Links 1/2/09

Futuristic Security Checkpoints Know What You Do Before You Do It Tech Fragments

Alberto Gonzales, Victim Hilzoy

What if the choice is unions or government? L’Hote (hat tip reader Scott)

As Recession Deepens, So Does Milk Surplus New York Times

Refuted economic doctrines #1: The efficient markets hypothesis John Quiggin

The Most Distrusted Institution In America Dan Gerstein, Forbes (hat tip reader Douglas)

Ignoring the Oracles WSJ Economics Blog

Paulson says crisis sown by imbalance Financial Times. Rather late to start talking up global imbalances, don’t you think? They certainly got little mention before the waning hours of his tenure.

Antidote du jour:

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  1. Anonymous

    Physicists may assume that all cows are spherical. But biologists should never make that mistake.

    Economists may assume that the efficient markets hypothesis holds. But investors should never make that mistake.

    The silliest thing in the world is to take a mathematical simplification that was introduced just to make the equations tractable and more elegant, and elevate it to the status of an article of faith, something that you actually believe to be true.

  2. fresno dan

    Areee with “anon” at 2:28am

    Along those lines:

    I am always interested in the debate about measuring inflation, and at the link you see two good arguements about whether the market is over or under priced. It isn’t that the market doesn’t have information that refutes the “efficient market hypothesis” – its that economics is not a science. Economics is interesting the same way theology or morality is – maybe useful, but in no way objective reality that can be predicted.

  3. fresno dan

    “Global economic imbalances helped to foster the credit crisis by pushing down global interest rates and driving investors towards riskier assets, outgoing US Treasury Secretary Hank Paulson told the Financial Times.”
    Uh, lets make it comport with reality, “The Fed helped to foster the credit crisis by pushing down global interest rates and driving investors towards riskier assets…”
    There, fixed it.

    BTW, the ignored oracles link was superb. And another refutation of all the “Whocoudanode” crowd.

  4. Glen

    Interesting 09 prediction and analysis in Bears Lair by Martin Hutchinson “2009 looks like another Bear year”. To the guts;

    “Most important, the recent increases in the U.S. money supply would be working their way rapidly through to inflation. Conventional Bernankeist wisdom is that only deflation is a threat now, that rapid increases in the money supply are needed to combat a decline in money’s velocity and that those increases can be withdrawn quickly when inflation looks like turning up.

    One look at the statistics will tell you that’s nonsense. The broad money supply, for which the St Louis Fed’s MZM series (which takes into account currency, checking, savings and money market accounts but not certificates of deposit) is the best available proxy, has risen at an annual rate of 16.6% in the last two months or 10.1% in the last year; removing that amount of money quickly is clearly likely to be difficult. More startling still, however, is the behavior of narrow money in the form of the monetary base, which had been increasing at 3-to-4% per annum in the period to September, but has gone completely haywire since then, increasing at an annual rate of 990.9% in the three months to December. No, that’s not a typo, in those three months the monetary base has been increasing at almost 1,000% per annum. Over the last year, its average rate of increase is 86% per annum, but that reflects nine months of gentle increase followed by explosion.”

    Thus it appears that the vast amounts of liquidity being pumped into the system could be starting to take effect and thus explain such anomalies, as we’ve pondered, as the current stock market gains and commodity prices rising both against fundamentals.

    What will the Fed do? “The Fed will not reverse course when inflation appears, but will instead act feebly as it has in every inflationary manifestation since 1995. Inflation will thus get a good grip; based on the usual temporal relationship between money supply increases and inflation we should expect consumer prices to be increasing at an annual rate of more than 10% within 18 months of today.”

    Given the rest of the world is in a similar state, the effects will be felt in those nations running deficits. Overall, a fairly good call. Be interested to hear some opinions. Link to the full article below.

  5. Independent Accountant

    I read Gerstein’s piece. I have no confidence in the ability of the SEC or DOJ to investigate anything. As far as I am concerned, those two organizations need to be fumigated before we can expect they will clean up Wall Street.

  6. River

    Glen, I have also been following the increases in MZM and narrow money.

    Bernanke probably beleives that most of this newly created money will go into securities or will reenergize consumer spending, but Ben has already admitted that he is now experimenting.

    Ben is playing with fire. If inflation really takes off and consumers refuse to hold quickly inflating dollars there will be lots of consumer spending…as in hyperinflation.

    The ramifications of hyperinflation are too obvious and numerous to name. Let’s just say that regaining control would be very difficult and might destroy the dollar and treasury issues.

    What will it take to get a grown up to run the Fed and let Ben go experiment in his own little sand box? Maybe Ben could go to Zimbabwe and lend a hand there?

  7. Riggsveda

    Speaking of Zimbabwe, I read the milk surplus story and was amazed to see that nowhere did it raise the issue of the starving or under/malnourished millions that would benefit from all that milk powder, both here and abroad, not to mention the NGOs and food banks that have gone begging this year. People are scavenging for garbage and eating insects, and our answer is to drive the price of life-saving goods back up. Happy New Year, indeed.

  8. Anonymous

    The efficient market hypothesis (EMH) has always been a conditional outcome, not a cause and effect. The strength of the EMH is dependent, among other things, on the degree of information asymetry, the strength of investor protections and oversite, liquidity, tax policy, and transactional friction.

    Over the past 6-7 years, as the market makers began earning their nut through trading, the breakdown of the EMH became apparent. The value of equities has been substantially diminished by the degree of manipulation and loss of investor protection engineered by the frat pack. The credit lock up is a direct result of the EMH in action. No one dare trust the bull shit information flow so the market ceases to trade.

  9. donna

    Well, giving more money to the banks and car companies and those at the top is just increasing the problems. The Fed admits today it doesn’t even know what th banks are doing with the money.

    We need to get money to those at the bottom, who need it to survive the crunch and who will spend it and regenerate the economy. All else is madness.

    The problem is inequality. Really, Hank, you just now figured that out?


  10. Anonymous

    Paulson says crisis sown by imbalance Financial Times.

    “Global economic imbalances” = Homegrown, highly educated Crooks, Liars and Thieves

    Put these economic terrorists in Guantanamo, enhance their interrogation and get as many assets back as possible.

  11. Anonymous

    Glen, I agree also with the purported effects of the trillions that are being pumped into the money supply. In 18 months or less we will have runaway inflation and we will still not have stopped the derivative nightmare.

    Where in the hell are the grownups? I think that war crimes are going to be the small potatoes of blame when the world finds out what the fascist Bush regime has done to the world economy….lets give trillions away to the money changers in the temple.

    What does a DFH know anyway?

  12. artichoke

    All these distractions from the CDS. I saw a WSJ article a couple days ago that was more distraction.

    $50 trillion of CDS outstanding. Keep that in mind.

    We have to either declare these CDS null and void, allow the shorts to default and the longs to take the loss, or inflate like mad until $50 trillion is affordable by us.

    Otherwise, there is an impossible situation. It will be wise to move out of the USA to avoid payments on that debt, and the smart people _will_ do so.

  13. Anonymous

    To Glen, River, and Anon 4:09

    IMO the chances that inflation will take hold in the near future aren’t that high because I don’t think wages will go up. Ergo, if there’s no wage-price spiral, there won’t be massive inflation. I’m fully aware of what’s happening in Zimbabwe of course, but that appears to be mindless, endless printing, and it doesn’t appear that we are at that point (yet).

    Rebuttals to my opinion would be appreciated.

  14. Anonymous

    I can’t believe he has the gall to blame savers for creating the current problems. This is pure lies to cover for his Goldman Saks criminal buddies. Wall Street created the derivatives that are now blowing up in their faces. CDS are not investments they are either illegal insurance or gambling. I want my tax money back, these guys need to rot in jail for what they have done to millions of people’s savings and retirement accounts. All of the investment houses on wall street should go bankrupt and jail.

  15. john

    Looks like foreign investment is not something policymakers can rely on much longer. Bernanke may find it tough to target 4.5% 30 yr mortgage rates if he is the only buyer of 30 year bonds! The cost of credit to Uncle Sam/and his faithful banditos of taxpayers will be pressured higher. We can't think we can keep rates low like Japan has the past 15 years because they had the surplus savings and we don't.

    Ane who can blame foreign cb's for outright selling of treasuries given the 27% gain in the 30 year in the final quarter of 2008. I'd be self-motivated to book the profits. Profit taking in the 30 year is evident. On the ltd of 2008 and 1st td of 2009, the 30 yr has plunged almost 7 handles.

    Dec. 31 (Bloomberg) — Developing nations plan to sell the most dollar-denominated bonds since 2005, reversing a shift into local debt, as commodities prices fall, foreign reserves diminish and emerging-market currencies weaken.

  16. Anonymous

    Futuristic Security Checkpoints scanning irises, gait, facial expressions, body temperature to determine intent:

    Israeli security forces, who are much more likely to come across terrorists and suicide bombers in their daily work, are highly trained in rapid interrogation, reading body language, and so on. But where’s the money in that? Much better to invest in high-tech boondoggles that provide the illusion of security; that’s more money for well-connected contractors.

    The Looting of the Treasury has become institutionalized.

  17. Anonymous

    Unions or government ?

    The union movement was very strong when the GI’s came home and organized. Now, the non-union working class is clinging to the remnants of the hard earned Union working conditions, if not the family level pay. With weak resistance, the southern slavers are gaining the upper hand with their eternally failed philosophies. And where is that getting this country ?

    What scares me the most is the absolute and profound stupidity of today’s non-union working class. The GOP hero, Joe the plumber, is an unemployable ne’re do well whose sibling family survived on food stamps.

    If JP belonged to a union, the other members would have taken care of this ignorant POS long before he surfaced. He would not qualify for a union job.

    My Dad was a union negotiator and teamster all his life. My mother’s whacko step sister is always making comments to him about the unions, blah, blah, blah. It turns out, after 45 years of working, that the only pension benefits the dumb SOB recieves is from the 3 years he drove as a teamster member. That is it, SS and a teamster pension. And he is a registered republican.

    I have my union card, an MS in Engineering. Thank God I grew up in a Teamster Family.

  18. lineup32

    “Thus it appears that the vast amounts of liquidity being pumped into the system could be starting to take effect and thus explain such anomalies, as we’ve pondered, as the current stock market gains and commodity prices rising both against fundamentals.”

    More bubbles -with oil a good target given the losses and stranded big money great for the market with the terrible hits in the energy sector also lets not forget about the Obama Green building idea’s that can’t happen with oil @$25. Or pick a new bubble except housing..LOL

  19. Anonymous

    I probably shouldn’t do this but this is so worth reading from Mark Thoma’s blog:

    Beezer says…

    Being a northern Yankee and a republican for almost 40 years, I’m out of touch with Mr. Krugman’s southern strategy/racial explanation for this most recent Democrat rout of Republicans.

    I’ve been a registered Democrat for only 2 years, but my leaving the Republican Party had nothing to do with any “southern strategy” collapse. I left because, as I got older, I simply realized that free markets weren’t going to provide basic services for America in general.

    Too many people don’t have basic health care. After 200 plus years of having the opportunity to do so, it’s about time everyone realized free markets weren’t going to supply this basic need.

    Too many people were falling behind in income. The widening of income disparity was becoming oppressive and obvious.

    Very little, if anything, has been accomplished in reforming our energy system, in preparing for a sustainable future. Free markets don’t operate that way. They are short term oriented and when confronted by crisis (based on what we’ve all witnessed recently)they simply pick up whatever assets they’ve accumulated and leave everyone else to pay the tab and solve the problem. Pollution comes to mind here. Free markets didn’t clean up our polluted rivers, for example.

    With government basically neutered, we’ve witnessed the savage destruction of our banking system by the so-called free market. And once again, everyone else is expected to pick up the tab and solve the problem.

    In short, totally free markets have proven to be irresponsible. Self interest is self interest, after all. The ever increasing accumulation of wealth by an ever decreasing minority is where we’ve arrived. And we are decidedly not the better for it.

    It’s time to restore some responsibility–to restore some balance between self interest and community interest. I think that’s what caused the rout of Republicans. The Republican train left the station and only a few folks were on board. They left too many people behind.

  20. Dave Raithel

    I’ll have to look at the Quiggan piece, it seems “provocative”, but so far I’m only to the Tech Frag piece. I loved this part:

    “Homeland Security ran a test in September of 140 volunteers using a FAST prototype. The system was very accurately able to pick out people with hostile intent.”

    I’d think that if anything, “they system” picked out people acting like they have hostile intent. Kind of like picking out people who are casually having a conversation about what part of the plane is the safest to sit …

  21. Carrick

    Dave Raithel,

    I think I was one of the study participants. The device and "instructions to the 2 diff participant groups" sounds dead on. We were given limited info on it, but told it was a security screening study and after completing it I saw the room where the 'suits' (DHS & device developers) we meeting and viewing the study (making an assumption here, there were eating snacks and talking and watching a big plasma TV w/ thermal image pictures/video on it. DHS logos were on display boards around the group.) The only thing that makes me question if this was the same study, was that the study period lasted a number of weeks (we could reschedule), and gauging by the amount of people there in those 2 hours that afternoon (15+ people), I assumed far more than 140 participated.

    Anyway, the study I participated in was at the grounds of a Equestrian Center in Upper Marlboro, Md (PG County Md, right outside D.C.)

    I was pretty routine, some people apparently had a fake "shirt" on that they were told gauged their heart rate and temp (they might have had extra instructions about sneaking something in. I was a control sample, I suppose, and my instructions were to be honest when asked questions about concealing explosives, intending to detonate and explosive, concealing a recording device, etc.

    IT WAS CREEPY. We were told we were attending a weaponry/defense expo but were not to tell anyone that we'd been hired to participate in a security screening study.

    Afterward, we could ask questions. I asked if it was emotion recognition software. They said no. This doesn't seem far off though. The thought of this system really sucks. Theoretically, you can imagine this paired with a retina scanner, so that you emotional state is attached to your 'identity' and recorded. People who demonstrate anxious behavior in public settings repeatedly might be investigated, held.. Its kind of extrapolated logic, but a real possibility. What's scariest is that people would naturally learn to rely on the technology rather than exercising their own observational skills (kind of along the lines of the commenter who mentioned Israeli soldiers cheap but engaging rapid interrogation training.)

    Anyway, it was just a crazy unnerving experience. Just had to share.

    If you want more info, see National Geographic for a special they were on-location filming about it called "Techno War On Terror" or something similarly stupid.

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