Archive for May, 2011

Are Bond Vigilantes the Chicago Cubs of the Financial World? “Wait till next year!”

May 31, 2011 2 comments

The empirical data has an anti-Bond Vigilante bias

The Chicago Cubs haven’t won the world series for over 100 years.  If you’ve never seen the list of things that have happened since the Cubs last won the world series, its a huge laugh.

The event that strikes me the most is:

Women gain the right to vote in the U.S.

I  am starting to wonder if the Bond Vigilantes aren’t the Chicago Cubs of the Financial world.

Here is a easy to read chart I put together a while back.  Our borrowing costs were highest when our debt to GDP was lowest.  Our borrowing costs are lowest now that our debt to GDP is the highest.  It isn’t even close.  I am not cherry picking data – this is a 50 year long series of data.

These warnings about being able to borrow money do not look at empirical data at all.

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TC Midwest Manufacturing Survey shows continued, robust growth

May 31, 2011 2 comments

The Trader’s Crucible Midwest Manufacturing Survey shows the midwest economy continues to be strong due to a rebound in manufacturing. Some quotes from the report:

  • We had record months in April and May.  June and July will break these records.
  • We have orders and work booked through September – our farthest bookings since the late 1990’s
  • Steel prices are up dramatically over the beginning of the year.
  • We are turning away work for the first time in years.
  • We cannot find enough qualified people at current wages.  We are hiring and expanding.
Ok, the TC Midwest Manufacturing Survey is just me talking with my dad. We were able to have a great chat on Memorial Day.  His business is fully leveraged to the aluminum and auto parts industry here in the states.  His clients are running full blast and are willing to pay extra for immediate work.
Good news for the U.S. economy overall?  I don’t know.  My personal experience with his business over years has been that it is tightly coupled and a coincident indicator to the overall economy.
I am slightly skeptical of the Chicago PMI that came out today.   Most of the quotes seem to talk about high commodity prices, and not as much about slowing business.    The internals seem to support a screaming manufacturing sector.
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Talking Points

May 31, 2011 Comments off

Brad Delong is one of the good guys.  He may not be MMT, but that does not mean he isn’t fighting the good fight.

Check out this post:

For the Virtual Green Room: May 31, 2011

Great idea.  I hope he makes it a sticky.

I need to do something like this.  Suggestions welcome!






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“It is, instead, a grotesque abdication of responsibility.”

May 30, 2011 4 comments

There are 44 Million People on Food Stamps in the Richest Country in Human History

Paul Krugman hits another one out of the park today.  Talking about the number of people that are unemployed, he says this:

“So someone needs to say the obvious: inventing reasons not to put the unemployed back to work is neither wise nor responsible. It is, instead, a grotesque abdication of responsibility.”

It’s true.  It’s a tragedy of vast proportions that we allow this much unemployment.  I shudder at the number of families that are being broken up now – today, as I write this – due to the mom and dad fighting about money.

It’s actually even worse than Mr. Krugman thinks.  The mainstream economics profession makes a huge mistake when it assumes the no-Ponzi assumption is knowable. The no Ponzi assumption is the beating heart of the Government Budget Constraint, and the government budget constraint is the reason bond vigilantes are rumored to exist, and the reason James Carville wants to come back as the bond market.

But mostly, the Government Budget Constraint is why we allow force tens of millions of people to live lives of worry and misery rather than as productive adults.   And the Government Budget Constraint is wrong.  It’s frackin’ wrong.

This is not  just some academic argument – this bullshit assumption makes hundreds of millions – even billions –  of people far more miserable than they need to be.  People are suffering because the economic profession assumes something to be true which is worse than false.

With the no-Ponzi assumption in place, there is and must always be a tradeoff between inflation and putting people to work.  And the no Ponzi is wrong.  It’s frackin’ wrong.

We can put people to work without worrying about inflation.  This is truly a “grotesque abdication of responsibility.”

[Update:  Tom Hickey points out that Greece is likely to give up sovereignty to appease creditors.  Let’s hope we are witnessing the “blow-off top” of this horrible non-idea.]

Hyperinflation Hoax: China still cannot emport that much inflation to the U.S.

May 29, 2011 6 comments

We do not face much inflation threat here in the U.S.

It’s a never ending battle against the forces of willful ignorance over here at the Trader’s Crucible. We now have Soc Gen and The Business Insider warning about how we will be facing huge inflation from China.

One thing you’ll notice in many of these hyperinflation hyperventilation pieces is a distinct lack of math. Yes, the story sounds good – China and India are growing rapidly – but the math does not support the story that there is an ocean of inflation that will swamp the U.S.  The numbers do not support this narrative at all.

The math is simple: Take the total amount of inflation in the U.S. and China, and then divvy it up anyway you like.  The total amount of inflation will remain nearly the same no matter who gets it.  If you want 0% inflation in China and see what happens to inflation in the U.S., you can do this with math.

Note that the total size of the combined Chinese and U.S. economies is huge.  Some of the inflation that China is experiencing must be allocated to China as well.

Total Inflation Calculations for China and U.S.

I wrote a whole post on what to do and how to do it.  It is not hard work and requires nothing more than a few spreadsheet calculations.  I used extremely aggressive assumptions about inflation for China at 10% in my calculations.  But even using this very high 10% figure, there isn’t that much inflation in the world.    Unless something fundamentally changes, the U.S. does not face a huge inflation threat from China.

Can a Sovereign Debt Jubilee Work for the Eurozone?

May 28, 2011 7 comments

This is one of the most interesting articles I’ve read about the crisis, How to destroy the web of debt.

The article makes a series of bold claims:

  • The Eurozone could reduce its overall debt to GDP ratio from 40% to 15% by canceling interlinked debt.
  • Ireland could reduce its debt/GDP from 130% to under 20%
  • 6 countries – Ireland, Italy, Spain, Britain, France, and Germany – can reduce their debt/GBP by over 50%
  • France can be virtually debt free, with 0.06% debt/GDP

In real world terms, what would be done is make a trade between countries for each others debt, and then just cancel the debt because in some real way, you can’t owe money to yourself.  So Ireland would trade with Greece – Ireland would give Greece its debt back in exchange for Greece giving Ireland its debt back.

Image from NYT

In some cases, it would require a three way trade. For example, look at the interaction of Ireland, Portugal, and Spain.  Portugal could reduce its debt by $80bn – or over 25% – just by netting out the debt it owes to Spain and Ireland with the debts owed among the countries.  Ireland would get a $40 bn reduction.

These are not trivial amounts of money.

All of this relies on the realization that the taxpayers are both the ultimate owners of the debt and the ultimate debtors.  German taxpayers owe a bunch of money to German pension funds, which are owned by German taxpayers.  The same idea can be applied across borders.

Dennis Rodman was mind-bogglingly awesome, and I’m back

May 27, 2011 2 comments

The Worm is a total outlier.

I just got back from a long work related trip.  Prior to that I had been working very hard.  But I my work ethic pales in comparison to Rodman.

Here is a case for Rodman as the greatest player in NBA history.  It’s worth reading it all. It has a dozen different charts, measuring different aspects of his game, that place him way outside superman territory.    Even against other all time greats, he’s a freak of nature that seems to defy statistical laws.

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