Tag Archives: Economy

economy

The Failure of Mutually Assured Destruction

For decades, the Soviet Union and the United States held each other at bay in an uneasy stalemate. It was an active, “hot” war despite the “cold war” moniker, and each side lose thousands of troops. But it never broke into a nuclear conflagration, because each side realized the destruction that would come from it. And that once begun, it could not be undone. The Soviet and American leaders were, in a sense, much alike. Neither side would risk it, though both got very good at the brinkmanship involved.

This concept does not work at all if one side are suicide bombers. They plan to die; it’s merely a question of doing the most damage on the way out.

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WWIIVetSign

Future Generations of WWII Veterans

The title seems absurd, doesn’t it?  Here is the reason for the closure of the World War II Memorial, as reported by Erin McPike of CNN:

“I know that this is an open-air memorial, but we have people on staff who are CPR trained, (and) we want to make sure that we have maintenance crew to take care of any problems. What we’re trying to do is protect this resource for future generations,” said Johnson.

There are several things wrong with this.

  • First, the facility is unguarded (normally) and is open 24-hours, and consists of monuments/markers that don’t need much in the way of “maintenance crew.”
  • Second, they had to bring in additional people — and take them off furlough — to put up barricades to close the place. That did not work, of course.
  • Third, this is not exactly a “taxpayer-funded government facility.”  It was built by private donations, with a trust fund set up to take care of future maintenance. That trust fund was still intact as of at least 2004.
  • Since the staff level is normally one (at most), a single volunteer could have been asked for to continue operations, and it would have been fine.

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A follow-up to the Clinton Collapse of 2000

Despite its prevalence in the news and in the Obama campaign that Bush inherited a great economy in 2001 and ruined it, the events of the time were very different. When I first saw this fallacy repeated, I thought “The economists will set the reporter straight.” No — everyone the media was willing to talk about jumped on this bandwagon, and it is part of the narrative that Obama relied upon in 2008, and must keep you convinced of today.

A bit of background:  I mentioned earlier the entry of everyday people into the stock market. In the early 1990s, relatively few people actively traded in the markets.  Many folks who had some money used mutual funds, the more adventurous ones used brokers, but not many actually did stock or commodities trading directly. (By this point, it had been an interest of mine for two decades.)  To get live feeds from the markets, essential for someone actively trading during the day, you used satellite feeds or (years later) FM-signal sidebands which were essentially receive-only radio modems.  You bought historical data on disk, and it cost thousands of dollars. For example, in the mid 1980s, we bought price-by-price data for several years of S&P and Japanese Yen for $20,000.

The Internet changed all this.  You could get historical data over the Internet — some even for free.  And you could get live data over the Internet as well.  No satellite dish, no limitation of being close to certain FM stations, and a greatly reduced entry cost. Continue reading

Bread and Circuses

In the original Latin, panem et circenses.  The Roman we call Juvenal (Decimus Iunius Iuvenalis) wrote of this issue 2,150 years ago.  He complained that in his recent times, “we sold our vote to no man,” but that Roman politicians had since devolved to providing the masses with welfare and entertainment.  This sapped their will, lost them their dignity, and kept people in office solely for what bribes they could arrange for the crowd from the public coffers.

One problem with trying to keep people appeased with public coffers is the same issue as with other aspects of socialism.  As Margaret Thatcher (Prime Minister of the UK) put it, “sooner or later you run out of other people’s money.”  But this is not the only problem. Continue reading

Housing Numbers: Freefall? Meltdown?

If you Google["housing prices" freefall] you’ll currently get about 265,000 hits.

Wow! Freefall sounds extreme! How bad is it? Well, there are certain areas that rose at very high rates, most notably California and Florida, with areas like Las Vegas and Phoenix also remarkably affected. And the excitement from these markets drove, to a certain extent, most others as well.

So, freefall. We’d guess from this freefall in national prices something on the order of tens of percent across the country. And from the strident tone of the articles, it must still be bad indeed.

Well — from the peak, in April 2007, the national average home price has fallen only about 6%. Surprised?

And the actual rate of decline is modest, as well — in fact, in the most recent published numbers, you have to “seasonally adjust” the home price average to get it to be negative. Here’s a chart of the change rate:

Housing appreciation rates, through second quarter 2008
Housing appreciation rates, through second quarter 2008

There are other subtleties. The numbers I am using are from the US Government’s Office of Federal Housing Enterprise Oversight. That somewhat clumsily-named organization looks at and reports price averages (including refinances) over about 280 areas around the country, covering the huge majority of the US geography and population. The index used by the news media, though, is the Case-Schiller Index — since it focuses on cities that rose rapidly, it produces more dramatic declines. It has only twenty areas of interest, and they are relatively small.

If you can pick your data, you can continue to say “Woe, Despair, Agony On You.” But I prefer a larger — and more accurate, picture.

And a couple of other points bear mentioning. The “reset” issue, where people who obtained short term rates that reset after, say, five years, is much smaller than it could have been. Those people got loans at typically 5% to 6% — but now, mortgage interest rates are … 5% to 6%. So, the resets are not particularly dramatic. There are people that got into very unusual deals, hoping that it would work out, and for some of them it hasn’t — but these are hardly the average case.

Nothing about a temporary drop in home value causes you to lose your home. Continue paying the mortgage, and it’s fine. People are being frightened into doing silly things, despite the fact that in five or ten years their homes will be far above even last year’s peak. We are too short-term a society — and this is what the media is counting upon. For the more misery they can convince you of — and cause — the more you are likely to vote their candidate in. Or so they evidently believe.

In the meantime, candidates both major parties are using the current climate of fear to call for large increases in government regulation.

“We caused this problem, let’s make it worse!”

Well, they don’t actually admit that — but it’s true that regulations forcing loans to un-creditworthy people are a big part of the problem, such as it is.

But note what is really happening: The failures of banks are the FMs are not <i>directly</i> the result of foreclosures — they are for the most part the result of the loss of investor confidence and resulting loss of stock value — which prevents them from using lines of credit and other financial vehicles that are a necessary part of the business.

So, to a very large extent, it is the cry of gloom and doom that has precipitated the actual problems in the market.

The housing rise will correct itself; it largely has already, and the prices are now, generally, back to 2005 levels. The average over the past ten years, and the next, will show a nice steady increase, and eventually the current blip will be hard to see on a chart. (Black Monday, October 19th 1987, was a gigantic problem, far worse than anything we see today. And now it’s a minor twitch on the DJIA chart.)

Hang in there — and don’t get spooked. Especially if it will cost you money, or push you to make decisions out of fear.

===|==============/ Level Head