Archive for the ‘Economics’ Category

In the recent past, economic dislocation led to a flight to quality and Euro/Yen/Foreign problems led to dollar rallies.  The recent Greek crisis, however, has led to a huge gold rally.  The dollar is anemic.  And why?  Well, (a) the federal reserve is secretly and not so secretly helping out Europe to prevent a domino effect and (b) America shares all the same structural defects that have hurt Greece:  overly generous social programs, too much debt, a decline in productivity and manufacturing, and lower skills and work ethic across the board.  So, as a consequence, while the Euro has dropped to about $1.26, Gold has skyrocketed to $1240 this week.

Gold is the last refuge of wealth as paper wealth disappears.  The fact that so much smart money is headed that way is the most worrisome development of recent times.

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Not so cherry post on the way cheap credit has become almost necessary to make ends meet for the “average” American family.  Not so clear how we’re headed to recovery at this rate.  As the author notes:

Because we outsourced our jobs, incomes fell. Because incomes fell and savers were punished (thanks to abysmal returns on savings rates) we pulled future demand forward by splurging on credit. Because we splurged on credit, prices in every asset under the sun rose in value. Because prices rose while incomes fell, we had to use more credit to cover our costs, which in turn meant taking on more debt (a net drag on incomes).

And on and on.

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A rather depressing article in the NY Times about how late charges, penalties, post-judgment interest, and garnishments leave many debtors treading water in spite of significant payments towards their obligations on their modest wages. These payments get eaten up by interest charges, late fees, and all the other tricks of the trade.

Whatever happened to the widespread condemnation of usury?  This doctrine of Christianity, widely held by everyone from Hilliare Belloc and Henry Ford to the Pope and FDR 75 years ago, has apparently fallen into complete disuse, even among Catholics and liberals ostensibly concerned with the poor.  Is the fear of being labeled anti-Semitic so great that unjust practices get a pass?  A mealy-mouthed discussion at Catholic Answers suggests the uncertain rates of return in the 13th Century were the root of the condemnation and the condemnation of usury is today rather narrow, viz., “In some market situations—apparently the ones prevalent in the thirteenth century—the likelihood of growing money through investment was seen as greatly uncertain. But in contemporary market situations, investment growth is virtually assured.”  How quaint!  As always with “changing values,” we should never forget that social life and its problems are not new.  People were not simply “mean” or “stupid” in the old days.   The old-fashioned prejudices and attitudes often were borne of hard experience and will re-emerge as modern fads and fashions are discredited by experience, such as our recent collective experiences with “interest only loans,” high levels of debt (labeled “leverage”), low banking reserves, financial “engineering,” moral license, disunity, and all the rest.

Times have not changed for the poor.  The injustice of usury has not changed either.  Modest interest rates in situations of created and secured wealth–as in real estate lending–have long been allowed, even in the Middle Ages.  But charging interest for consumables is economically unwise for the borrowr, morally unjust for the lender, and the high interest rates charged can grind down the wealth and motivation of people too unsophisticated and impulsive to know better.  In other words, the poor and working classes would be better off without the credit cards, payday loans, and all the rest.  And the laws should give them more than the binary choice of paying down their debts or declaring bankruptcy.  Their debts could be paid, but for usury.

Just as condemning usury went out of fashion, the recently dominant faith we all had in banks, experts, money-lending, and markets is fast becoming passe.  On Good Friday in particular, Catholics should remind themselves what the Catechism says about the usury so central to the modern, unstable economic order of the entire world:  “The acceptance by human society of murderous famines, without efforts to remedy them, is a scandalous injustice and a grave offense. Those whose usurious and avaricious dealings lead to the hunger and death of their brethren in the human family indirectly commit homicide, which is imputable to them. (CCC 2269)”

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I thought this column by Peter Geddes captured the complete lunacy of the global warming fanatics, who somehow imagine that we can turn back the clock 100 years or more, maintain roughly the same lifestyle we have, and thereby defeat the phantom menace of global warming:

Policies such as the Kyoto Protocol and U.S. cap-and-trade legislation focus solely on reducing CO2 emissions. But these are symbolic acts, mere posturing, while doing little or nothing to achieve their stated goals. Stubborn reliance on this approach is now the main barrier to an effective climate policy.

The 1,200-page American Clean Energy and Security Act of 2009, known as Waxman-Markey, is an example. It sets an ambitious target of reducing total U.S. greenhouse emissions 83 percent by the year 2050. In 2005, the year chosen as the baseline, the U.S. emitted about 6 billion tons of CO2. An 83 percent reduction by 2050 means that U.S. emissions must be just over one billion tons.

The American Enterprise Institute’s Steve Hayward puts this in context. He writes that the U.S. last emitted one billion tons of CO2 in 1910, when our population was 92 million and total GDP (in 2008 dollars) about $572 billion. (2008 GDP was $14.2 trillion.) In order to reach the target, per-capita CO2 emissions will have to be no more than 2.4 tons. The last time U.S. citizens emitted this low level of carbon was 1875. These kinds of reductions are so absurd they will not even be seriously attempted.

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Pinochet gets a lot of criticism among liberals.  Why?  Well, he killed a few thousand communists extra-judicially to avoid the mass murder of several hundreds of thousands (or more) that has proceeded from every communist revolution worldwide.  And, in the process, he reformed Chile’s economy from the typical Latin American “great man” national socialism of such varied leaders as Peron, Chavez, and Castro to a market-style, limited government regime, with privatization of social security and consistent economic growth.  In the process he secured the fiscal health and economic independence of ordinary Chileans, creating the foundation for a growing middle class, which ultimately lead to the end of military rule through a peaceful election in 1989.

Jose Pinera, Chile’s former labor and social security minister, today explains why the US is now headed towards the bankruptcy all too typical of South America unless it follows Chile’s lead, a lead based on American-style free market principles and the insights of the Chicago School of Economics.

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While efficient capital markets types lack the philosophical tools to question any hustle that arises from the markets, those who have taken a step back from the mortgage backed securities and credit default swap scandals notice something amiss.  Essentially, an elaborate series of hustles, frauds, and money-transferring (rather than wealth-creating) “innovations” have emerged in recent years that are not necessary under free market principles, create great instability, and damage the federally insured commercial banking system.

Jeremy Grantham, a gifted fund manager and very coherent writer, shows why the apologists at the Journal and CNBC don’t know squat:

Clients can’t easily distinguish talent from luck or risk taking. It’s an unfair contest, nothing like the fair fight assumed by standard Economics. As we add new products, options, futures, CDOs, hedge funds, and private equity,aggregate fees per dollar rise. As the layers of fees and layers of agents increase, so too products become more complicated and opaque, causing clients to need us more. As total fees in the past grew by 0.5%, we agents basically reached into the clients’ balance sheets, snatched the 0.5%, and turned it into income and GDP. Magic! But in doing so, we lowered the savings and investment rate by 0.5%. So, we got a short-term GDP kick at the expense of lower long-term growth.

This is true with the whole financial system. Let us say that by 1965 – the middle of one of the best decades in U.S. history – we had perfectly adequate financial services. Of course, adequate tools are vital. That is not the issue here. We’re debating the razzmatazz of the last 10 to 15 years. Finance was 3% of GDP in 1965; now it is 7.5%. This is an extra 4.5% load that the real economy carries. The financial system is overfeeding on and slowing down the real economy. It is like running with a large, heavy, and growing bloodsucker on your back. It slows you down.

As yours truly said last year:

I have no problem with people making lots of money, particularly folks that develop, invent, manage, or otherwise run a productive business or invest in the same.  I’m glad someone like Henry Ford or Bill Gates made it big.  I do however have problems with people making lots of money in an industry whose benefit for the rest of the society is dubious, whose chief productive activity in recent years has been making impenetrable instruments that defy honest valuation, and who have now come hat in hand to beg for public funds,  even though they’re balk when they’re told they might have to cut expenses like every other person and every other business in America.  It’s a ridiculous, insulting, crony capitalist style of behavior that is more reminiscent of Mexico or Indonesia.  It should not be defended by those who purport to believe in free markets.

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In response to a jobs-protection provision in a pending amnesty bill, Hispanic chauvinist Ruben Navarette writes:

Why should [as Rep. Luis Guittierez said] “no one born here in this country … ever lose an opportunity for gainful employment at the expense of someone not born here?” Remember, these aren’t illegal immigrants but legal immigrants coming on visas.

Why should U.S. citizens get a benefit not from education or hard work but from something they had nothing to do with — where they were born? If a job is available, U.S. workers should be free to compete for it, but not have it handed to them on a silver platter. Likewise, foreign workers who come here legally should have a shot at competing for that same job.

Of course, protectionists claim that the playing field isn’t level since foreign workers will often accept less money to do the same job, thus putting American workers at a disadvantage.


Pro-immigration activists alternately talk about compassion while saying “tough” to Americans. The only unifying principle is the good of their tribe. Ruben is a Hispanic. He is not a loyal American. He has demonstrated this repeatedly in his writings, which are totally indifferent to the good of other Americans. It matters not where he was born; it’s clear he’s totally indifferent to the common good and can’t even think in such terms. This kind of talk would be intolerable among anyone but minorities.

I suppose if we enforced our laws against border-hopping, stopped fraudulent H1B Visa applications (which supposedly require a company first to hire an American), and generally leveraged US power for the benefit of American citizens, even at the expense low-skilled Mexican workers, “tough,” wouldn’t exactly fly with Ruben. That’s when we’re called to be “compassionate.” Ruben’s column is not a moral statement aiming at justice but a triumphalist one: we’re winning, you’re losing, and you people need to deal with it and stop complaining. “You” . . . Americans that is . . . must be sacrificed for the principles of globalism, for the “economy,” for all the bad things your ancestors did, and for the good of morally exquisite Third Worlders that are trying to make more money at our expense.

Allowing mass immigration is a policy choice. It’s a choice to underenforce the laws, and it’s a choice to let people in with visas. No company or family or individual would behave the way Navarette counsels when dealing with people they genuinely care about. No CEO would say, “Well we can give this business to our own in-house team and save some jobs and keep the money in house or we can save a nickel by sending it to a vendor.” There is a community of interest in a firm, and the firm’s management is supposed to look out for the good of the firm as a whole. This is obvious. No family would shrug its shoulders at a brother or sister or dad’s job loss due to the pressure of low-wage, low-skill competitors. A country is no different. It was obvious, until recently, that its leaders should look out for the good of its citizens.

There is no doubt that Navarette would not be fighting for mass immigration if it did not benefit his group to acquire greater numbers, greater cultural influence, and greater wealth at the expense of native-born Americans. We know this because leftists like him who now prattle about the virtues of globalism spent a good part of the middle 20th Century defending the mass exclusion of “neo-colonialists” (i.e., white Europeans) from places like India, Rhodesia, and Mexico. Leftists swooned with admiration as these countries built up nationalist economic orders, complete with protectionist state-owned monopolies like PEMEX. When will Navarette dare to speak out about this vital feature of Mexican political and economic life? Can anyone imagine Navarette telling South African blacks or Indian nationalists or Mexican protectionists “tough” when they defend their historically nationalist and anti-white policies?

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