On the Precipice of Disaster
- Gold fell eight bucks an ounce at the exact same time as oil went up over a dollar, which means that oil is now selling at over $32 a barrel, government deficit spending is at record-setting levels, and the central banks are creating monetary mayhem. And yet gold fell in price! Huh? The dissonance causes my brain to overheat and go into overload status as it heroically tries, in vain, to comprehend how such a thing is even freaking possible, and if you put your ear right up against my forehead, you can actually hear brain synapses sizzling and popping! Zzzzttt!
- I really get a kick about how government spending for national defense went up so dramatically much, and then the GDP also went up fractionally as a result, and this is supposed to be such swell, so freaking fabulous! I mean, just look at how prosperous and wealthy and happy the North Koreans are, who have this exact same economic model!
- How can prices fall when costs are rising? Too much capacity, which means there are too many vendors, which means that some or all of them will cut prices to less than the cost of production, as they have nothing to lose. If they don't sell any product, they go bankrupt. If they sell at a loss, then they go bankrupt. Either way, being the sharp-eyed little devil you are you have noticed that there is a constant in there somewhere, and that constant is, eliminating redundant terms and finding the least common denominator, that they are going to go bankrupt.
So when there is excess supply, there will be plenty of people who will happily sell production at a loss, for as long as they can, borrowing as much money as they can, in a desperate attempt to hold onto the precipice of disaster, and with equal amounts of desperation believing that there is going to be a recovery one day, soon, in the "second half" or something, and then things will be better and better forevermore after that, which means that we will soon be making so much money can pay off the debts we are running up today in order to stay alive. In the meantime, aggregate prices come temporarily down.
Then, as these losers actually go bankrupt, one by one, then there are fewer and fewer competitors supplying less supply, and then the road is clear to increase prices, and this is when things start getting really, really interesting.
So the recent rises in capital investment can be, I figure, chalked up to managers and CEO's desperate for something, and who are thus susceptible to the hypnotic siren-call of a Fed's bullish bias, money that is extraordinarily cheap, with foreign central banks willing to participate in the fraud, at the same time as the Bush Administration is gearing up one monumental swindle after another to make sure that Dubya will be re-elected in November 2004, although for the life of me I cannot think of a reason why ANYONE would want to be the President for the next, oh, fifty years, much less for the next term.
All this at the same time as a coordinated global expansion of budget deficits, printing of excess money, granting of excess credit, bank reserves being lowered to insignificance, blatant lying and deceit on a monumental scale, selling of gold by central banks, and just about every other government economic malfeasance you can name. So why not be bullish, too? It we don't borrow and expand, we go bankrupt. If we DO borrow and expand, we will still go bankrupt. So what's to lose? Which alternative course of action is more fun and more popular?
No matter what anybody does from here on out, there will be many more losers than winners, and it will get worse and worse and worse with each passing year, until one day there is some cataclysmic event which kills the last lingering spark of life. And then we will be conquered or something by somebody, probably the Chinese, and then history will have made one of its famous discontinuities. And I say this not because I am such a hotshot, but because I can read. And this calamitous misery is the lugubrious result of what happened every time in all of history when governments acted so bizarrely, so predictably poorly, so brazenly brainless as regards money and economics.
- It looks like, in a few moments, that we will see whether or not the derivatives market, which dwarfs every other market on the planet, works like Greenspan and the rest of the derivative-loving crowd thinks it will. Theoretically, all the money that was lost in the recent bond market disaster was made back in the derivatives market, because every risk for everybody was hedged somehow. My bet is that it will not work as advertised, and I can hardly keep from laughing out loud at the very thought of grown men, much less educated grown men, even thinking such a thing could actually work. Hahahaha! Look! Now I AM laughing out loud! Hahaha! Grown men! Hahaha! Hedging all risks! Hahaha! The total elimination of risk of loss! Hahaha!
The Demon Economist From Hell
- Michael Boskin is one of those arrogant PhD Princeton professor type-guys that can I figure can be legitimately called a Demon-Economist from Hell, and he admitted that he goofed big time in his assessment of how much tax money is going to come rolling into the government's coffers when retirees start cashing in their holdings to finance their Golden Years during the next twenty, or fifty, or hundred or thousand years or something. I forget the actual number. He was called upon to perform this analysis to allow government wonks and weenies to respond to the critics who have been horrified to learn of the $44 trillion deficit between what the government has promised as benefits and how much they have on hand, namely zero.
But, getting back to the latest Boskin fiasco, he didn't personally goof, but he blamed some doofus assistant who apparently goofed in entering data or formulae or something. But this alone ought to tell you something about the ridiculous nature of the whole piece of work; the damn thing is so impossibly big and so impossibly complex that it takes teams of assistants and acolytes to even set the thing up! And it rests on an immeasurable number of assumptions, guesses, theories and extrapolations about something that is so far in the future as to make the whole exercise completely worthless, as has been proved by chaos theory. And the Iron-Clad, Money-Back Guarantee of chaos theory is that even the smallest change in any of the millions of assumptions, guesses, theories and extrapolations will soon change the answer Boskin is looking for. In short, it is a fool's errand. And now he has admitted that he made a teensy-weensy mistake, at the Day One at the very beginning, and already the answer has changed dramatically! This does not bode well for whatever idiotic prediction he has made, based on his preposterous model, about what in the hell will happen years and years hence.
The good news is that his whole project is no more worthless than it was, since it always had zero significance anyway, except to other arrogant bozos who are spending taxpayer money on the vain hope that there is some pot of gold at the end of the rainbow. And perhaps, if there is any justice in the world, the taxpayers will rise up in angry rebellion that valuable taxpayer money is being spent on something as ridiculous as this whole Boskin thing.
But as for gold at the end of the rainbow, there isn't any, and all the computer-generated sophistry in the world, even with all of the King's horses and all of the King's pointy-headed economists in their little wizard's hats working feverishly twenty-four hours per day at it, won't make it so.
For a real-world example, let me enlighten you that just two stinking years ago the OMB calculated that there would be a couple of trillions of dollars in budget surpluses right now. And, to the contrary, right now, two lousy years later, there are a couple of trillions of dollars of deficits, for an error rate of $5 trillion dollars, or over 200% of the original estimate, which ought to be enough to convince you that the OMB has no idea what in the hell they are talking about, and it should be more than enough to convince you that Michael Boskin likewise has no idea what in the hell he is talking about, either, because it is unknowable.
But the real danger of this whole Boskin thing is that the instant that you start to formulate and implement expansionary monetary and fiscal policy based on this worthless numerical garbage, you have sealed your fate.
And, even worse from a practical standpoint, the government of the USA has already implemented the expansionary monetary and fiscal policies, and are just looking for Boskin to come up with a mumbo-jumbo explanation that justifies it ex post facto. And Boskin is just the guy to do it, since he has shown he has the requisite arrogance about committing these kinds of frauds. This is, after all, the same guy who codified the asinine idea that could can adjust and eliminate actual price inflation by jiggering the assumptions, the favorite ones being the substitution effect and adjusting for quality. |
