiabao of China warned on Sunday of “huge downward pressure” on the Chinese economy, in the clearest expression yet of concern at the top of the country’s leadership about a sharp slowdown in recent months.

Wednesday, July 04, 2012

How quickly...

the terms of the game change...Remember that time when we had high GDP growth, positive external trade numbers, manageable debt, and social tranquility?

Yeah...Good times...

(Reuters) - France's new Socialist government announced tax rises worth 7.2 billion euros on Wednesday, including heavy one-off levies on wealthy households and big corporations, to plug a revenue shortfall this year caused by flagging economic growth.
In the first major raft of economic measures since Francois Hollande was elected president in May promising to avoid the painful austerity seen elsewhere in Europe, the government singled out large companies and the rich.
An extraordinary levy of 2.3 billion euros ($2.90 billion) on wealthy households and 1.1 billion euros in one-off taxes on large banks and energy firms were central parts of an amended 2012 budget presented to parliament.
The law, which includes tax increases on stock options and dividends and the scrapping of an exemption on overtime, should easily receive approval by a July 31 deadline after the Socialists won a comfortable parliamentary majority at elections last month.
Hollande says the rich must pay their share as France battles to cut its public deficit from 5.2 percent of GDP last year to an EU limit of 3 percent in 2013 despite a stagnant economy and rising debt.

The Ghost cities...

...already booked as fabulously profitable ventures, no doubt.  Doubtlessly, they will end up as emergency housing for well-connected Communist Party members once revolution occurs.

Monday, July 02, 2012

Physics as politics...

The overtones are too obvious to comment upon.  I would caution against any substantial finding in this environment where such "superfluous" distractions are facing either extinction or massive funding cuts.

CERN, the European Organization for Nuclear Research, has confirmed researchers were still analysing data on the so-called God particle.
Scientists at the Large Hadron Collider are expected to say they are 99.99 per cent certain it has been found - which is known as 'four sigma' level, according to London's Daily Mail.
Finding the Higgs boson would validate the Standard Model, a theory explaining how the universe is built, and could be a gateway to verifying other parts of physics such as superparticles or dark matter. The research would help scientists gain a better understanding of the universe and how galaxies hold together.
Physicists first predicted that the Higgs Boson subatomic particle exists 48 years ago.
The Higgs boson is regarded as the key to understanding the universe. Physicists say its job is to give the particles that make up atoms their mass, says the Daily Mail.
Without this mass, these particles would zip though the cosmos at the speed of light, unable to bind together to form the atoms that make up everything in the universe, from planets to people
If the physicists' theory is correct, a few Higgs bosons should be created in every trillion collisions, before rapidly decaying.
US scientists found some evidence of the existence of the Higgs boson in two independent experiments in March, but the clues weren't strong enough to declare the so-called God particle cornered.

Sunday, July 01, 2012


...the Obama Doctrine with respect to Latin America.

Exit polls on Sunday night indicated Enrique Pena Nieto won the country's election, Mexican state television reported. Pena Nieto will restore to power the Institutional Revolutionary Party, which was ousted from office 12 years ago after holding a monopoly for 70 years. Called the “largest and most complex election” ever to be held in Mexico, 79 million people are registered to vote Sunday, including 3.5 million first-time voters.