This page has been archived and commenting is disabled.

Guest Post: Central Planning's Christmas Problem

Tyler Durden's picture




 

Submitted by Jeff Snider of Atlantic Capital Management

Central Planning's Christmas Problem

Most of human history conforms to established patterns, forming the basis of modern statistical analysis.  Random walk extrapolation from any data series seems to hold up in the face of reality because the data series is extracted from the pattern itself, a sort of logical fallacy.  Models constructed in this way “behave” rather well until the pattern and paradigm shifts. 

At that point, models should be recalibrated to the new pattern in order to maintain any kind of usefulness (or simply scrapped).  This is especially true if the model failed to see the paradigm shift coming, a predictive capacity that is almost built-in since inflection points are not really points at all; they are an eventual slide into the new pattern.  During the inflection “period”, models conditioned by the old pattern will increasingly look out of sync and render confusing results to their practitioners.  But, due to human nature intruding into this “scientific” process, all too often these human practitioners look to rationalize and fit the wider world into their models, rather than see the paradigm shift for what it is.  Combining this willful blindness with the simplifications that models have to incorporate just to function, the fact that they rarely see inflections is not at all surprising.

That the world of 2010 & 2011 looks nothing like the world of 2005 & 2006 has yet to be included into the “science” of economics and its mathematical modeling.  Sure, statistical analysis has incorporated the data series of the past few years into the larger subset (they have told us so: http://www.frbsf.org/publications/economics/papers/2011/wp11-01bk.pdf), but the larger assumptions about how all the major and minor economic variables interact with each other have remained largely untouched.  The Fed still believes low interest rates stimulate both credit demand and supply, an economic “law” that only applied to the previous period dominated by the over-saturation of credit.  We see this pretty much everywhere modern monetary thought penetrates – from monetary policy and predictive capacity to economic statistics. 

Within the context of economic statistics, I think it is pretty much common knowledge that they are conditioned by adjustments, imputations and the like.  All these various techniques for “shaping” the data into “meaningful” results for interpretation is done based on assumptions about the patterned validity of those very assumptions. 

For example, seasonal adjustments are made on quarter-over-quarter data simply because there is still, in this modern age, seasonal variations to economic activity within a calendar year.  Among all the more controversial data manipulations (like the imputation of owner occupied housing rent), the seasonal adjustments are probably the most widely accepted and unchallenged. 

Christmas is one of those expected variations.  American consumers, in particular, engage in the bulk of their marginal consumption in and around the Christmas holiday “season”.  Therefore, economic models expect to see an increase in shopping activity within the holiday season as compared to the rest of the year.  The seasonal assumptions also take into account the significant production and inventory accumulation leading up to the consumer binge.

I think it has become apparent that there is something rather amiss in the economic statistics of the past few years (to put it mildly in light of the massive downward revisions to economic estimates that come no sooner than six months after preliminary releases).  We have now seen in both 2010 & 2011 the exact same pattern repeat:  a weaker-than-expected summertime lull, stoking recessionary fears heading into that crucial holiday period; followed by better-than-expected results during the last stages of the run-up and early stages of the actual shopping period; followed by weaker-than-expected end of the current year and start to the next year.

The past two summers, both the “Summer of Recovery” in 2010 and the “Summer of Crisis” in 2011, have created the impression of an economy on the verge of contraction.  Both autumns, the QE 2.0 insanity of 2010 and the Operation Twist impotence of 2011, have largely erased those recessionary fears through the release of improving statistical extrapolations of the underlying data.  By the end of July 2011, the economic exuberance of QE 2.0 was proven to be nothing more than a statistical mirage, as nearly all of the follow-through consumer “strength” in Q1 2011 was written off (there were similar downward revisions in the middle of 2010 for the 2009 Christmas cycle, though not of quite the same shocking magnitude). 

If we think of seasonal assumptions as statistical fudge factors that attempt to smooth out the volatility or amplitude in the rates of change, then the real story begins to emerge, especially as it relates to the economy in this new paradigm. 

In the good old days of the asset bubble periods, the seasonal fluctuations between the holiday season and the rest of the year were not as pronounced.  In other words, household consumption held relatively steady throughout the year (the savings rate was uniformly low or near-zero).  So these old-pattern statistical assumptions of the BEA do not expect an overly large amplitude to the rates of change in activity moving between seasonal periods. 

The Christmas season, in cold economic terms, is nothing more than binge shopping.  So the seasonal assumptions of this binge season before 2008 were that the binges were relatively constant (on the margins) during the year, but just a bit bigger toward the end of the calendar.  Since access to money of some type in the bubble period was readily available throughout the calendar year, binges could be more constant since they were functions of cash flows rather than seasons (if a home equity loan closed in April there was no need to wait until Black Friday to load up on flat screens and expensive towels).

After 2007, of course, with the collapse of household wealth and marginal access to credit (thanks to the collapse of the marginal supply of credit), binge buying of Christmas-like proportions during the year has largely ceased (with the notable iExceptions).  The majority of the American population is forced into re-proportioning marginally away from discretionary spending, concentrating more on necessities (especially as the Fed intentionally creates inflationary expectations, which pushes the dollar lower and commodity prices higher) and requiring the anachronistic concept of saving before buying, including the return of layaway instead of 0% financing.

In terms of statistical variations then, the models, based on the low-amplitude expectations of pre-collapse pattern, expect to see only a little deceleration after the Christmas binge.  But, as pointed out earlier on ZeroHedge (http://www.zerohedge.com/news/black-friday-shopping-hangover-coming-david-rosenberg-explains), the bills come due starting late December and January, cannibalizing discretionary spending in the winter season of the next year and making the early quarters look far worse than those modeled expectations.  That weakness carries through mid-year, again confounding expectations, as consumers increase their level of savings absent consistent incremental external funding (such as credit, transfers or jobs).  Models then see a massive upward and unexpected magnitude of change in demand and activity between the summertime lull and the holiday season.  Because they have not really changed economic assumptions from the pre-collapse pattern, they are unable to account for this large increase in volatility and amplitude in the rate of change between seasons, so the data looks so very disappointing in the spring and summer, and so very good in the Christmas window. 

This leads to all sorts of collateral consequences in both real and mathematical terms.  Employment, for instance, has tended to be more seasonal and part-time in this recovery largely because of the intuitions of real participants, despite all the manufactured expectations that come with these overly rosy extrapolations of the Christmas season. So the BLS’s models cannot account for this new configuration either.  The adjusted employment numbers end up following the same exact pattern as the BEA’s economic numbers:  summer weakness, autumn surprise, following year writedowns.  In real economic terms this means jobs will only follow the real pattern, performing far below the expectations of economists and model practitioners that endlessly proclaim “the consumer is back”.

Looking at the recovery from a non-seasonally adjusted basis by comparing year-over-year changes, the picture that emerges is far more clear (http://www.zerohedge.com/news/tis-season-seasonal-obfuscation) and much more dire.  The economy is slowing, ratcheting itself lower with each seasonal cycle of disappointment as more people exhaust sources of income (reduced wages by becoming a “discouraged” worker or falling off the 99 week cliff into SNAP).  The contractionary fears of the summer were valid in the real economy, only displaced by the temporal interpretations of confused models.

There are numerous implications to all of this, not the least of which is the validity of central planning as a useful tool of economic control.  The Federal Reserve and its central bank brethren are forms of economic control, even if they “only” set the rate of interest, and therefore the cost of money and risk within the financial system.  These levers of “stimulation” have led to the very real world consequences that we find ourselves in today.  This “new normal” or paradigm shift is a direct result of the policies implemented by the flawed monetary science practiced within the central bank-dominated regimes of developed economic systems.

(For all those that believe the 2008 crash was perpetrated by the powers that be on purpose, I ask what is better:  to transfer wealth quietly from the population who willingly hand over their “money”, all the while thinking they are concurrently “succeeding”, or quickly and violently taking wealth in full view of the now on guard population looking for retribution and somewhat aware of what is actually amiss?  Forty years of harmony and the slow transfer of inflation and debt, or three years of misery and the building forces of bottom-up resentment and potential power shift?  The perfect “crime” of wealth transfer is committing it without anyone ever knowing it is taking place.  I think Wall Street is and has been the direct benefactor of flawed monetary thought, reaping the vast, quiet reward of being the Federal Reserve’s pet monetary tool as it sought to implement the economic utopia of objective monetary science, enthusiastically joining Alan Greenspan in defeating the business cycle by enlarging the financial economy.  The 2008 crash was the necessary response to the dramatic build of inefficiencies from that dystopian drive, the neglect of the real economy in the paper chase of easy, inflated debt money.  That Wall Street succeeded in both phases is simply the result of this symbiosis – maintaining central bank control means maintaining Wall Street – as is the regular movement of personnel between Washington and New York.  The Fed gets the power and Wall Street gets the money that comes from it – literally.  The crash caught both off-guard, desperately scrambling to find plausible explanations that preserve this dangerous dynamic.)

The relevance of all this goes well beyond diagnosing the lack of recovery, finally spilling over into questions of exactly what kind of system will emerge moving forward.  The lack of actual improvement in any real sense has left these central authorities searching for both answers and scapegoats.  One segment of the statist impulse has already pegged capitalism as the primary culprit, with free markets as the bastard child of market instability and economic insecurity.  Not coincidentally, that has been the premise to all this central control and intervention in the first place – that free markets are inherently unstable and messy.  So the objective precision of enlightened central planners has to lead to a less messy, more equitable economic arrangement, or it has no validity. 

To force the economy into a real recovery, this segment believes, is to move toward less freedom and more planning.  Andy Stern’s (the former head of the SEIU, one of the largest labor unions in the world) op-ed in last week’s Wall Street Journal openly called for central planning akin to China.  In the process, he expressly advocates leaving the very capitalist system that he acknowledges created all this wealth in the first place.

On the other side of the conventional political spectrum, Ramesh Ponnuru (senior editor at the conservative magazine National Review) wrote last week in Bloomberg to give us what is supposed to be the capitalist response.  He argues, with bipartisan concurrence of the idea from the likes of Paul Krugman and Christina Romer, for the Fed to abandon interest rate targeting in favor of Nominal GDP targeting.  Here the central bank ensures the economy grows to a specific target every year (ostensibly leaving “the market” to sort out the mix of inflation and income growth to reach the target) through the familiar toolkit of credit and money creation channels. 

The Fed actually discussed this idea at its last policy meeting (perhaps because it was loudly proclaimed by Goldman Sachs back in October?), ultimately deciding against it, not on the grounds of potential efficacy, but because transitioning to such a standard would leave too much uncertainty in the marketplace (the irony is probably lost on them).  The fact that it was even a topic, and has gained notoriety, means that this is an idea that may end up being advanced further over time as it becomes even more clear that monetary policy as it is currently construed is overwhelmingly ineffective, and therefore in need of a cosmetic makeover that leaves the current system largely in place.  There may come a time when the central economic authority needs to throw the stirring population a bone.

And so we are again left with only two mainstream political options for moving forward – direct central planning through mostly fiscal means or indirect central planning through monetary means (another damaging round of QE or some alternate form of monetary control like NGDP).  Since the BEA and BLS have trouble even tabulating economic results, it is a little hard to believe either could be successful at even the most basic task of measuring their own results.  This is especially true of the very real possibility that 4.5% NGDP targeting could lead to a mix of 4.5% inflation and 0% income growth (assuming that the economy would actually obey that 4.5% “speed limit” and not quickly progress into 15% nominal growth with 15% inflation and 0% income), considering the statistical, heuristic weakness of matching inflation data to real world conditions.

The lack of alternate choice of economic stewardship owes largely to the unchallenged idea that the economy has to be pushed into recovery, as if recoveries are artificially constructed in a classroom laboratory.  To the economic manager, the free market always leads to failure, while the managed economy is a picture of harmony and universal satisfaction, applying the recovery antidote to the capitalist poison of recession. 

Mr. Ponnuru unwittingly demonstrates this “logic” quite clearly:

“But we do have some experience with it. Josh Hendrickson, an assistant professor of economics at the University of Mississippi, has shown that from 1984 to 2007 the Fed acted, for the most part, as though it were trying to keep NGDP growing at a stable rate. Whether by design or accident, it did so -- and the result has come to be called “the great moderation” because of the gentleness of business cycles in that period.”

He might as well have said that we should emulate the monetary policies of the 1922 to 1929 period.  He accurately describes the “great moderation” as under the careful influence of central authority, but fails to connect the obvious dots of that authority to the 2008 to 2011 period.  The Panic of 2008 was not some isolated eruption of sudden free market capitalism within the sea of carefully measured, benevolent stewardship by the Federal Reserve’s objective science.  The residue of over-consumption and asset inflation, especially as it relates to binge shopping even in 2011, is a monetary phenomena that the Fed willingly concedes (though it would never go so far as classify it as inflation).  The only difference is that it believes it was/is all a success story.  The rest of the world sits angrily impoverished in the afterglow of monetary central authority, doomed to pepper spraying each other for $1 WalMart towels on the one “thankful” day where binge shopping can still be practiced.

The binge consumption of housing ATM’s was not capitalism.  It was the central control of monetarism and all its real distortions, especially the systemic price of risk and how that misallocates so many real resources, especially labor.  Consumerism of the last few decades was done on the back of asset prices driving short-term considerations of net worth, not judgments of income expectations.  In other words, households responded to asset inflation, turning temporary notions of net worth into debt because corporations followed established monetary incentives into repurchasing hundreds of billions in stock instead of making productive investments, all the while moving production offshore to chase the accounting boost to bottom lines that the intentionally weak dollar provided.  Combining that with gain-on-sale accounting and flooding the world with money to enforce low interest rates, thereby changing and perverting the very nature of intermediation, and it is no wonder that prices rose well above what can fairly be called fundamental (I am not sure when inflation became synonymous with free market capitalism, but Alan Greenspan had a lot to do with it).  That the asset prices of stocks, concurrent to the irrational exuberance of real estate, driving people to intentional impoverishment is called capitalism or free markets without qualification is intentionally obtuse.  Mr. Ponnuru does not want the public to see 2008 as a direct consequence of the Great Moderation because it necessarily invalidates all that he advocates.

Unless conventional political wisdom is changed in light of all this junk science, it will blame the one process that could actually create economic potential and a valid pathway to real success (as opposed to imaginary statistical interpretations).  Free markets are the only way to overcome this very real deficiency in precision and the inefficiencies that always and everywhere follow from it.  So the first real challenge of 2012 is to make sure that the “Great Moderation” is seen for what it really was (a flavor of statism) and that the “Great Recession” is seen as the obligatory results of that intentional monetary control through Wall Street (with a huge assist from direct central planning within the GSE’s). 

Andy Stern and his political compatriots may acknowledge that capitalism actually created the wealth upon which modern society rests, but they have completely missed the central diagnosis of the current malaise.  It is not the pursuit of capitalistic wealth that has led us down the path to economic destruction, it was the paternalistic sense of modern economic planners on both the left and right to change the very notion of wealth from productive capacity to money, and thus a tool of control, that created this mess.  Abandoning money as the yoke of central planning and embracing money as a limited tool that only facilitates the exchange productive endeavors is the real path to long-term economic health.  Until such a systemic realization and reset occurs, one-off, miserable consumption binges will be the norm, meaning central planning by central banks will continue to ruin Christmas.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 12/07/2011 - 15:13 | 1955674 bnbdnb
bnbdnb's picture

.....milk.

Wed, 12/07/2011 - 15:13 | 1955699 jomama
jomama's picture

keep your friends close, and your enemies closer.

 -Sun Tzu

Wed, 12/07/2011 - 15:16 | 1955707 SheepDog-One
SheepDog-One's picture

I thought that was Michael Corleonne.

Wed, 12/07/2011 - 15:21 | 1955720 jomama
jomama's picture

same difference.

Wed, 12/07/2011 - 15:36 | 1955763 jdelano
jdelano's picture

wow--like the antidote to Peter Tchir.  There's actually some clearly articulated and substantive thoughts in this.  Green.  Super green.  

Wed, 12/07/2011 - 15:10 | 1955677 pepperspray
pepperspray's picture

Get the FEMA camps ready

Wed, 12/07/2011 - 15:24 | 1955733 Silver Dreamer
Silver Dreamer's picture

According to a video I saw today, they are activating them.  It was from Alex Jones though, so who knows for sure.

Wed, 12/07/2011 - 16:13 | 1955902 walküre
walküre's picture

It's a big government funded construction project. Send in your bid for the work.

 

Wed, 12/07/2011 - 17:41 | 1956366 andybev01
andybev01's picture

How delightful, it's going to be catered!

Wed, 12/07/2011 - 15:11 | 1955687 Snakeeyes
Snakeeyes's picture

Peter Wallison. from AEI, went on Fox Business calling for a centralized European goverrnment letting Germany control what everyone else does. Central planning gone wild!

Rumble on The Rhine – Uncertainty About The Eurozone Treaty (Italy, Spain and Belgium Yields UP)

http://confoundedinterest.wordpress.com

 

Wed, 12/07/2011 - 15:15 | 1955705 SheepDog-One
SheepDog-One's picture

Central planned fascism...its the 'NEW FREEDOM' ringing out all across Planet Banana.

Wed, 12/07/2011 - 15:21 | 1955721 Cangoroo
Cangoroo's picture

Nice idea, I want to be in charge of that.

Wed, 12/07/2011 - 15:14 | 1955703 Ryman1075
Ryman1075's picture

Bullish?

 

Wed, 12/07/2011 - 15:23 | 1955725 A Lunatic
A Lunatic's picture

Banana-ish

Wed, 12/07/2011 - 15:17 | 1955708 kito
kito's picture

i swear i heard bernanke singing this the other day:

oh the euro dilemma is so frightful

but the fed is so delightful

and since the economy has no place to go

let the dollars snow, let them snow, let them snow

 

it doesnt show signs of stopping

and ive bought some stocks for the popping

the rates are turned way down low

let the dollars snow, let them snow, let them snow!!!!

 

 

 

Wed, 12/07/2011 - 15:29 | 1955744 WALLST8MY8BALL
WALLST8MY8BALL's picture

hey kids you can all sing along!

 

SANTA GOT EVICTED BY A BANKER
Got tossed from North Pole Christmas Eve.
His note was sliced and diced by LPS
Verified and signed by Linda Green

We were all so proud of Santa
He seemed to be happy with the Elves
But he missed just one monthly payment
Now he’s is in a banksta driven hell!

In the year since Santa was booted,
He took to Occupying Wall Street
But Bloomberg took away his tent and blanket

Now Santa’s living out on the street!

SANTA GOT EVICTED BY A BANKER
Got tossed out of the North Pole Christmas Eve.
His note was sliced and diced by LPS
Verified and signed by Linda Green


And as the year approached November,
Santa begged for a nickel or a dime
He didn’t even get one penny

While the Banksta’s never did any time

Christmas Eve saw Santa get a hosing,
As Bernanke printed a Trazzillion dollars more
Christmas Day, I saw the Banksta’s Gloating
Buying Hamptons mansions for their whores!

SANTA GOT EVICTED BY A BANKER
Got tossed out of the North Pole Christmas Eve.
His note was sliced and diced by LPS
Verified and signed by Linda Green


Lots of people saw the carnage,
Surely not a pretty Christmas sight.
No one could understood why Santa
took a beating from a NY Cop last night!

SANTA GOT EVICTED BY A BANKER
Got tossed out of the North Pole Christmas Eve.
His note was sliced and diced by LPS
Verified and signed by Linda Green

 

Wed, 12/07/2011 - 15:18 | 1955711 GeneMarchbanks
GeneMarchbanks's picture

'The perfect “crime” of wealth transfer is committing it without anyone ever knowing it is taking place.  I think Wall Street is and has been the direct benefactor of flawed monetary thought, reaping the vast, quiet reward of being the Federal Reserve’s pet monetary tool as it sought to implement the economic utopia of objective monetary science, enthusiastically joining Alan Greenspan in defeating the business cycle by enlarging the financial economy.'

Bang! +1

Great piece!

Wed, 12/07/2011 - 15:26 | 1955735 Comay Mierda
Comay Mierda's picture

Xmas will be good to silver and gold

charts look like there will be big gains this month

Wed, 12/07/2011 - 15:27 | 1955740 RobotTrader
RobotTrader's picture

PM bulls better start praying for a breakout in the SPY

 

Especially the bank stocks.

Otherwise, well, you don't wanna know....

Wed, 12/07/2011 - 15:30 | 1955751 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I will be able to buy so much SPY with my PM I won't know what to do with myself?

Wed, 12/07/2011 - 15:44 | 1955785 tmosley
tmosley's picture

How can you continue to exist knowing that you spew such drivel?  S&P is flat on the year, while gold and silver are up 20 and 8% respectively.  And that's PAPER pricing.

Wed, 12/07/2011 - 16:09 | 1955892 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

PAPER pricing alone.  Exactly right.  Robot might be right short term (like good traders tend to be), but physical gold and silver will get us through the mire (putting it softly) ahead.  R does sort of mentions the recent correlations of price of gold to moves in the equities.  Those two traditionally do NOT correlate well.

And history shows us that many things correlate for a while, until they don´t.  I´ll take the physical with any new money, thank you.

Wed, 12/07/2011 - 17:20 | 1956291 topcallingtroll
topcallingtroll's picture

Basically everything trades on reality and rumor of liquidity pumping.

Totally fooked up markets. I can only hope this is temporary until the patient is out of the ICU.

Getting tired of the bullshit where all risk assets seem short term correlated. Robo is right about that.

Wed, 12/07/2011 - 15:44 | 1955786 walküre
walküre's picture

What? And consumer stocks to the moon because LuLu's great ass-looking products are better than gold?

Those Walmart shoppers weren't fighting over Lulu's pants my friend.

Wed, 12/07/2011 - 15:27 | 1955742 SDRII
SDRII's picture

Speaking of paternalistic sense of modern economic for a laugh post the Jamie Dimon pep rally at GS this afternoon talking up GE as best of class - just as they are going groveling for internet deposits. Must be the TGLP subsidy rolling off.

http://online.wsj.com/article/SB10001424052970204770404577082651548877194.html

 

Wed, 12/07/2011 - 15:29 | 1955745 RobotTrader
RobotTrader's picture

Amanda Drury looking extra juicy today

Check out the cleavage

Wed, 12/07/2011 - 15:31 | 1955753 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Turd?  Is that you?

Wed, 12/07/2011 - 15:29 | 1955747 walküre
walküre's picture

The 2008 crash was the necessary response to the dramatic build of inefficiencies from that dystopian drive, the neglect of the real economy in the paper chase of easy, inflated debt money.

 

Is the author suggesting that the 2008 crash was more random in nature? That it wasn't a planned event to withdraw massive amounts of liquidity only to reintroduce liquidity again later on much stricter terms?

If that were true than the PPT is not going to be able to stem the tide against the next random crash event and markets cannot be saved from crashing whether or not they're allowed to!

Wed, 12/07/2011 - 15:51 | 1955807 WonderDawg
WonderDawg's picture

Did you actually feel the light bulb turn on?

Wed, 12/07/2011 - 16:09 | 1955891 walküre
walküre's picture

OK, what is it? Market is fully controlled and manipulated INCLUDING a crash when it suits them.

Or the market is actually "working" because not all players are being controlled and a random crash and liquidity withdrawal can happen at anytime.

The point of a centrally planned economy is obsolete when major participants can derail the plan at any given moment.

 

Wed, 12/07/2011 - 15:32 | 1955759 PulauHantu29
PulauHantu29's picture
Blagojevich sentenced to 14 years in prison

 

http://usnews.msnbc.msn.com/_news/2011/12/07/9275402-blagojevich-sentenc...

So when does Barry pardon him?

Wed, 12/07/2011 - 15:38 | 1955772 sabra1
sabra1's picture

when does Barry join him? they can try out the new Fema Camps!

Wed, 12/07/2011 - 16:12 | 1955897 DoChenRollingBearing
DoChenRollingBearing's picture

I think that newly-elected President Ron Paul may just let Barry go and live out his years unmolested...

Wed, 12/07/2011 - 15:39 | 1955775 Hohum
Hohum's picture

January 19, 2013?

Wed, 12/07/2011 - 15:35 | 1955761 blu
blu's picture

Consumerism was bound to ruin Christmas regardless, the retailers couldn't stand the fact that people could enjoy Christmas absolutely free of charge just by being together and enjoy each other's company. Pepper spraying your fellow shoppers is likewise a manifestation of other ills, such as the acceptance of violence in media and the growing "shopping is a contact sport" mentality we see hyped by retailers.

There are fewer and fewer things we can "do" without a fee paid to someone. Try to find a place where you can just sit and read a book; unless you have a (well-tended and well-lit) public park left in your city that hasn't been take over by homeless and pants-on-the-ground gangbangers, then you are reduced to a $tarbuck$ or similar venue, assuming you can find a seat.

America, where you are forced to pay as you go. Especially at Christmas.

Wed, 12/07/2011 - 15:40 | 1955762 ebworthen
ebworthen's picture

 

 

Modern economists have taken the invisible hand out of the economy and into their laps - and wonder why their pursuits bear no children.

Wed, 12/07/2011 - 16:18 | 1955882 falak pema
falak pema's picture

Modern economists have realized they are shamanists, druids, and wankers; their relevance depends on gaining the favours of a prince of politics, a Caesar Borgia. Thus begins their servitude, playing their lyre to please the impulses of their Prince. They begin their career as young seekers of truth of the philosopher's stone. As they advance into the myriad alleys of political maelstorm they realize their Prince needs their services to find expedient solutions of the moment, not great diatribes against the systemic risk of human ambition and crass avarice. So they bend like the judges, the bureaucrrats, the doctors and the lawmakers, to the deafening call of the moment, the excrutiating cry of a woman on verge of collective orgasm; instant gratitude in repetition; of ones  who hope a Prince cannot dash as avowed publican, avowed defender of general good : the consumer hungry, rank and file people. To serve Prince and gullible public, they bend, they distort reality, they become servants of half-truths, that turn into outright lies and finish like pathetic denials of dire vice, deviant descents into circles of the most depraved, dressed up in the toga of virtue, the best and the brightest, the skull and bones tradition, soldier monks in the cause of Holy Grails. The greater the standard deviance from reality the greater the sense of doing God's work selflessly.

The circle of life has achieved completion, they belong in the dustbin of History, having served their prince beyond the cause of duty. It is the chosen moment they receive from their Prince their medal of immortality, to enter the Pantheon of Nobels and thus to shut their consciences for the ages, they finish as shadows of their youth, chippering birds in the incoherence of the media forums, Sirens of Man's decadence, worse, deus ex machina of Prince's darkest dreams of human servitude; Karl Roves, or Dick Cheneys. Hank Paulsons or the Bernanke. May God forgive their sins and send them to eternal purgatory, where they learn the ways of the Liberal. I couldn't think of worse punishment for their ilk.

Obviously one could draw the same picture for the TRUE Keynesian breed of opportunists who pander to their liberal Princes. Life's political circle is truly unique whichever way you enter it.

Wed, 12/07/2011 - 15:37 | 1955768 RobotTrader
RobotTrader's picture

Miracles happen.

 

Who would have guessed that the 2008 mortgage meltdown would have resulted in millions of homeowners skating on their mortgage payment for 3 years and creating the biggest spending bonanza in 25 years?

And at the same time interest rates are at 50-year lows while Bernanke prints trillions?

And no inflation to boot, with SLV, DBA, UNG, etc. constantly crashing when there is a whiff of a financial crisis?

Wed, 12/07/2011 - 15:40 | 1955780 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

So it is not only Nation-States that are getting credit downgrades, it is the consumers too.  And this is bullish for the long term, how?

Wed, 12/07/2011 - 15:37 | 1955770 jmc8888
jmc8888's picture

Good article.

Everyone needs to remember the validity of any of these models is binary.  It can only be 0 or 1.  Guess what, they've never in the history of models created a '1'.  All of these models have always been '0', it was just easily looked over during the great rig job.  It was easy to say something close was a 1 (or whatever non-number they labeled it close to 1).

Money is a tool, it isn't wealth.  Wealth is water, energy, the things we need.  We can either focus on those things, or focus on 'money'.  Money that is being hyperinflated away.  For fraud.

There is a better way.

Impeach Obama

American Credit System

Glass-Steagall or broke (literally)

Wed, 12/07/2011 - 16:17 | 1955917 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

Yes, jmc this was a great article.  I analyze sales data as part of my work re buying bearings.  I am always looking for correlations and trends...  And yet I have seen the paradigms (of vehicle bearing sales) change because of new vehicles coming in and other conditions changing.  It is ALWAYS happening, everything in even this fairly straightforward business is always in flux.

It is indeed dangerous to depend on statistical or otehr quantitative models too much without having solid ¨boots on the ground¨ information.

Tyler(s)!  Keep stuff like this coming!

Wed, 12/07/2011 - 19:31 | 1956680 11b40
11b40's picture

Yes, I agree jmc, it was a very good article...but it stopped short of actionable steps to seek some solutions and control over the process.  Wall Street based "reformers" seem to have trouble getting their minds around concepts that would truly change the playing field.

You are exactly right.  Bring back Glass-Steagall and make basic banking a nice, quiet fundamental business again.  No reason other than the bankers abilkity to steal for Federally licensed banking to be much different than any other public utility...and if you don't want to be a banker under those conditions, then fu*k off.  Go into the brokerage casino and gamble with your own money all you like, just like the rest of us.

Then, change the law to strip corporations of their "personhood" - a stupid concept to begin with - and remove all corporate funding of political campaigns.  At the same time, amend the law to allow only registered voters to make campaign contributions, thus taking away any advantages that unions would gain.

Some very fundamental, common sense changes wold go a long way toward righting the good ship America.

Wed, 12/07/2011 - 15:39 | 1955774 Caviar Emptor
Caviar Emptor's picture

Yes there's a seasonal pattern. No, it's not what was hoped for because consumers are now addicted to bargains and reluctant to open wallets. But yes, this was anticipated and adjustments were made. Successful consumer companies have to run lean. There's very little room to pass costs on to consumers, yet input costs keep rising. 

Wed, 12/07/2011 - 15:45 | 1955789 duo
duo's picture

I wish I had skipped to the last paragraph.

Our society also tends to confuse luck with genious.

Wed, 12/07/2011 - 15:52 | 1955810 WALLST8MY8BALL
WALLST8MY8BALL's picture

And genius with genious

Wed, 12/07/2011 - 15:47 | 1955791 rambler6421
rambler6421's picture

Ponururu basically advocating Monetarism.  Yuck.

 

libertarian86.blogspot.com

Wed, 12/07/2011 - 15:48 | 1955795 ISEEIT
ISEEIT's picture

Fantastic article. Unfortunately none of what he articulates will ever be put to practice unless/until the regime collapses.

Wed, 12/07/2011 - 15:51 | 1955806 walküre
walküre's picture

Time for the 3pm rumor mill to fire up!

Wed, 12/07/2011 - 15:53 | 1955811 Thorny Xi
Thorny Xi's picture

Sad.  A well written paper on missing paradigm shifts that doesn't mention the real paradigm shift - the end of exponential growth in cheap conventional high EROI OIL energy.

Wed, 12/07/2011 - 15:58 | 1955836 ISEEIT
ISEEIT's picture

What the frac? Not trying to pick a fight but just saying, energy supplies need not be a significant problem. That is unless the obama regime chooses to create the problem via EPA decree in order to benifit the banksters and other globalist behind the warming hoax.

Wed, 12/07/2011 - 16:02 | 1955854 STP
STP's picture

A most excellent read and spot on!  For far too long, we've watched the Wall Street faux economy grow and heap splendid bonuses on the participants.  And when they failed, we know what happened.  And yet, they still grew and reaped bonuses.  This angers many Americans who actually work for their money.

Long ago, I worked as an Accounting temp for Gxxxxxx Savings and Loan in California.  I was assigned to the brokerage department.  I reconciled the bank accounts from other banks, by comparing the accounts on cardstock sent in the mail, to what we held.  Basically, by comparing the account numbers and amounts on the three inch thick stack sent by the other bank, to our account on 11x17 green and white fanfold paper.  That would seem utterly archaic, but that's how we did it, pre-PC days.

The interpersonal relationship between the brokers themselves and the 'hired help' was one of condescension.  They were "The Masters of the Universe".  As I worked my way into other duties, I found out just how they made their money.  They would trade a block of Freddie Mac's at 3 3/4 for a Gennie Mae at 3 7/8, picking up the points and pocketing the profit on the arb.  How hard was that?  All it was, was churning other people's money and skimming the foam off the top.  The brokers were dicks and unpleasant to work for.

And what did the brokers create of value?  Nothing, nada zero.  There was no 'physical' product or outcome.  There are no suppliers or subcontractors.  There are no rail lines putting box cars onto sidings.  We used to create great products in this country and now we import cheap crap and we know it.

Somebody on the web has a compilation of all the WWII aircraft factories and what became of them.  One of them was a Republic P-47 Thunderbolt plant in Indiana.  The last photo taken, shows it as a nearly abandoned Whirlpool plant, with a parking lot that spans acres and acres of empty asphalt.  A handful of employees work there.  All the work has gone to Mexico.

I've been following the financial news for six or seven years now.  I found this article in Dec 21 2006:  Ex-Pfizer CEO to leave with $180 Million.  Pfizer Inc.'s former chief executive, Henry A. McKinnell, who was forced into an early retirement in part because of investor anger about his rich retirement benefits, will get every penny of it and more, a new regulatory filing shows.

McKinnell's package, which the company disclosed in a filing with the Securities and Exchange Commission Thursday, totals more than $180 million. It includes an estimated $82.3 million in pension benefits, $77.9 million in deferred compensation, and cash and stock totaling more than $20.7 million.

http://www.msnbc.msn.com/id/16318385/ns/business-us_business/t/ex-pfizer-ceo-leave-million-richer/

Then next month, Jan 22 2007, this was news in the NYT:

The drug giant Pfizer said today that it would lay off 10,000 workers and close several manufacturing and research sites in an effort to bolster earnings hurt by the loss of patent protection on certain drugs and setbacks in developing new products...

http://www.nytimes.com/2007/01/22/business/22cnd-pfizer.html

Nobody in the MSM connected the dots, but I did and it pissed me off.  The Elite keep bawling that they have to pay this type of compensation to get the 'best talent', but yet they're laying off ten thousand American workers?  WTF?

 

Wed, 12/07/2011 - 16:40 | 1956002 pazmaker
pazmaker's picture

STP,

 

I feel ya!  It makes me sad and angry! ...and to know that the pfizer story you told is the norm for corporations not the exception makes me angrier.   It is sometimes overwhlemong for me as I serach for what can I do to make a difference? ....then I feel hopeless..... so I try my best to make sure my family is prepared... but i do feel compassion for so many whose lifes are destroyed and for the lack of freedom in this country(USA)

Greed and corruption is so rampant in our society as is the lack of compassion for our fellow man and it shows it's ugly face each and everyday in our society in one form or another...in the government in corporations on the street all over...

Wed, 12/07/2011 - 17:02 | 1956177 Stuck on Zero
Stuck on Zero's picture

The bottom line is really simple.  Free countries have  healthy growing economies (averaged over time).  Corrupt countries have poorly performing economies.  You can always find momentary exceptions but watch over time.  Corruption is any activity that hands individual freedom to unions, corporations, bureaucrats, laws, or governments. 

Wed, 12/07/2011 - 17:19 | 1956284 Georgesblog
Georgesblog's picture

As I describe it, the paradigm shift is a step down in the currency collapse. Of course, no central bank would admit that a currency collapse is in progress. Wealth transfer through devaluation makes people very angry. No Ponzi scheme is going to admit that it has a cash flow problem. When in Zimbabwe, just knock 19 zeros off the currency, and call it good.

http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/

Wed, 12/07/2011 - 17:30 | 1956326 Shizzmoney
Shizzmoney's picture

One of the best, unbiased, and well written article I've read on here.  Bravo, sir.  +infinity

It's important to understand; but a TON to digest.  No wonder the lay-person says, "Fuck it.  I'm gonna go buy an iPad instead."

My boy Jesse LaGreca tweeted today that "free thinking should be valued over free markets." 

And I 100% agree; because it is the LACK of FREE THINKING allowed in our society that is the MAIN reason why today, we do NOT have a FREE MARKET.

Wed, 12/07/2011 - 18:01 | 1956442 kevinearick
kevinearick's picture

Vortex to Learning

On the tree of knowledge side, the consumption half-cycle, the energy scarcity trunk (multiplexer) is the focal point, from which branches (event horizons of anxiety consumption) form Pavlov swaps from food, clothing and shelter (guarantee insurance) to the false imprints of outcome objectives, bait and switch conditionals, bipolar behaviors, and cognitive dissonance habits (separation from nature), driving replication of the black hole loop through derivative twigs and leaves, to grow the ponzi fruit geographically, filling, slaughtering and evacuating the ponzi pipeline like a carcase traveling through a snake.

So, nothing has really changed in California. Stimulus from one end to the other, exploding debt, and Governor Brown requesting a tax rate hike, in the prototype root for the global IC chip, in which the pay and pensions of the manufactured majority, entitlement children working directly or indirectly for Gubment, increases with the tax, which may only come from external sources, and the external sources have naturally dried up, because not everyone is as stupid as stupid assumes.

It's much easier to get Goliath's attention after a heart attack. Circulation is the integral; resource deprivation is the derivative. Increasing tax rates on a declining tax base is the recipe for an aneurism, and the Fed is running out of aspirin and placebo. Heads / Black Swan, the heart attack works directly. Tails / White Swan, the blood becomes too thin to pump.

Now, they are in the next bind; The ponzi has collapsed to the point where they must admit pension bankruptcies, assuming real ROI, or file municipal bankruptcies, all to save K-12. Isn't it wonderful how much they care about children, many going without food, in transparently failed institutions, with pyramid administrators making six figures plus pensions, where the most ignorant college graduates get a guaranteed job to peddle propaganda control down the throats of the willing and non-willing alike, and the out-dated physical infrastructure, in a distributed communication world, chews up the biggest part of the budget. IN this world, people believe what they are paid to believe, regardless of cost to others.

Again, the part no one wants to hear is that the standard marriage contract is the eye of the economic vortex, through which the economy must travel to convert the DC consumption back into AC investment. To invest effectively, the couple must forsake all other event horizons, and the woman, because of the natural biological variance, must forgo the money free to throw away and infinitely subsidized do-overs. That's a tall order, and the couple cannot make the same mistake twice, without purpose, on the learning side, because the consumption machine is specifically designed (Family Law) to track down real investors for liquidation.

Enjoy the holiday. Round 3 begins in January. Do not forget the endgame playing out here. Teach your children well.

Child and Family Services Improvement and Innovation Act

The federal government spends more than $12 billion a year to help states with child welfare, the Casey Family Programs estimated in a 2010 report. Most of those federal funds come through Title IV-E of the Social Security Act, the same law that sets out Social Security, Medicare and Medicaid policies.

But the child welfare section of the law is worded so that states can use those federal funds only to pay for keeping children in foster care or group residential services. The money can’t be used to keep a family together or to provide in-home therapy, although another part of the Social Security Act does let states use federal money to prevent child abuse and neglect.

Wed, 12/07/2011 - 19:24 | 1956658 STP
STP's picture

Kevin, you know exactly what I'm talking about, regarding California.  The amount of money thrown at entitlements boggles the mind!!!  Los Angeles County alone, spends 66% of the Budget on Social Services, Health Care and Police and Fire, because the Indigents use the Police and Fire at triple the rates of the regular middle class!

They'll never show this on the airhead TV news, with Coleen Williams on NBC telling me "I want to get the news from someone I trust..."

Your Los Angeles County Taxpayer dollars at work!  Courtesy of the LA County Auditor:

Fiscal Review of Bienvinidos Children Care Center - A Foster Family Agency Foster Care Contractor:

http://file.lacounty.gov/Auditor/audit_reports/Children%20and%20Family%20Services%20-%20Adoption/cms1_154821.pdf

That's 5 million dollars A MONTH!!!  273 children at $1,589 to $1,865 EACH, PER MONTH!!!  Who said I that me, the taxpayer has to pay for this???

If you think that's bad, you'll love this... the county is paying for mental health services for the "Associated League of Mexican Americans DBA "Alma Family Services" and charging the taxpayer $1.54 to $3.73 A MINUTE or $92-$220 an hour!  It added up in FY2005 to $5 million dollars!


http://file.lacounty.gov/Auditor/audit_reports/Mental%20Health/cms1_053846.pdf

And both of those are just the tip of the iceberg!  I found an LA County Auditor Report on Welfare Fraud.  The County employs over 13,000 workers in the DPSS or Department of Pubic Social Services.  Back in 2002, they were spending $172 Million dollars A MONTH!

http://file.lacounty.gov/Auditor/audit_reports/Public%20Social%20Services/cms1_009318.pdf

 

Multiply that by all the major counties in the United States and what you have is a classic Piven-Cloward "weight of the poor" strategy.

 Don't even get me started on CALWORKS or the taxpayer paying to babysit somebody else's kids.  Worse, they use this to trade income streams, by babysitting each other's kids!

Why work, when an unmarried mother of two, can get $36K in State Benefits?  Add Section 8 housing and she's pulling in over $50K a year! 

http://www.dss.cahwnet.gov/research/res/pdf/calreports/BenefitModel.pdf

 

Thu, 12/08/2011 - 16:56 | 1960504 kevinearick
kevinearick's picture

One of my laborers at the Port of San Diego had 8 fosters kids holed up in one room, with at-home school (none). Besides everything he was taking out of the Port on the side plus his salary, he was getting $4k/month cash and all the SS benefits... What a country.

Wed, 12/07/2011 - 20:57 | 1956851 GCT
GCT's picture

Great read. 

Wed, 12/07/2011 - 22:45 | 1957072 robobbob
robobbob's picture

For all those that believe the 2008 crash was perpetrated by the powers that be on purpose, I ask ...

In general, that would be true, however, like the rest of your article points out, the world is in the midst of a paradigm shift.

What do the elites see? Without a new technology revolution, the world is looking at peak...everything.  The end of the exponetional growth model and post consumerism. Dwindling resources coupled with the promises of longevity breakthroughs creating a time of increased mouths who not only have diminishing value to the elites, but are becoming an increasing threat to their control.

It had to end. If not now, when? If not for their benefit, who's?

At some point the ponzi was doomed to fail. They know that. Better for them to bring it to an end on their terms while they have to power to create the next game the way they want it to be, rather than let it fall to random chance if the system were allowed to just die of natural causes.

Do NOT follow this link or you will be banned from the site!