Monday, August 06, 2007

Another one bites the dust

Yeppers, another home loan vendor bites the dust. But unlike the others, this one wasn't a sub-prime lender. This one is an "alt-A" lender, someone who lends money to folks who have good credit but maybe are buying a little more house than they can afford or something like that. The failures are moving up the home loan lending food chain.

So what does it mean to you? Well, that's still unclear. You can bet that housing prices are going to be down. The assets of these lenders are being picked up by vultures for peanuts. The vultures take the proceeds of the performing loans, but the non-performing loans go into foreclosure. Where the mortgage lender was willing to work with homeowners in hopes that either a) housing prices would rise enough to make it worth foreclosing at some point in the future, b) the homeowner would somehow start paying his loan on time, or c) cows would fly, the vulture is going to foreclose and sell the house at auction to the lowest bidder and write off the loss. That's why he paid only pennies on the dollar for the portfolio of the failed lender, after all -- so that he could wring a few pennies more out of the deal. If it was a $500K loan and he sells the house for $200K after repo expenses, but he only paid $150K for the loan, he's still ahead. But other folks in the neighborhood with $500K houses suddenly just had the values of their homes reduced to $300K, and are underwater on their loans now, and can't get the promised re-fi to deal with their ARM that's about to re-adjust to 13.5% interest after 5 years because their house is no longer worth enough to re-finance the loan with... so the troubles spread.

The eventual result, if too many of these lenders fail, is galloping deflation similar to that in the period 1929-1932. Now, galloping deflation is great for millionaires. It means their millions are worth more (in real terms) because their millions will buy more. It's horrible for working people who have a bit of debt, because they can't sell their services in the open market for enough to service that debt, and end up with all their possessions repossessed by (duh) the wealthy. The period 1929-1932 was probably the greatest transfer of real wealth (land and goods) from working people to the wealthy in the history of the nation, because that's what deflation does -- it transfers wealth from people who owe money (generally working people) to people with lots of money in the bank (generally the wealthy).

So the next question is, "will the U.S. government bail out the lenders?" In a word... no. The only outfits that the U.S. government is going to bail out is going to be Fannie Mae and Freddie Mac, who are too big to allow to fail. If individual mortgage lenders fail, that's disappearing dollars from the economy (since those assets are suddenly worth only 20% of what they were once worth), but given that the Federal Reserve has been cranking out dollars with all the avid fervor of a Weimar Republic finance ministry over the past six years in order to finance the horrible federal balance of payments imbalance, it could be said that what the Fed giveth, the Fed now taketh away. But if Fannie and Freddie go under, the government will have to step in and guarantee those mortgage-backed bonds because if those disappear, then we are truly in the deflationary death spiral because too much money will vaporize out of the economy. The problem is that the U.S. government itself is not exactly in a fiscal situation where it is flush with dough. What that means is that the printing presses will have to be cranked up even more. Now, the printing presses actually have been cranking for a while now to finance the current federal balance of payments deficit (thus why food and fuel have been going up in price -- too many dollars from those presses cranking away chasing too little food and fuel), but if we go the Weimar Republic route we'll all be hauling bales and wheelbarrows full of cash out of the bank every day to buy a loaf of bread and a gallon of gas.

So what's going to happen? Fuck, you're asking a penguin what's going to happen? I haven't the foggiest clue what's going to happen. Galloping deflation (good for rich, bad for working people) is one possibility. Galloping inflation is unlikely -- hurts the rich, y'know, and this regime is all about helping the rich. Lots of working folks losing everything they own to sharks... well duh. This is the Bush Administration, bay-bee! You can bet that whatever happens, Vice President Halliburton will protect his own. Ah gher-uhn-TEEE! (With all due respect to the late Justin Wilson). In the meantime, if you're thinking of buying a house, I recommend doing it only if the payments (minus the interest and property tax deductions) will be the same or lower than what you're paying as rent. Because housing prices are only going one way for the next few years, and that is down, D-O-W-N, bay-bee!

-- Badtux the Economics Penguin

Labels: economy

Sunday, July 29, 2007

Do tax cuts really put more money in your pocket?

The value of any money, whether it's the green toilet paper or not, rests solely in what people will give you in exchange for it. Remember, the basis of an economy is the amount of goods and services in circulation, not the amount of green toilet paper in circulation. The wealth of a nation is the amount of goods and services in circulation, not the amount of green toilet paper in circulation. You want the amount of green toilet paper in circulation to pretty much match up with the amount of goods and services in circulation, otherwise you get deflation (good for rich people, bad for working people) or inflation (good for working people with no savings, bad for everybody else), other than that the amount of green toilet paper in circulation is irrelevant.

Okay, so Bush "gives" you a tax cut (actually, just pushes a tax hike into the future, since the money for the "cut" was borrowed). Are you really better off now? Well, you have more green toilet paper in your wallet. So the next question is, are there more goods and services in the economy for you to buy? Are you actually any better off?

The answer to that last question is "no." The amount of money in your pocket will buy exactly the same share of that goods and services as it did previously. You are no better off than you were before the tax cut because the money in your pocket will buy you the same amount of "stuff" as before the tax cut. All that happened was that inflation happened -- more money chasing the same amount of goods available for purchase means that the goods get more expensive, and you're no better off.

Now, if the government was actually cutting its spending on destructive activities -- taking fewer goods and services out of circulation and literally blowing them up and shooting them out of the barrel of a gun -- then there would be more goods and services in circulation in the economy, and a tax cut would be warranted so that the amount of money in circulation would match the amount of goods and services in circulation. But as we all know now, the Bush Administration has been spending like a drunken sailor, and mostly doing that spending in none-productive ways that do not provide goods and services to our economy (i.e. that do not create roads, bridges, provide police services, etc.), and so the government is actually taking more goods and services out of the economy and using them to blow up some god-forsaken desert that nobody gives a shit about anymore (except the people who live in that god-forsaken desert, of course, who are somewhat pissed and doing their best to get us to spend ourselves to economic exhaustion so that we'll quit blowing up their god-forsaken desert and go do something more productive). More green toilet paper, fewer goods and services, is it any wonder that the prices of food, housing, and fuel have been going through the roof?

Now, the next question is, "do tax hikes really take money out of the economy?"

Well, it depends on two things: 1) the extent of the tax hike, and 2) whether the tax hike is being used for some purpose that adds to the economy. For example, right now 15% of the U.S. economy is going to medical care. By imposing a 7.5% Medicare tax upon all payrolls and extending Medicare to all Americans, that percentage of the economy could be reduced to 10%, and the remaining 5% no longer going to insurance companies for non-productive purposes would then be additional goods and services available to the economy. So you'd actually be able to buy more "stuff" with the amount of money remaining in your pocketbook.

If the tax hike was gigantic enough to reduce the incentive to work (but we're nowhere near that -- the amount of our GDP going to taxes is under 30%, and you have to get above 50% before people start losing incentive to work for a living), or if the taxes were going to non-productive purposes such as being shot out of a gun or blown up, on the other hand, you'd be out the money but there would be no more (or fewer) goods and services in the economy. So you'd be worse off. So the answer is "it depends". But as long as you keep your eye on the ball -- the goods and services circulating in the economy, not the green pieces of toilet paper -- you're well positioned to be able to judge for yourself whether a particular tax cut or tax hike actually puts buying power in your pocket. And in the case of extending Medicare to all Americans via a Medicare payroll tax, it most definitely does put money in your pocket, because you get more services for the money taken out as taxes for half the price of buying it on the open market (where you don't have the economies of scale that the government has).

-- Badtux the Tax Penguin

Labels: economy, taxes

Thursday, July 26, 2007

The Gold Standard

Case in point: "Dr." Michael Savage (Ph.D.-Mail Order) sent me an email extolling gold as an investment.

Now, first of all let's dispense with a common myth that somehow gold has some sorta inherent value. It doesn't. It's just this shiny metal stuff. You can't eat gold. You can't wear gold. Gold doesn't keep rain off your head or heat your home in the winter. Frankly, as a useful commodity, gold pretty much sucks, meaning that its only value is whatever you can trade it for.

And if you're going to trade a useless commodity for something, well, gold kinda sucks there too. You can't go down to your local grocery store and pay in gold. Unlike that green toilet paper stuff with pictures of dead Presidents on it, you can't buy a burger with gold. You gotta trade it for that green toilet paper first, which is cumbersome to do and involves fees and such.

And finally, gold isn't portable. It's heavy.

All in all, this means gold really isn't very useful as a money. Maybe back in Roman times, when every farmer and shop keeper accepted gold as payment for stuff, but not nowdays. Nowdays it's just this shiny metal that for some reason has this mythos built around it that it's something special, instead of just another metal like lead or iron or copper or whatever.

So why do Republicans rattle on about the "gold standard" as if it were something desirable? Well, it's because gold has one attribute that paper money doesn't: the government can't create more of it. The amount of gold in the world is pretty much fixed, and isn't growing very fast because all of the easily-mined gold was plucked up long ago.

Now, at first glance that might seem desirable. But the deal is, it's only desirable if the amount of goods and services in your economy are fixed and the number of people in your economy are fixed. If the number of people grow and correspondingly create more "stuff" (assuming that per-capita productivity at least holds constant), what you end up with is more "stuff", but not more money. That means deflation -- i.e., if it took $5 to buy some "stuff", now it only takes $4 to buy some "stuff."

You might say, "what's so bad about that?". Well, if you're a millionaire, nothing. You have lots of money, and now that money is going to go further. But if you work for a living, your own services are "stuff". If you're a farmer, the food you grow is "stuff". So you get paid less too. So you don't come out ahead. Only the rich guy does. And if you owe any debts -- if you owe a mortgage on your house, or on your farm -- you now are getting paid less (in admittedly more valuable dollars), but you have to pay back this loan that was taken out in cheaper dollars. In essence, your wealth is getting transferred to the wealthy -- they loaned you $1000 that would be worth $800 in today's money, but you have to pay them back the full $1000.

A perfect example is the deflationary spiral at the start of the Great Depression. Herbert Hoover refused to turn on the printing presses to keep the supply of money at least steady, and as banks collapsed, the money supply collapsed -- there were fewer dollars in the economy chasing the goods and services in the economy. This deflationary spiral resulted in huge numbers of small businesses and farms collapsing as they could no longer pay their debts because the debts were not re-calculated into the now-more-valuable dollars, thus creating windfalls for the big businesses and wealthy agri-businesses that took over their assets and farms and customers. It was the biggest transfer of wealth from the working class to the wealthy class ever in American history, and a perfect example of why Republicans are always rattling on about the gold standard -- or anything else that could cause a deflationary spiral, for that matter.

So anyhow, back to "Dr." Michael Savage (PhD-Mail Order) and his gold scam. It is a scam, you know. You never actually get the gold he's "selling". It is supposedly being held in a warehouse for you that's more "secure" and besides, gold is heavy, y'know, you really don't want to be lugging around all that heavy metal do you? Reality is that you are being sold "shares" in a gold-purchasing consortium. Some of the money you're putting into this consortium may be used to purchase gold. But most of it is going to "expenses". Like the expense of paying "Dr." Michael Savage hundreds of thousands of dollars per year to tout the scam on his radio show.

So anyhow, that's the low-down on gold and right-wing scam artists. Gold. You can't eat it, y'know?

-- Badtux the Economics Penguin

Labels: economy, Republican stupidity

Wednesday, July 04, 2007

The Pledge of Allegiance

Happy 4th of July, y'all. And oh, that other flag? Well, that one represents an idea and a nation that's been mostly deceased for the last 42 years, ever since That Bastard LBJ lied us into another senseless war against brown people for reasons that nobody can really understand.

-- Badtux the Cynical Penguin

Labels: economy, politics

Friday, June 08, 2007

"Corporate America" is like "Bush Competence"

Morons. Stupid fucking morons. There is no "Corporate America" anymore. Thanks to globalization, corporations today are multinational entities that owe no allegiance to any nation. To talk of "Corporate America" is to talk of a by-gone era when there was such a thing as an American corporation. Today's corporations owe allegiance only to one entity: The Almighty Dollar. And they're perfectly willing to clear-cut entire nations, stripping them of all their assets then moving on, in pursuit of their object of worship, the long green. Including stripping entire nations of the assets needed to run a decent educational system. After all, once they finish reducing one nation to a hoard of illiterates incapable of contributing to the world economy as anything other than consumers, there's always other nations out there whose educational system has not yet been plundered where they can cherry-pick that nation's smart educated people to run their international conglomerates.

In today's American economy, there are two kinds of businesses -- small individually-owned businesses that barely manage to eke out a living for their owners, and giant multinational corporations that make obscene profits by monopolizing major areas of the world economy via organized oligopolies and structural barriers to entry. The effects upon local charities that formerly depended upon corporate donations has been devastating. There are not, for example, local banks anymore. They're all owned by some big corporation based in New Jersey or South Carolina or someplace like that. So a charity goes in and asks a bank manager, "could you donate money for a new roof for our town's elementary school?", and the bank manager can only shake his head and say "I can put in a request to corporate in Charlotte, but I don't have authority to do that myself." And anonymous bank managers in some far away city... what do they care about your local town's elementary school? They don't. It just isn't relevant to them.

Any notion that "corporate America" will have anything to do with educational reform is just proof that some people are congenitally stupid. You might as well ask Santa Claus to reform education. Santa Claus is no less fictional.

-- Badtux the Multinational Penguin

Labels: economy, education

Monday, April 30, 2007

The myth of the noble savage

Over the past 40 years the Greenies in the environmental movement siezed upon this myth and used it as an anti-technology screed. See, they say. It isn't necessary to have all these nasty dirty machines, you can live a noble life just fine in harmony with nature.

The only problem is: It simply isn't true.

"Native Americans lived in harmony with nature"... bah. What a bunch of drivel. Native Americans drove the proto-horse and mammoths of the Americas into extinction. Using only stone adzes and pottery bowls Native Americans turned the Rio Salado valley into a salt-ridden desert that took hundreds years to recover to the point where agriculture was possible again (the Hohokum culture disintegrated once no longer able to raise enough food for survival). The Anastazi did much the same over in New Mexico. Native American cultures were continually at war against each other, to the point where, when they had a common enemy, they refused to unite and drive said common enemy into the sea, indeed the only way that Spanish could defeat the Aztecs with the few thousand men at their disposal was by enlisting the neighboring tribes to go to war with the Aztecs at the same time. As for technology, the Native Americans eagerly embraced as much technology as they were capable of absorbing given their lack of education, rapidly adopting the horse and stirrup to the point where when American settlers encountered the Plains Indians they assumed that the Plains Indians had always been nomadic tribesmen (they had previously been sedentary agriculturalists), embracing whiskey and wool blankets to the point where they were used to destroy Native American cultures by giving them smallpox-infected blankets and all the whiskey they could drink, and Native Americans could never get enough guns.

All in all, the only difference between the Native Americans and us is that they didn't have a Scientific Revolution. If they'd had the capability, they would have despoiled the Earth just as much as we're doing. If you really believe that nonsense about Native Americans being such "stewards" of the Earth, I suggest you go to any Native American reservation. There's enough trash and junk lying around to make that stereotypical TV Indian cry. The backside of the Hopi mesas has centuries of trash just piled up where they just shove their trash off the edge of the mesa. The Navaho stripped all the grass covering off their reservation by running so many sheep that they turned high plains grassland into utter desolate desert. Some of this is just poverty, of course -- impoverished people generally aren't concerned about making their homes look nice, they're concerned about survival. But the same was true 500 years ago before the "White Man" came on the scene too.

Too many people have bought too much Greenie propaganda. The fact of the matter is that technological civilization is the only civilization, ever, in human history, that has ever given even one thought to ecology and preservation. Technological civilization is the only civilization, ever, in human history, that has ever had any understanding of the impact of human behavior upon the planet, or the luxury in terms of economic resources to actually start reducing some of those impacts. And furthermore, technological civilization is the only civilization, ever, in human history, that has ever made any attempts to restore that which human behavior has despoiled.

The only way we could go back to living the way the pre-contact Native Americans lived would be to kill off 99% of the world's population, none of whom would go lightly and all of whom would swiftly destroy all the trees and topsoil on their way down (see: Haiti). We'd also kill off all technology at the same time, and it'd never come back -- there simply are no longer the easily-exploitable resources that allowed the Industrial Revolution. We'd live as ignorant tribesmen with no knowledge of anything other than what's immediately necessary for survival in our short, nasty, and brutish lives -- forever. No more art. No more science. No more literature. All of that requires resources and leisure time which would no longer exist. All there would be would be survival. Just survival. Forever.

- Badtux the Socio-Technology Penguin

Labels: culture, economy, environment, technology

Tuesday, April 03, 2007

Prison State USA

But never fear, the State of Texas leads the way. Why, all you have to do is pay felons to guard the felons!

That's sorta like the company hired to build a fence to keep out illegals hiring illegals to build the fence. Sorta a "fox guarding the henhouse". Huh. But that's the gret stet of Texas in a nutshell. As Molly Ivins put it, "All anyone needs to enjoy [Texas government] is a strong stomach and a complete insensitivity to the needs of the people. As long as you don’t think about what that peculiar body should be doing and what it actually is doing to the quality of life in Texas, then it’s all marvelous fun."

Felons guarding felons. Marvelous fun. Uhm, okay.

-- Badtux the former-Texan Penguin

Labels: economy, politics, prison state USA, texas

Tuesday, March 27, 2007

On energy density and nuclear power

Frankly, I prefer being alive to being dead. I've looked at some of the modern nuclear reactor designs, and they're far safer than Three Mile Island (which itself was far safer than Chernobyl, a weapons reactor converted to civilian use which would have never been permitted to operate in the United States). Note that the so-called "hydrogen economy" is basically a mechanism for storing nuclear power in an energy-dense manner for individual transportation, rather than a method of generating energy... the only method for generating energy is nuclear power, whether it is the nuclear power of the sun (which also powers the wind as well as solar cells and plants), or nuclear power from man-made reactors. Even oil, gas, or coal is just nuclear power in the end, since it is just stored nuclear energy from the sun, energy stored in hydrocarbon bonds rather than in batteries...

- Badtux the Energy Penguin

Labels: economy, energy, peak oil, technology

Monday, March 26, 2007

Can you eat gold?

Those are short-term problems. Long term, there are even bigger problems on the horizon. The U.S. economy is hollowed out and makes nothing of note anymore, other than increasingly worthless dollars that we export in ever greater numbers to buy the essentials of life. The American "lifestyle", which is heavily petroleum dependent, is unlikely to survive $25 per gallon gasoline, which is coming within the next twenty years. Add to that the melting of the ice caps, which will submerge many of the important coastal cities, and we may be setting up for a Dark Ages that will rival that which occurred during and after the fall of Rome.

What to do? Some folks say "buy gold." The problem is, you can't eat gold. If the currency collapses and you're reduced to barter, nobody is going to trade stuff to you for gold. They're going to trade stuff to you for something useful. Something that can be eaten, or that they need to keep warm or housed.

So now we know what's NOT useful. Some other things I can think of that aren't useful:

• Lots of food. Food goes bad after a while, so you end up having to rotate it out. Food is also very bulky. It would be hard to store enough food to be useful in the long run.
• Seed. Not bulky like food, but unless you're actually a farmer, impossible to rotate out as it goes bad. Illiquid -- you can't easily get rid of year-old seed.
• Guns. Well, lots of guns would actually be *very* good to stock since as governments collapse neighborhood militias and other such substitutes will take their place, except that in a pre-collapse world lots of guns also tend to result in unwanted attention from the BATF. See: Branch Davidians, Waco. Oh that's right, you can't, because they're dead. Anyhow, the U.S. is already awash in guns, so I think we can figure that there will be no shortage in the future either.

So, what WOULD be useful? Well, being young, feral, and vicious would be useful. Being an attractive breeding-age female would be useful. Since this penguin is neither of those, however, that doesn't seem like a good plan of action. Beyond that, well, discuss.

- Badtux the non-survivalist Penguin

Labels: economy, global warming, peak oil

Thursday, March 22, 2007

In Soviet America, the military beggars YOU!

So where is the money going? Well, bunches of it are going to contractors who provide truck drivers making $150K+/year to take the place of GI's making $20K/year, who provide cooks making $150K+/year to take the place of GI's making $20K/year, etc. Because of course it's cheaper to hire someone for $150K/year than to hire someone for $20K/year (snark!). Funny, most of these contractors also seem to be Bush administration cronies. Odd how that works out, eh?

Other money is going to weapons we don't need. The F-16 and the F/A 18 Super Hornet will be the best fighter jets in the world for the next 20+ years. Past a certain point you hit fundamental laws of physics, past which it is impossible to improve beyond what an airframe has already achieved. Consider this: The F-16 first flew over 30 years ago, yet even today, there is not a single jet fighter in the world that can out-dogfight it. None. Zero. Zilch. The only improvements there have been in the past thirty years have been in engines and avionics. Airframes? Not so much. We've hit fundamental laws of physics there. Yet we are spending hundreds of billions of dollars on F-22 and F-35 fighter jets that don't work any better for 99% of tasks than what we have yet are five times more expensive because, well, Pentagon cronies need money, I guess.

Then there is the enormous sum of money spent maintaining legions around the world -- Germany, South Korea, Iraq, Afghanistan, and hundreds of military bases all over the globe. Democracies don't need that. But empires do. And, in the end, that is what causes the collapse of empires. The Roman Empire collapsed because it ran out of money to pay its soldiers and they decided to sack Rome (repeatedly) and install one of their own as Emperor (repeatedly) to take by force what was due them, until there was nothing left to take and the barbarians came in and took over the pitiable remnants. In a democracy, there is little need for a large military because democracies do not attack other nations and defense can be handled by a part-time National Guard like in Switzerland. In a democracy, the people beggar the military because there just isn't much need for one. In an empire like Soviet America, on the other hand, the military beggars you.

-- Badtux the Budgetary Penguin

Labels: economy, military spending, soviet america

Thursday, March 08, 2007

Gettin' Raped

If there was someone making, say, widgets, and piling in billions in profits, someone else would start making widgets too. But ain't nobody makin' no more oil. What we've got, is what we've got. And the alternative energy guys still aren't getting enough money to come up with some viable alternative to oil. It'd be easy enough to do -- just whack an oil windfall profits tax on the oil companies. But it ain't happenin'.

Gotta go, gotta get dressed in all my motorcycle duds to get 50+mpg on my morning commute...

-- Badtux the Raped Penguin

Labels: economy, energy, motorcycling, peak oil

Tuesday, February 13, 2007

Where are those hard-working Chinese?

But they're cheap, thanks to the Chinese government's currency manipulations. They might not be as hard-working as Americans, they might not be as creative or flexible or productive as Americans, but they're cheap. So that's all that matters, right?

-- Badtux the Working Penguin

Labels: economy, technology

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