Tuesday, December 23, 2008
But I think that MISH over-simplifies, implying that the world economy is a fixed size making balancing spending with saving as the only way to success. But that argument is countered simply by looking at the last 100 years, it is clear that the the economy is expanding but how fast? and why?
I like to combine basic physics with economics... applying the conservation of energy law to monetary policy. The applicable interpretation goes something like this; the economy is the total sum of energy created by a the people in the economy. The economy grows when the people work more to add value, but it shrinks when the population takes more than they contribute. Value is fluid across the economy much like currency (or mass and velocity in the analogy), making it easy for the economy to aggregate total value but very difficult to decompose and analyze.
So the bottom line, is that Monitarists and Keynesian theories work better if the population is adding more value through work than they are extracting through consumption. What does that mean for governments? That means that successful governments will incentivize people to add more value than they extract, making the economic pie bigger. If a nation's economic pie is bigger than the population needs, everyone is comparatively richer than they were when the economy was smaller.
Unfortunately this concept eventually runs up against entropy, or the tendency of all energy to seek it's lowest form. In economic terms the lowest energy state is the hunter and gather, or subsistence state. The implication to policy makers is that no matter how great the stimulus for increased productivity, there is always a tendency for a population to slip into less productive habits.
Which brings us back to today's problems... We built a big economy, with lots of potential, but policy makers became lazy and didn't continue to incentiveize the economy to grow honestly. Additionally we allowed our accounting practices to become clouded, impairing our ability to track real value generation. Policy makers allowed corruption to infiltrate the economy, stealing value from the core of our economy until it was a hollow shell of what it appeared to be, a real potemkin village.
It seems to me that in the future, Government should proceed on two tracks, first create a very transparent financial system that allows the true value of an economy to be exposed. Second, it should incentivize value creation at the core of the economy; creating an innovative, efficient environment for companies to succeed or fail on their own merit.
Sounds simple, right?
Sunday, November 16, 2008
Sunday, November 09, 2008
Saturday, November 08, 2008
Obama Win Causes Obsessive Supporters To Realize How Empty Their Lives Are
Sunday, October 26, 2008
"What do you think Palin gained from her appearance?
I think Palin will continue to be underestimated for a while. I watched the way she connected with people, and she's powerful. Her politics aren't my politics. But you can see that she's a very powerful, very disciplined, incredibly gracious woman. This was her first time out and she's had a huge impact. People connect to her." (EW.com from entertainment weeky)
This isn't what you hear most of the liberal media saying... Check it out...
Tuesday, September 30, 2008
Tuesday, September 02, 2008
I feel much better about Obama now that I've watched this...
Posted using ShareThis
Friday, August 15, 2008
Even though the ECB has maintained interests rates at a higher level than the U.S. Central bank, the European's recent growth, like the U.S., has been fueled by highly leveraging credit. The result is that the Europeans are looking at the same credit crunch as the U.S. but without having benefited from a period of sustained low interest rates.
Most folks reading this are well aware of the situation the U.S. finds itself in... with a slowing economy and a bursting credit bubble, we've got a long way to go before we are back to boom times.
And China is no better off, being the owner of much of the Debt generated in the U.S. and Europe over the last decade, they can't even spend the money they have in reserve for fear it will cause either the U.S. economy of the European economy to take a dive. And what good is money if you can't spend it?
Thursday, August 07, 2008
Just shut up!
It seams that when McCain is quiet and Obama does all of the talking, McCain narrows the gap. If you look at Real clear politics polls you can pick out the periods when McCain is out in front stumping his brains out and the periods where the media is ignoring him because he does better when the media is completely focused on Obama (like his trip to the Middle East)
Check it out
If you look at the far right edge of the above snapshot, you'll notice how successful the Britney and Paris adds were
Monday, June 02, 2008
While standing in line, I struck up a conversation with a very attractive young lady from Zimbabwe. At first we were talking about goofy stuff like golf gifts lining the queue. But then it came up that she was here for a semester to begin her graduate study in law, piquing my curiosity. What does a law student from Zimbabwe think about our culture and our legal system?!? As we continued through the queue, she explained how she was amazed about how well the law works here in the U.S. and observed that even though the police are not ubiquitous, and apparently way under armed (only service revolvers in most cases, no AK-47's) she felt safe. I hypothesized that it was because we have a functioning independent court here in the U.S., her reaction was one of surprise, like the concept had not ever been mentioned before.
About that time, the checker was calling for the next person in line (her) and then it was my turn. A tremendously interesting conversation was ended much to soon. The more I travel, the more I talk to people from other cultures, the more I appreciate our form of Government. Every encounter leaves me amazed by the perfect storm that occurred in the years around 1776 that brought together a group of inspired Geniuses to create these United States.
Sunday, May 18, 2008
The bad news is that my last post under reported the number of murders and assassinations carried out by the drug cartels who will stop at nothing to derail the reforms. If Mexico eliminates corruption, the drug families will have a much more difficult time exploiting the Mexican people as they cash in on the American appetite for illegal drugs.
Every Californian should understand what the Mérida initiative means to our economy, safety, and overall well being.
Tuesday, April 01, 2008
This explosion in violence has been largely in response to the crackdown on Government Corruption by the Felipe Calderon Government. Calderon has been doing some major house cleaning in the judicial, police and military forces in an attempt to bring Mexico out of its second class economic status. This is important to us, because the sooner we get Mexico's economy on line, the sooner we will be able to control the boarder and all of the crime that comes with having a porous boarder.
A good source of information on the topic has been Strategic Forecasting Inc. The often have good articles on Mexico's heroic efforts to control corruption. Also keep an eye on the Merida Initiative as it could be the key to our security in this hemisphere.
Thursday, March 13, 2008
Wednesday, March 12, 2008
The graph below is is one of the first in his discussion of trends in federal spending.
- We are paying compounded interest on our growing debt
- We are a rich nation today because nations around the world believe that we are a good economic risk, and spend lots of money in the U.S.
- The U.S. economy would be in grave danger if the markets were to flee the U.S. dollar because we were no longer a safe investment
Mr Walker presented a compelling argument for fiscal reform and restraint, I encourage everyone to check out his briefings posted on the GAO site and watch as he transitions into the private sector.
Friday, March 07, 2008
Up until 2003, IPO's were among the best ways for a company to acquire the funding needed to further a good idea. Granted there were several bad ideas that went public on the stock exchange but they were quickly weeded out by market forces. The bottom line is that IPO's are a great, market driven way for companies to raise money.
Sarbanes Oxley has increased auditing burden placed on public companies and discourages IPOs for companies less than 200 Million dollars in annual revenue because of the huge cost. To comply with the SOX (AKA Sarbanes Oxley), companies must hire a staff of auditors, accountants and attorneys to ensure their continued compliance with the new laws designed to prevent fraud in corporate America.
Congress mixed up market exuberance with fraud when they created SOX. Market exuberance is a natural psychological element of a market. Simply stated; when people get excited about an idea they throw their money at it. If the idea is really good it becomes self sustaining, making its investors a nice profit. If its not so good it falls short, costing the investors their stake in the company.
- This is good!
- This is Capitalism!
- This is what our economy is built on!
Fraud is when people with malice of forethought enter into an agreement with the intention of bilking their counterparts in the agreement out of their stake. This was the case with Enron, MCI and others in the early 00's.
- This is Fraud!
- This is Criminal Behavior!
- Protection from fraud is one of the most important roles a Government can have in a market based economy!
SOX was put in place in response to Corporate Fraud to protect investors from the massive criminal behavior observed in the Enron scandal. Unfortunately, Congress didn't take into consideration the second order effect that it would have on the American entrepreneur. We should re-look at SOX and ask our selves these questions:
- Is SOX making it to expensive for startups to access public funds?
- Is the reduced availability of venture capital hindering inventors and entrepreneurs?
- Did Enron start a chain reaction that will stifle a major American Innovation Engine?
Tuesday, March 04, 2008
So remind me again why we're not required to telecommute more? It seems that the human race is just a little to uncoordinated to handle driving without traffic jams.
Saturday, March 01, 2008
Chinese Welding Mask:
Chinese Hard Hat:
Chinese Particle Free Breathing:
One thing we forget when we talk about how scary China is, the Chinese people are all just trying to make a living for their families. The above are some pictures from a Chinese shipyard, they obviously want to get home to their families and friends (or they would not be doing the weird things in the picture to protect themselves) just like we do here in the U.S. . Unfortunately, the workers in China are forced to take the same types of risks that our forefathers took for us over the past centuries.
Building a country is hard work, it takes great sacrifice by all of a country's citizens. I just pray that the Chinese Government is working as hard as its people to build the Civilization that its citizens deserve.
I wonder if we straightened out the roads in Washington DC if our bureaucracy would become more straight forward and transparent?!?
Thursday, February 28, 2008
Tuesday, February 26, 2008
This new service is like "Got V-Mail" advertised on FOX. But this is free and offered by Google! They are accepting beta testers now, so get you phone number quickly.
I've got it installed on my more random, sometimes tech focused blog "Mobloggin"
Sunday, February 24, 2008
The following is an excerpt from a paper I wrote about the interdependency of foreign exchange currency markets, and the mortgage crisis.
Traditionally the money supply has been fairly well understood and controlled by an age old system of leveraging reserves to loan money to borrowers. The federal monetary policy regulated the percentage of reserves required to be maintained by the bank, freeing the bank to lend the remainder, making profit form the interest. In the old days the bank would keep the loan on their internal books, which in turn acted as an incentive to minimize the risk of the loans they issued.
In recent times banks and non-bank lenders (good example of non bank lender in this article from 1998) have developed a system by which they package loans and sell them to investment groups. These groups then use the loans as collateral for securities and sell the securities to investors. This process does two things, first it eliminates risk for the lending institution by taking the loan off of the origonator's books. Second it provides a loophole for lenders to subvert the reserve requirements established by the Federal Reserve allowing them to lend up to 100% of the value of the property.
From a bank's perspective this is a real win-win situation. Banks can now reduce their overall risk profile by selling off all but the very best loans, making them very stable. The Fed using it's traditional means of monitoring a banks reserve requirements are very satisfied.
The investors using the loans as collateral are also very happy with this new business process. Using new technology to help police the default risk of the loan packages, companies securitize the loan packages with some degree of confidence. The new security is in most cases less volatile than many other financial instruments, and offer a good rate of return for a reasonable risk. Unfortunately there is a dark side to this portion of the securitization process, since the rating of loan packages as securities is relatively new, there are not strong regulatory standards established providing the FED with oversight capability. The result is that the securitizer, often faced with a conflict between profit and reliable transparent ratings, can inflate the rating of the security.
I believe that this conflict of interest in the risk rating of this type of security is at the heart of the current loan crisis. On one hand the securitizer makes the most money on his investments by giving the investor the impression that these are low risk real estate backed securities with a great rate of return. On the other hand, he has to encourage the lenders to make loans no matter what the risk to keep the gravy train rolling. Meanwhile, the investment firms are acting under a different set of regulations than banks while perfoming a banking function... creating money!
The investment companies are effectively augmenting the money supply outside the traditional means established and monitored by the Federal Reserve. Would-be borrowers with some equity (or in some cases the expectation of equity) now have a way of securing money against their collateral quickly and at a reasonable cost. Borrowers can now take their expectation increased equity and convert it into money quickly for near term projects or expenses. Although the mechanisms are quite different, this approach to securitization of loans provides a means to generate revenue much like public corporations have been able to do in the past by selling stocks against their future profits or securing ventue capital.
I hope this makes sense...
Thursday, February 14, 2008
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do.The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80.The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free.But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?'They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (3 3%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings."I only got a dollar out of the $20,"declared the sixth man. He pointed to the tenth man," but he got $10!""Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I got""That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!""Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!And that, ladies and gentlemen, journalists and college professors, is how our tax system works.
The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
This is a repost from Sound Politics Public Blog but it was making the rounds via email.
Saturday, February 09, 2008
I was just flipp'n through the channels and I came across a Glen Beck rerun on CNN headline news!?!
I generally stop in when I surf past Glen's show, because I enjoy watching crazy people talk about interesting stuff, but I couldn't take it, a CNN news show re-run... And even worse, It was Glen whining about Romney dropping out. His gripe was that Romney was the only financial genius running for the President, and the only hope for the country. Oh what to do?
Well Glen, you've admitted to not being an economist on other shows and I have to agree with you, your no economist. There are plenty of economics genius's working for either camp, I know some of them personally. The cure for our economy's problem is not one of math or supply and demand, it's one of selling one of several unpleasant solutions to an American population that only wants good news.
With our current account balance dropping to record lows by last September, consumers taking advantage of an underrepresented increase in money supply through cheap loans with low buy-in thresholds we've been on an economic bender for several years. Economics is a lot like drinking, you can indulge a little and take little corrections along the way (the french say it its good for you) or you can have a real blow out and have a big hang over the next day. With any luck, while your blissfully intoxicated you don't break any laws and get picked up by the police and screw up the rest of your life. To get back to the analogy, the U.S. have been on a binge for several years with all of our favorite trading buddies and it's time to pay our tab.
The bottom line is that the solution to our economic problems are not hard to figure out, but they take some real political courage to implement. When the next administration chooses between holding our population accountable, or punishing our allies for irresponsibly throwing money at us while we were on our binge, someone is not going to be happy. Ideally there will be a compromise somewhere in there where neither group gets rolled in the alley, our economy needs both groups to be happy.
The next president has to be good at getting children to take their cod liver oil before bedtime. That skill will come in handy when he has to talk U.S. consumers into getting used to tighter money supply (less real money in their pockets), and trading partners used to a weaker dollar (they own so many dollars a weak dollar is last on their Christmas list). Its going to be a tough sell both ways.
We need a skilled politician to sell some hard choices, Romney couldn't even sell himself... what chances would he have had.
For another interesting rant on the sour grapes some in the republican party check out my friend KT Cat.
Friday, February 08, 2008
First, National Security: If we pull out of Iraq before we have a chance to put the pieces back together, we will be facing a much more dire security risk from the Middle East than if we bail out because it has turned uncomfortable, and unpopular. It will take political courage to stick with Iraq until it is self sustaining (my estimate... 2 to 10 years).
The Economy: I have been playing with a couple of economic models over the past few months and if they are as comprehensive as they are advertised to be, the Medicare, Medicaid, and Social Security situation will become a real problem within the next ten years. If you don't believe me, just look at the growth projections from the Congressional Budget Office. We can't afford another large entitlement program that is going to increase exponentially as baby boomers retire.
Taxes: Targeted tax cuts act as incentives, to expand business. If you lower the burden on business they will respond by growing, more importantly growing businesses make more jobs than shrinking business. If you want to shrink business you tax it. The AMT is a very regressive tax, it is basically a success penalty, do we really want to dis-incentivize success?
Education: The democrats want to improve education, which I support, unfortunately, they want to increase taxs and re-allocate to tuition, which will increase the supply for educated adults but will decrease the demand for them. I personnally think that tax incentives could be created for companies to invest in the educational process, after all they are going to be the ultimate benefactor of an upgraded workforce.
Immigration: Immigration is one of the toughest problems we face today! Huge national security problem, but it is also a huge demographic and economic issue as well.
Developed countries have all had problems with a lower birthrate than required to maintain a vibrant workforce. Our illegal immigration is filling a vacuum caused by our low birth rates and hot economy; if we were to eliminate the illegal workforce our economy would have millions more jobs than workers. In that situation the only two options are to shrink our economy, or to export jobs to other countries; none of the options would be popular. Our illegal immigration problem has made our demographic crush much less painful that of Japan, Europe, or Russia who are going through a much more severe demographic problem than we are. China is going to see a real problem when their one child policy hits their workforce in 10-20 years.
Rule of Law: Rule of Law is the counterargument to the demographic/economic argument, how can a nation of laws (rule-of-law is to governments what opposable thumbs are to mammals) reward a large population of citizens for breaking the law? I don't believe you can! To make matters worse, amnesty would not fix the demographic/economic problem that caused the illegal behavior to begin with. The illegal immigration problem is tough, and I'm not sure anyone has it figured out.
Goning back to McCain, he demonstrates the courage and conviction that I think will make him a very good President. While he and I don't completely align on the issues, his principled approach to policy gives me some comfort that he will not stray far from the positions he has articulated during his campaign, and I can support that.