phik

Last week, sensationalist newspaper articles ran across the country — this is a representative example — breathless with the news that, somehow, knives, guns, and ammunition were carried on an airplane as checked luggage.

Truly, if this non-event is “one of Australia’s most serious breaches of airport security” then I look forward to finally being able to carry toothpaste, leave my shoes on, and cut my steak with a real knife again. I get it. We won the war on terror.

Although I’m still not clear on why this even warrants a newspaper article, let alone what will no doubt become a full parliamentary inquiry, my favourite part of these articles is this: they spend 500 words whipping up a frenzy about airport security and baggage handling over nothing, but virtually no discussion — certainly no breathless outrage, calls for inquiry, or quotes from rabid anti-gun nuts — of the fact that a duffel bag full of guns and knives was traveling in the care of eleven- and fourteen-year-old boys.

Don’t ever let anyone tell you Australian society doesn’t have their eye on the ball.

But when it comes to waste, fraud, and mismanagement, Alan has impressed me for a while. I watched this hearing, and this is a pretty good six-minute summary:

When it comes to this $1.2 trillion, I’m willing to bet that virtually zero of it was lent. Lending implies that there’s some chance of being repaid. When you loan to an insolvent institution, that’s called a donation.

The only issue I take with this report is this idea that there’s no cap on these gifts from the Fed. There’s a very clear cap, and that cap is zero. Congress — not the President, and certainly not Bernanke — gets to appropriate taxpayer funds. There’s no authority in the Federal Reserve Act of 1913 for making loans against worthless collateral, backed by the full faith and credit of the US Government.

The Hope is very contagious, no? Everyone, including me, wants to be optimistic, particularly during such uncertainty, and particularly after the last eight (twenty? fifty?) years.

But the nearly religious exuberance covered in the media, and to a lesser degree among friends, is sickly sweet, cloying. It’s almost painful to watch, and I almost feed bad calling it out.

He deserves a chance to deliver, and he will, no doubt, execute on some high-profile promises, like the closing of Gitmo, and ending our shameful policy of torture. These are important, and I salute him.

On the other hand, he will probably also be given a free pass, for a long time, on equally serious issues where there is the merest illusion of Change, or indeed none at all. A pass that another administration would never receive.

Remember, despite everyone’s attempts to complicate the issue, spending a trillion dollars isn’t actually the goal; the goal is a strong economy. I hope that America doesn’t throw a party next week when we embark on the former, to the detriment of the latter.

When the Senate confirms Obama’s Drug Czar to continue policies that destroy lives, waste money, and trample liberties, I hope people acknowledge that the behemoth of government rarely changes course without sustained pressure beyond one man and a single election.

When we withdraw from Iraq, yet leave thirty, fifty, seventy thousand troops indefinitely, I hope the protests continue as they would have under a Bush administration.

As we continue to spend unsustainable, unconscionable amounts on global empire, even as our economy crumbles, I hope people seriously question their blind trust in government to do the right thing when it doesn’t even sink the easy buckets.

For those satisfied to welcome anyone but Bush into government’s highest office, yesterday was a celebration for the ages. For those who seek peace, freedom, and sound fiscal policy, it still feels like a wake.

Thanks, George!

While Spitzer and I agree that if the money is going to be spent we might as well spend it on smart things, I don’t agree with the premise that it must be spent, or that spending it will in some way help America.

The core point is that a single large investment (e.g. the trillion dollars that apparently so frightens you) can so completely transform certain conditions that it has a much greater effect than the same wealth invested piecemeal

Except that it can’t, for two reasons.

First, even $1 trillion is a drop in the bucket. It may be only 7.5% of GDP, as Spitzer points out, but it’s nothing compared to the effects of the deflationary credit destruction we’re experiencing. The credit bubble of the last eight years was massive in scale, and its unwinding will be massively destructive.

American households alone lost almost ten trillion dollars in paper wealth in 2008. That’s 75% of GDP, with a lot more to come in 2009. Government can’t even come close to replacing that, and consumers were 75% of the economy.

Second, government doesn’t create jobs or wealth, it only moves it around. At the very best, stimulus just shifts demand forward, to buy things today that we would otherwise buy next year. (What do you do next year?)

But even that implies that economic central planning works, which we know is false. In reality, it creates malinvestment on an epic scale, building things we don’t want or need (at a much higher cost). And doing it entirely with debt, guaranteeing that we continue paying forever for that which we don’t need in the first place.

To use your example: what, exactly, would a trillion dollar high-speed rail network get us? The fastest and most expensive empty trains in the world, I predict, at the expense of redirecting $1 trillion from the productive economy into what can only be called a boondoggle.

As for comparing the US economy to Japan’s, I think there are some key differences. Zero percent interest rates in Japan, for instance.

We’re already at zero, and have effectively been at (sometimes below) zero for more than a month.

Even worse, from the perspective of people who want banks to lend — of whom I am not one, to be clear — is that ZIRP is entirely counterproductive to that effort. The Fed has made it clear that they’ll loan money to anyone, and this is crowding out private lending.

What bank would be insane enough to lend at near-zero interest rates, given the current economic climate? Interest rates should be rising, not falling. When faced with the choice between making a high-risk loan at insanely low interest rates or hoarding cash (indeed, getting an absurd guaranteed return from the taxpayer, courtesy of the Fed), banks are wisely choosing not to lend.

The only major difference that comes to me at the moment is that the US dollar’s continuing status as the world’s reserve currency saves us from the idiocy of having our central bank trying to intervene in the currency markets.

As for whether governments are more powerful than markets, I think this depends — what was WWII? But it’s a vacuous point for Newsweek to make, agreed.

You’re right that WW2 pulled us out of the Great Depression, and not, as is so frequently and bafflingly claimed, the New Deal.

But WW2 didn’t create wealth any more than the Iraq war is creating wealth; it was destructive on an almost inconceivable scale. It was possible because of national fervor and sacrifice: productivity and savings shot up, as did the national debt. Even so, it’s hard to call war anything but malinvestment, and American households are in no position to finance our government the way they were in the 1930s and 40s. They’re totally tapped out.

But why worry? None of this economy shit matters much unless you were planning on getting rich quick, delaying all your *actual* dreams until that moment when you could stop worrying about making money

I’m not especially worried for myself; there are opportunities in any market. If you keep your powder dry, there will no doubt be incredible deals to be had (though I don’t think the market is anywhere near cheap today, despite the bleating of the talking heads on CNBC). If you’re not in debt, and you’re holding cash, you’ll be in an excellent position once the government gets out of the way and lets the market correct.

Nonetheless, I see U6 unemployment, with or without Obama’s stimulus, reaching 17-20% in the next 18 months; housing continuing to crater at least well into 2010; another 30-40% drop in the Dow and the S&P 500; a massive shift from consumer spending to saving, debt service, and bankruptcy.

Are those bread-lines-and-riots numbers? I don’t know. They might be. I think if the average citizen had any concept of the enormity of the swindle being executed by the US government, Washington would already be ablaze. I expect Obama will continue to get away with it on account of his hope.

In our lifetimes, barring a policy shift of such a magnitude as to be almost unimaginable, I don’t see how the math permits the United States to avoid defaulting on its debt. I don’t think you want to be there when that happens.

As we careen wildly toward January 20 and a virtual guarantee to waste another trillion dollars, I can’t help but be disappointed (though hardly surprised) by how inevitable it feels.

Japan already tried this, of course, and as a result they’re wrapping up their second lost decade of productivity, with a debt to GDP ratio of almost 200%. If you’re too bored by the topic to understand why “stimulus” packages have not and can not possibly work — why it is mathematically impossible in the long run — feast your eyes:

That’s twenty years of Japanese decline, plowing new 25+ year lows with each passing month. Despite borrowing an amount equivalent to 100% of GDP trying to spend their way out of it. Money into a black hole.

For those who want to understand, I highly recommend Mish. Every day. He’s not high-volume, and he writes extremely well.

Naturally, he has made his own comparisons regarding Japan’s epic failure and our looming emulation thereof.

Last week he referenced a piece in Newsweek — I won’t even link to it, for fear of the liability to which I might expose myself if you were to read it and suffer a precipitous drop in IQ — but one bit cannot be resisted (emphasis mine):

As bad as it looks, the current financial crisis will end. I don’t know when or how, but the combination of government interventions will eventually work. Why do I say this? Because governments are more powerful than markets.

Quite apart from being one of the dumbest things that I imagine Newsweek has ever regretted printing, it is an apt opening for one of my favourite founding-father quotes:

Government is not reason, it is not eloquence, it is force; like fire, a troublesome servant and a fearful master. Never for a moment should it be left to irresponsible action.

Who else? The G-man.

Update: the words were barely out of my mouth! Now it’s a trillion per year?

I’ve been catching a lot of flack for not having written anything about the election. I am a busy man, so I have prepared five hundred words of Christmas cheer for you in near sound-bite form.

I gather that Obama won, but I don’t particularly care. I preferred him over McCain by the slimmest of margins: he’s a better orator (he’s so articulate!) and inasmuch as I care about international opinion, which is rather little, he is likely to improve it. The Republicans got the thrashing they deserved; as a party, they haven’t acted like Republicans for at least two decades. Not that either is acting in any way even approximating the national interest.

When it comes to actual policy about issues that matter, however, I don’t expect we’ll be able to distinguish Obama from McCain, or indeed Bush, even with the aid of powerful microscopes. It is going to be a pretty rough year for the Obamaphiles, I predict, joy turning to ashes in their mouths, jaws slack with naïve incredulity.

Indeed, we don’t even need to wait for the inauguration. In naming Geithner and Summers as economic leaders he’s placed the very same foxes, chins still slick with blood, back in charge of the henhouse. I forecast more Keynsian garbage that’s utterly indistinguishable from Bush and Paulson.

When even The Nation is slamming your new Democratic president, you know he’s fucked up.

Of course, now the disasters will come at an even more fevered clip, spurred by a Democratic majority in both houses. Thankfully we don’t have to contend with a supermajority, except on matters over which a bipartisan idiocy can preside. We seem to have dodged the auto-bailout bullet but, to go along with the trillions that we’ve already wasted, I suspect it’s but a brief respite. As I was saying. Here we have the President, with the President-elect’s support, ignoring the will of the legislature and diverting funds appropriated for another purpose.

I guess Kucinich can expand his list of impeachable offences for Congress to ignore. Will he be keeping as diligent a list for President Obama?

OK, I better wrap this up:

Hopes for sensible drug policy are not looking good, but he’s been backpedaling on that one for a while. I expect eight more years of exactly the same policy: unconstitutional, directly against the expressed will of the people, and a failure by any measure.

You and I know what “end the war in Iraq” means, but to politicians, apparently including the President-elect, it means the continued presence of tens of thousands of troops, indefinitely. About as much change as I could credibly believe in.

Finally, more stimulus is asinine. The country is bankrupt. Our economy has been one debt-fueled asset bubble after another, a nation-sized Ponzi scheme, for decades. The sooner they stop trying to reinflate another bubble, stop diverting money from the few remaining productive sectors of the economy to the insolvent, the sooner the (painful) recovery can get underway.

Merry Christmas.

SIR — Your article gets one thing right: this is capitalism at its worst, and it must not go forward.

Every prospectus for GSE debt for 30 years has included huge bold text on the cover making unambiguous its lack of government backing.

To bail out speculators and foreign governments — who collected billions courtesy of higher yields over Treasuries — at US taxpayer expense is not merely morally bankrupt, but treason.

Bailout or collapse are not the only choices. Sell the assets via receivership, like any other bankrupt company, and wind them down. If you believe your own rhetoric about asset values, the bondholders lose only a few percent. Either way, the responsible parties wear the loss.

Finally, the notion that this action reduces mortgage costs seems optimistic at best. More likely is that government borrowing costs rise, as the bond market punishes the US government for its profligacy. The spread may narrow, but nobody gets a cheaper mortgage.

Phil Schwan
Perth, Australia

It may be the Democrats’ hypothetical message, but what about their actions?

bankers first, bailing out Fanny and Freddie, refusing to prosecute the fraud

war first, happy to go along with the Iraq adventure; keen for another in Georgia

debt first, selling out the next generation

inflation first, a tax that hits the poorest hardest

government first, even — perhaps especially — when it’s unconstitutional

To be clear: I’m no Republican apologist, and the last 20 years of GOP efforts have been one disaster after another.

But let’s stop pretending that the Democrats are any better, that there will be any kind of meaningful “change”. They just pick slightly different winners and losers:

Neither party stands for freedom; personal, social, or economic.

Neither party wants peace; both permit Iraq to go on. Both are eager for more war, be it in Afghanistan, North Korea, Iran, Syria, Georgia, Darfur, …

Neither party is economically responsible. They spend. They inflate the currency. They strangle any American business not large enough to buy favour. They bail out their friends.

Neither party upholds the constitution, in which the executive answers to Congress or the people. In which 50 states are allowed to compete for the best solutions.

In every way that matters, they are virtually identical.

Read this outstanding editorial from Salon about Obama’s flip-flop into supporting the horrendous FISA “compromise” to legalize Bush’s warrantless wiretapping and provide telecomm immunity.

This after he pledged not only to vote against the bill, but “support a filibuster of any bill that includes retroactive immunity for telecommunications companies.”

Which is a shame, because it’s another instance of Obama’s position on an issue being both anti-liberty and indistinguishable from that of George Bush or John McCain. And the sudden rush of his supporters to justify his decision is sad, even if predictable:

…because the Only Thing That Matters is that Barack Obama be put in the Oval Office, and we must do anything and everything — including remain silent when he embraces a full-scale assault on the Fourth Amendment and the rule of law — because every goal is now subordinate to electing Barack Obama our new Leader.

Some hope that enough phone calls will get him to return to his commitment, and maybe they’re right.

It’s obviously more about polling than principle.

This quote — from “Who watches the watchers in surveillance society“, a question which the article basically ignores — pretty much sums up the whole discussion.

[Chicago emergency operations chief Andrew] Velasquez disputed the conclusion that cameras don’t prevent crime, saying he constantly fields requests from residents asking for a camera to make their neighborhood safer.

The Chinese are going to eat us alive.