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December 01, 2011

DOOM: Got my mind on my money and my money on my mind


An "extremely quiet" war against Iran in progress?

GOP getting ready to cave on new taxes? I'm sure you'll be as shocked as I was to find that it was Susan Collins of Maine who broke ranks first. It'll be interesting to see if her fellow Senator Olympia Snowe and Scott Brown down in Massachusetts follow the Democrat "soak the rich" playbook as well. They don't call the GOP the stupid party for nothing.

The big intervention of the central banks (you know, the one that sent markets into a euphoric rally yesterday) did nothing but buy a little time. All of the basic problems are still there, and the half-life of these interventions is getting shorter and shorter. (A lot of people think that this was less a bailout for the Eurozone than an recapitalization of banks in the wake of the mass downgrade by the credit rating agencies a few days ago.)

Peter Schiff, one of my favorite Austrian-school finance guys, explains what the central-bank action means, both in the short and medium term. (He's a fellow goldbug, so his advice boils down to "buy gold".)

The bond markets won't be fooled for long about the central bank intervention; the bond markets are less easily swayed by manufactured "good news" than equities markets.

The United States: a net fuel exporter for the first time in 62 years? Most people are surprised at how much oil, gas, and coal America produces domestically. We're not self-sufficient, but we produce a lot more than many people think we do. And we could produce a lot more if the thicket of reglatory red tape was cut back a bit.

This shouldn't come as news to anyone who's been reading the Daily DOOM for any length of time, but more people are starting to notice that Medicaid costs are murdering state budgets. The problem is only going to get worse, too, absent any significant reform.

What was true last month is still true: there isn't enough money in Europe to bail out Italy, and not much chance of borrowing enough from investors abroad. The bailout game was always unlikely to work even with small economies like Greece and Portugal; with big ones like Spain and Italy it's just obvious that a bailout is impossible.

The Eurozone: there are no safe havens any longer. The time when bold action might have retrieved the situation is probably past -- now the Eurozone is going to have to place some longshot bets and hope like hell they pay off in spite of the odds.

Boeing and the machinists' union may have reached an agreement that will end NLRB lawsuit.

I've said it before, but it bears repeating: never gamble with people who can print their own money.

Why has debt, both public and private, exploded so much in the past 30-40 years? Goldbug that I am, I place much of the blame on a move to a purely fiat currency. This led to an expansion of credit, which in turn prompted people to "pay" for things with debt rather than accumulated savings.

It turns out that British public-school teachers and other public-sector workers are just as venal and self-serving as their counterparts in the Colonies. The issue? Pensions and benefits, of course. Money quote:

Brigid Falconer, 50, a social worker standing near the King’s Cross subway station in central London, said she was striking over “more than just my pension. It’s about what kind of society we want to have.

“I’m scared we will become more like America, with extremes in inequality,” she said.

I'll bet that my American readers had no idea we were living in such a feculent hellhole.

Is the coming decade the "decade of stocks"? I don't doubt that the luster is off of bonds and other fixed-income instruments, but a slow-growth economy isn't likely to be too friendly to equities either. I prefer equities to bonds going forward myself, but I think that even equities investors are going to have to get used to lower aggregate returns in the years ahead.

Remember that when you go into debt to get an education, you are in a sense making a capital investment in yourself. The investment only pays off if the capital produces a decent return over the depreciation period (your working life). Now, it is true that "return" can be defined in non-monetary terms -- happiness, fulfillment, intellectual growth, etc. -- but the debt is defined in monetary terms, and must be paid back with actual money. It's also worth noting that "more education" does not necessarily equate to "more money". In general, that's the way to bet...but this is intuition, not established fact. We're working from very flawed models with very limited baselines, so borrowing a lot of money for school on the assumption that it will immediately pay dividends is very misguided in most cases.

So jobless claims rise but Reuters spins it as a sign of recovery? (The rise in claims is "unexpected", of course.)

Didn't I read somewhere that California's university system was deep in the red, and looking fiscal armageddon right in the face? Well, that must have been some wrong information I got, because California just doled out big pay raises to UC execs. They will simply squeeze the California taxpayers like tender young oranges, and the good progressive voters will obligingly cough up more money.

When I said that the OWS retards weren't productive, I misspoke. They certainly produce a lot of garbage. You'd think that people so in tune with Mother Gaia would be a little more diligent in keeping things clean and tidy. But hey, all that stuff will compost eventually, right?

UPDATE 1: "Why are we having a Depression, Daddy?"

UPDATE 2: Andy Stern of the SEIU thinks you should know that China's economic model is just the bee's knees. The American system? Not so much. (Editorial note: When a socialist tool expresses admiration for a authoritarian socialist state, I feel the same surprise I do when the sun rises in the east. See: Thomas Friedman. Or Walter Duranty.)


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posted by Monty at 08:40 AM

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