Quantitative Easing?

[Krazy P]

Last summer I was posting on the current financial situation and suggested it was time to get out of the equities market (some of the forum followed my suggestion - they are happy).

At the time I also suggested that we could see 10-15% unemployment together with 10-15% inflation.

One forum member took great exception to this and said something to the effect that I was a few cards short of a full deck and didn't have any idea of what I was talking about. A discussion of deflation ensued.

Now that the Fed has told the world that, indeed, deflation is the primary concern and that unemployment may hit 10% this year, I thought it might be a good time to re-surface the topic.

So, when the Fed chooses quantitative easing - as it did this week, there is no question that inflation will follow - it is the trade-off of this policy path. That, in itself, tells you that things are very serious indeed.

So, is it possible that, while the Fed is attempting to trigger this inflation, we could have very high unemployment at the same time?

With the increasing incidence of trade protectionism, rent/price controls and actions by the other government policy makers, I still see this as a possible (though not probable) outcome.

Comments?

P.S. Although I [I]still[I] may have no idea what I am talking about, my personal wealth is in Ginnie Maes, Muni Bonds, agriculture and some in a Gold and Precious Metal Mining Sector Fund (I bought that in January and it is up - 12% in the last two days alone). So, I guess I am just one lucky, bumbling guy who seems to be in the right place at the right time. Because, the value of all these investments has increased over the past year - while the investments of many others have declined - by a lot.

[maxpot46]

So, is it possible that, while the Fed is attempting to trigger this inflation, we could have very high unemployment at the same time?Sure, that's the very definition of stagflation, which we experienced in the 70's. The very high inflation rate of the 70's was caused by monetary expansion (following the devaluing of the dollar in '68 and the abandonment of the "gold standard" in '71), quite similar to the current monetary expansion.

The unemployment side of it was caused IMO by confiscatory tax rates, especially on marginal taxes, that stifled the creation of new businesses that monetary expansion would normally stimulate. Taxes were a lot higher in the 70's than today, but with Obama and the Democrats in power that might easily change.

P.S. Although I [I]still[I] may have no idea what I am talking about, my personal wealth is in Ginnie Maes, Muni Bonds, agriculture and some in a Gold and Precious Metal Mining Sector Fund (I bought that in January and it is up - 12% in the last two days alone). So, I guess I am just one lucky, bumbling guy who seems to be in the right place at the right time. Because, the value of all these investments has increased over the past year - while the investments of many others have declined - by a lot.Heh, such humility... you can pat yourself on the back amongst fellow INTJs. Well done :)

[Visum]

We could very well have high unemployment with forced inflation. I follow the currency markets throughout the day. The dollar got creamed this week after the FOMC announcement that the Fed would increase purchases of longer-term Treasurys. The world just told us what its main fear is as it chose to sell the dollar. By looking at how the markets moved, there are three major currencies that the world jumped into. The EURO, Swiss Franc, and Japanese Yen. It has been interesting to watch both the Yen and Franc. Japan has been fighting hard to maintain currency stability against flight to the Yen as it has appreciated against the dollar. They will have to get very aggressive if they are to stop the world from buying. Also notably the Swiss National Bank moved to weaken the Swiss franc on Thursday, the first time a big central bank has intervened in the foreign exchange markets since Japan sought to weaken the yen in 2004. (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) Yes, that moniker of currency stability caved in. I still expect dollar strength for the time being and this could be a short lived correction.
Precious metals also moved nicely. Gold is about to test $1,000 very soon, as in a couple of days. This will be its third test and maybe last as it could very well break this psychological barrier. Typically, as you most likely are aware, gold moves in opposite of the dollar. This has not been the trend at all as of late and supports the world is in serious risk aversion. However, the Fed will get very aggressive to weaken the dollar and ease the liquidity needs. What will other countries do to maintain their export ability to the largest market in the world if the dollar inflates? It is my contention that they will be forced to follow suit with their own devaluing. If that were to happen it certainly points to possible worldwide inflation. The US wants a weak dollar and I believe we are taking full advantage of this crisis by carefully printing dollars and selling them to ease the extreme flight to it. When that reaches and substantially increases the monetary supply, inflation should roar.

[Indy]

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A nice Financial Times video that might give people a better understanding of quantative easing.

I was thinking these days about the benefit of the US, Euroland and Japan in having such important currencies, it really allows them to just open the tab on expansionary fiscal and monetary policies, see the 12% US deficit, the 200% Japanese national debt or the quick discartment of the Stability and Growth Pact regulations (not more 3% deficit, people!).

In total contrast to the IMF's suggestions towards eastern Europe (Latvia, Bulgaria in particular), Iceland and who-knows-else that will follow, which basically comes down to a watered-down version of the 'Washington Consensus' of cutting government spending, taxation reform, free-trade policies, etc. These may well be conducive to long-term growth, but short-term they are just horrifying and appear hypocritical to some extend, relative to US and Euro countries measures.

These measures are worthwhile to prevent there currencies from total collapse, which would lead to defaults and even more problems, so I'm not certain whether these measures are overall the right way to go.

The EU decided to increase the emergency fund for eastern EU countries from 25 billion to 50 billion euro, just to prevent them (and Swedish and Austrian banks) from collapsing further.

But the trade-off between stimulating the economy and protecting your currency is so much less relevant for the US and Euro countries. At least for now apparently.

[eternaltriangle]

I guess I differ a bit from maxpot on the exact cause of the Stagflation of the 1970's (and no I don't think oil is the cause). The problem wasn't just monetary policy, it was expectations. Prior to the 1960's the long-term inflation rate was very low, so unions didn't demand cost of living increases as vociferously. However, expansionary monetary and fiscal policies in the 1960's (before the end of the gold standard by Nixon - though the real death of the GS was in the 30's) changed all that. Unions started to expect ACCELERATING inflation, and increased their demands (higher costs were spread across all goods, a problem amplified, but not caused by the Gold Standard).

The problem was that the Philips curve was off. The Philips curve assumed that for a given rate of unemployment, the government would have a given (and stable) rate of inflation. It didn't account for people putting their expectations about future inflation into wage demands and prices.

The high and accelerating inflation of the 1970's will probably only return alongside high unemployment if people begin to expect that overly loose monetary policies are here to stay. Of course quantitative easing can signal that, but it isn't as if inflation is high right now.

Moreover, libertarians should be careful of what they wish for. We all know that governments are going to adopt stimulative measures in times of recession, whether we like it or not. If they are going to enact stimulus programs, I would argue that monetary policy is preferable to fiscal policy for libertarians, because it is politically very difficult to reduce government spending (tax cuts financed by debt aren't really tax cuts in my view). By contrast, central bankers don't face political restraints and will eventually raise interest rates and pull back on quantitative easing as the economy recovers (and barring the collapse of the financial system... again... recovery will happen).

[Lohengram]

Last summer I was posting on the current financial situation and suggested it was time to get out of the equities market (some of the forum followed my suggestion - they are happy).

At the time I also suggested that we could see 10-15% unemployment together with 10-15% inflation.

One forum member took great exception to this and said something to the effect that I was a few cards short of a full deck and didn't have any idea of what I was talking about. A discussion of deflation ensued.

Now that the Fed has told the world that, indeed, deflation is the primary concern and that unemployment may hit 10% this year, I thought it might be a good time to re-surface the topic.

So, when the Fed chooses quantitative easing - as it did this week, there is no question that inflation will follow - it is the trade-off of this policy path. That, in itself, tells you that things are very serious indeed.

So, is it possible that, while the Fed is attempting to trigger this inflation, we could have very high unemployment at the same time?

With the increasing incidence of trade protectionism, rent/price controls and actions by the other government policy makers, I still see this as a possible (though not probable) outcome.

Comments?

P.S. Although I [I]still[I] may have no idea what I am talking about, my personal wealth is in Ginnie Maes, Muni Bonds, agriculture and some in a Gold and Precious Metal Mining Sector Fund (I bought that in January and it is up - 12% in the last two days alone). So, I guess I am just one lucky, bumbling guy who seems to be in the right place at the right time. Because, the value of all these investments has increased over the past year - while the investments of many others have declined - by a lot.

Well first off I'd like to say that for years governments have been altering the manner in which they calculate their statistics to paint an ever rosier picture of the state of the economy. I personally don't use government statistics to show the actual state of the economy but merely as a barometer as to whether things are getting worse or better and approximately by what magnitude. Even by the US governments own statistics unemployment and underemployment is already close to 14% if you count people who’ve given up looking for work as they don’t believe they can find it and people working only a few hours a week whenever they want a full time job.

Also inflation isn’t rising prices, that’s a Keynesian form of public perception manipulation. Inflation is the expansion of the money supply, which is created by governments/central banks. A consequence of inflation is rising prices, because expanding the money supply devalues each unit of currency. However, other factors can offset this, whilst the USD loses value relative to the value it would’ve had had there been no monetary expansion other circumstances are also changing and these are currently pushing prices down whilst inflation pushes prices up. These include; stock clearances; going out of business sales; forced liquidations brought about by the need to pay of margin calls and other immediate debt obligations and similar things. All the factors offsetting the FED’s loose monetary policy are very short term factors whilst the monetary expansion is a long term factor.

The US dollar has lost about 4.5% of its value in the last 2 days, think about that, look at the USD index chart yourself online. It’s lost 4.5% of its value in the two days after the FED’s announcement. Look at the widening yield curve growing between the 10 and 30 year government bonds, that shows you that the markets are expecting a growing inflationary problem the longer into the future they look.

Also we’re not having “increasing protectionism” we already have a trade war being fought in the currency markets with all major economies devaluing their currencies in an absurd attempt to increase competitiveness.

A general rise in the price level is not merely possible it’s already happening even if you look at the US governments bogus “inflation” statistics. Look at the governments CPI last month; it was going up an annualised rate of 5%, despite being in the midst of the greatest economic collapse since the Great Depression and having all these short term factors pushing prices down. The prospect of massive increases in general prices, especially for non-discretionary consumer goods is not “possible but improbably” it is just short of a metaphysical certitude.

As for your financial investments, Ginnie Mies and Muni. Bonds? I'd say these are disasters waiting to happen, I'd seriously suggest you rethink these two investments. Your other investments agriculture (commodities I assume or maybe stocks?); Gold and some stocks in precious metal mining companies look good. As a simple rule of thumb for investments at the current moment in time I'd suggest Gold; Silver; Platinum; Palladium; Agricultural Commodities and Crude Oil.

P.S. The problem with the Phillips curve is that it is pure nonsense, nothing else.

P.P.S. I'd also suggest you watch this
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and as much as listening to what he says look at when he said it.

[RBM]

Unions started to expect ACCELERATING inflation, and increased their demands (higher costs were spread across all goods, a problem amplified, but not caused by the Gold Standard).


Do you have a link that the increase union demands were instigated by accelerating inflation expectation ?

[maxpot46]

I guess I differ a bit from maxpot on the exact cause of the Stagflation of the 1970's (and no I don't think oil is the cause). The problem wasn't just monetary policy, it was expectations. Prior to the 1960's the long-term inflation rate was very low, so unions didn't demand cost of living increases as vociferously. However, expansionary monetary and fiscal policies in the 1960's (before the end of the gold standard by Nixon - though the real death of the GS was in the 30's) changed all that. Unions started to expect ACCELERATING inflation, and increased their demands (higher costs were spread across all goods, a problem amplified, but not caused by the Gold Standard).I agree that expectations were a factor, but I don't see how you can separate them from the monetary expansion --> rise in prices process. You describe the process by which monetary expansion leads to price rises in union wages, which I agree is accurate but is only part of the story. There is the matter of other prices besides union wages, and the matter of why unemployment remains high despite so much new money being "invested".
The problem was that the Philips curve was off. The Philips curve assumed that for a given rate of unemployment, the government would have a given (and stable) rate of inflation. It didn't account for people putting their expectations about future inflation into wage demands and prices. I agree with Lohengram that the Phillips Curve is poppycock, and will add that it's a great example of why the scientific method is inaccurate in economics and other human-related "sciences". The Phillips Curve was derived by analyzing data sets from 1861-1957 and was considered to be supported (or at least not falsified) by the '60s. When the '70s and stagflation rolled along, the inaccuracy of the Phillip's Curve was revealed. Reagan and his Supply-Siders ended the stagflation (after an ill-conceived monetarist attempt which caused the '81 recession) with Mundell's "two arrows for two targets" policy (specifically monetary policy to address inflation and fiscal policy to address unemployment) which finally discarded the Phillip's Curve assumption that they were intertwined (which Austrians never accepted because the idea couldn't be derived from an axiom).
The high and accelerating inflation of the 1970's will probably only return alongside high unemployment if people begin to expect that overly loose monetary policies are here to stay. Of course quantitative easing can signal that, but it isn't as if inflation is high right now.What do you hold to be the cause of unemployment in this scenario? Wouldn't easing lead to a (temporary) reduction in bankruptcies and thus unemployment? If the argument is that employees expect inflation and thus demand wage increases that they don't receive, I could see how that would lead to a loss of morale but not jobs (as most wouldn't quit a job without lining up another first).


maxpot46 added to this post, 7 minutes and 5 seconds later...

Do you have a link that the increase union demands were instigated by accelerating inflation expectation ?I accept this claim because it makes sense and resonates with the quantity theory of money (though that theory doesn't delve into psychological motivations). Unions have economists too, and it doesn't take too long to become savvy to the insidious effects of inflation. The term money illusion describes the idea that central bankers can sneakily increase the money supply (of the government and banks) without increasing prices/wages. The "problem" (from central bankers point of view) is that money illusion only works once -- after that they're on to you and demand more of the cheap dollars (i.e. raise prices/wages).

[Lohengram]

The only way in which a government backed union's demands can lead to higher prices (not inflation, inflation is the expansion of the money supply) is as follows. If unions can bring about higher wages for their employees, regardless of the reasons why they do this, then that creates a bottleneck in the economy. It'll raise prices because it'll raise costs and leave labour unused and capital underemployed. This of course can't happen in a competitive environment as such a business would quickly go bust but few markets are dominated by market forces in this world of government arbitrage.

With rising production costs comes a relative fall in output, combine this with a fixed money supply, you increase the value of goods and services relative to money by making them more scarce. If the money supply is actually increasing, then prices are being pushed up at both ends with both the devaluation of each unit of currency and with the fall in output, so you have ever increasing units of currency and ever decreasing amounts of goods and services. In a union ridden economy the narrow benefits gained by a union for its members can be more than offset by their own members losses to the gains received by other unions. So not even union members know if they gain from unionisation of an economy as few other than the fat cats at the top of the unions know if their gains are offset by their losses to other unions in the economy. So even putting aside the unemployment; underutilisation of capital and falling output and living standards that unions bring to an economy as a whole if unions become pervasive enough union rigging of markets can impoverish even their own members in a manner somewhat similar to the so called “tragedy of the commons”.

[RBM]

@ maxpot46

Sorry bud, not rigorous enough for me.

There's been lots of myths in my lifetime proved wrong. More true in internet-time.Maybe your familiar with some of the web sites that have popped up to address such issues, generally known as 'skeptic's sites' ?

[maxpot46]

@ maxpot46

Sorry bud, not rigorous enough for me.

There's been lots of myths in my lifetime proved wrong. More true in internet-time.Maybe your familiar with some of the web sites that have popped up to address such issues, generally known as 'skeptic's sites' ?I don't follow. You mean skeptics of Austrian economics? That is also the supply-side view.

[RBM]

@ maxpot46

No, I meant it more as it's used commonly in the hard sciences. I am a layman who is ignorant of economic theory.

So the claim sounded to me like it was conventional wisdom. The fact that you accepted it cause it fit a theory, seems to increase the likelihood that it was conventional wisdom, which I question as a matter of course.

[Krazy P]

Dear Lo:

The Swiss and the US are indirectly engaging in "increased protectionism" by their current actions - the BOJ is expected to follow. The stimulus bill includes action against Mexico (trucking) which Mexico has directly responded to with tariffs (ag) this week. That is the increasing protectionism to which I refer. It is increasing worldwide.

I am aware that the dollar has fallen - my gold has gone up 13% in the last couple of days. While you may not think much of the government stats, I might suggest you might peruse the St Louis Fed site and take a gander at money velocity and the M1 multiplier. Lots of other interesting stuff there as well.

Explain why U.S. securities are a bad bet. If the U.S. defaults, what then? I need tax-free income. If inflation begins to take off, I can move out of the muni bonds in a day. Defaults in an individual muni is probable, but since I am in a fund, my risk is low. The fund is intermediate in term (6 years or less) - so the interest rate risk is small. When rates start up, I just move out. My ag is a direct partnership. It throws off good income and the land its on is of good value as well.

By the way, in my day job I manage over $1 billion, so I am not exactly a novice.

Krazy

Well first off I'd like to say that for years governments have been altering the manner in which they calculate their statistics to paint an ever rosier picture of the state of the economy. I personally don't use government statistics to show the actual state of the economy but merely as a barometer as to whether things are getting worse or better and approximately by what magnitude. Even by the US governments own statistics unemployment and underemployment is already close to 14% if you count people who’ve given up looking for work as they don’t believe they can find it and people working only a few hours a week whenever they want a full time job.

Also inflation isn’t rising prices, that’s a Keynesian form of public perception manipulation. Inflation is the expansion of the money supply, which is created by governments/central banks. A consequence of inflation is rising prices, because expanding the money supply devalues each unit of currency. However, other factors can offset this, whilst the USD loses value relative to the value it would’ve had had there been no monetary expansion other circumstances are also changing and these are currently pushing prices down whilst inflation pushes prices up. These include; stock clearances; going out of business sales; forced liquidations brought about by the need to pay of margin calls and other immediate debt obligations and similar things. All the factors offsetting the FED’s loose monetary policy are very short term factors whilst the monetary expansion is a long term factor.

The US dollar has lost about 4.5% of its value in the last 2 days, think about that, look at the USD index chart yourself online. It’s lost 4.5% of its value in the two days after the FED’s announcement. Look at the widening yield curve growing between the 10 and 30 year government bonds, that shows you that the markets are expecting a growing inflationary problem the longer into the future they look.

Also we’re not having “increasing protectionism” we already have a trade war being fought in the currency markets with all major economies devaluing their currencies in an absurd attempt to increase competitiveness.

A general rise in the price level is not merely possible it’s already happening even if you look at the US governments bogus “inflation” statistics. Look at the governments CPI last month; it was going up an annualised rate of 5%, despite being in the midst of the greatest economic collapse since the Great Depression and having all these short term factors pushing prices down. The prospect of massive increases in general prices, especially for non-discretionary consumer goods is not “possible but improbably” it is just short of a metaphysical certitude.

As for your financial investments, Ginnie Mies and Muni. Bonds? I'd say these are disasters waiting to happen, I'd seriously suggest you rethink these two investments. Your other investments agriculture (commodities I assume or maybe stocks?); Gold and some stocks in precious metal mining companies look good. As a simple rule of thumb for investments at the current moment in time I'd suggest Gold; Silver; Platinum; Palladium; Agricultural Commodities and Crude Oil.

P.S. The problem with the Phillips curve is that it is pure nonsense, nothing else.

P.P.S. I'd also suggest you watch this
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and as much as listening to what he says look at when he said it.

[maxpot46]

@ maxpot46

No, I meant it more as it's used commonly in the hard sciences. I am a layman who is ignorant of economic theory.

So the claim sounded to me like it was conventional wisdom. The fact that you accepted it cause it fit a theory, seems to increase the likelihood that it was conventional wisdom, which I question as a matter of course.Economics isn't a hard science, and is epistemologically different. Theory takes precedence to empirical events in social sciences, at least in the Austrian tradition. I expound further on this claim in this post (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) from an earlier thread (note that this post contains an error, in that I put quotes around "axiomatic" and mentioned that some Austrians use it in an ideosyncratic manner, when I meant to do so around "a priori" instead).

In this specific case, the quantity theory of money -- which, in essence, is nothing more than the law of supply and demand applied to money -- illustrates that the value of money will decrease when the supply increases (assuming demand stays the same). The value of money is reflected in a rise in prices, aka inflation. Since inflation is a devaluation of the currency, real wages drop. Given that humans prefer increased income to decreased income (for a given amount of work), it can be assumed that, if aware of inflation, they will seek to protect their real income via a rise in the nominal wage. All of this is perfectly reasonable given what we know of human behavior (i.e. more or the same is preferred to less), so I do not need evidence such as statements from union officials citing inflation as a reason for requested pay increases (though I am certain you can find such statements, if you research hard enough).

[Lohengram]

Dear Lo:

The Swiss and the US are indirectly engaging in "increased protectionism" by their current actions - the BOJ is expected to follow. The stimulus bill includes action against Mexico (trucking) which Mexico has directly responded to with tariffs (ag) this week. That is the increasing protectionism to which I refer. It is increasing worldwide.

I am aware that the dollar has fallen - my gold has gone up 13% in the last couple of days. While you may not think much of the government stats, I might suggest you might peruse the St Louis Fed site and take a gander at money velocity and the M1 multiplier. Lots of other interesting stuff there as well.

Explain why U.S. securities are a bad bet. If the U.S. defaults, what then? I need tax-free income. If inflation begins to take off, I can move out of the muni bonds in a day. Defaults in an individual muni is probable, but since I am in a fund, my risk is low. The fund is intermediate in term (6 years or less) - so the interest rate risk is small. When rates start up, I just move out. My ag is a direct partnership. It throws off good income and the land its on is of good value as well.

By the way, in my day job I manage over $1 billion, so I am not exactly a novice.

Krazy

Read what I said about "increased protectionism" what I was saying was, that that term is far too mild for it merely looks at overt means to directly restrict trade movements whilst their monetary policy is already that of full scale trade war through attempted currency devaluations.

As for your investments, there is a fundamental difference between an investor and a speculator, if you're ready to jump ship any day then you're a market timer and not really an investor. I was speaking from the point of view of a long term investment.

As for default, there's 2 ways you can view the default. A nominal default and a real default, the risk of nominal default is much less than real default. Also the real default for someone like yourself won't be that of a slow multiyear long price appreciation of consumer goods but that of currency devaluation in the currency markets, which can be extremely rapid. If some week the USD falls by 15% on the USD index you might take that as a sign to time yourself out of your USD debts but then you've lost that 15%.

To me the USD looked very high when it was at 89 and if I were richer and didn't have my savings already invested in other things I would've shorted the USD when it was moving between 87-89. The USD and US T's are the largest bubbles remaining in the global economy. Almost all other global imbalances are unwinding and I don't think it'll be too long before the USD starts to really crash rather than merely coming of a high as at present. So having debt denominated in USD just seems crazy to me, debtors love inflation whilst it is the death nail of creditors. I just don’t see why you’d want debt denominated in a currency, that looks to me at least, like it can only go down over time even against other devaluing currencies never mind real assets. If you want land why not buy agricultural land in Brazil; Canada or New Zealand? You already seem convinced of the merits of agricultural investments.

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That chart shows a typical "bubble mania", also look at US property prices from the early 1900's until now. They follow CPI quite closely until 2000/2001 when they then take up as if they were flying to the moon. That's if you look at it in USD dollar terms but the USD fell over all that time, priced in something like gold there was no boom. The housing market was just a credit bubble and I see no reason why it won't follow the typical pattern for a mania and return to its mean after undershooting it. Until property prices hit about late 1990's prices, in real terms if not nominal terms I don't see why you'd want to invest in them. The picture in US stocks is much the same, this rally at the moment is a classic "bull trap" if I've ever seen one.

Now maybe you’ve been very particular about the people you’re backing. To take something like Enron as an inverse for what you’re hoping for, there was a company in a boom sector but it was run so badly and corruptly it collapsed. What you’re trying to hope for is the opposite, a company so amazing that it’ll thrive in a collapsing sector of the economy. Whilst that’s not impossible it’s most improbably. Especially in the US property market which has had one of the largest if not the largest credit bubbles in the history of the world.

Also, if you don't want people to criticise your investment portfolio don't talk about it on a forum like this. Don't toot your own horn about "my day job". Also, and not directing this at you personally, but merely rising high in an organisation and having lots of money to throw about hardly proves you have a clue what you're doing. Are have you not been following the collapsing economy that so many of the multi-billion and even multi-Trillion dollar investors and fund managers didn't see coming?


@Maxpot: I'd suggest you don't talk about things like the methodology of Austrian economics when you explain it, just talk about the conclusions that are derived from it. Even if the people you're directing it to understand the dictionary meaning of things like a priori reasoning, they almost certainly won't get what you're really saying. When you study Austrian economics you can easily learn more than you think and when you reference a term the subtle and intricate meanings come to you without being overly aware of it. In Human Action it took Ludwig Von Mises some 200 pages of extremely concise explanation to explain the methodology, I don't think people can truly get it from a few paragraphs on a forum and in my own experience it merely creates confusion and scepticism because it's so vastly different from anything most people have studied.

[Visum]

I am aware that the dollar has fallen - my gold has gone up 13% in the last couple of days. While you may not think much of the government stats, I might suggest you might peruse the St Louis Fed site and take a gander at money velocity and the M1 multiplier. Lots of other interesting stuff there as well.

Explain why U.S. securities are a bad bet. If the U.S. defaults, what then? I need tax-free income. If inflation begins to take off, I can move out of the muni bonds in a day. Defaults in an individual muni is probable, but since I am in a fund, my risk is low. The fund is intermediate in term (6 years or less) - so the interest rate risk is small. When rates start up, I just move out. My ag is a direct partnership. It throws off good income and the land its on is of good value as well.

By the way, in my day job I manage over $1 billion, so I am not exactly a novice.

Krazy
You say your gold went up 13%. You must be speaking in terms of your leveraged position size in the market as gold has not moved 13% in the last few days? Or are you speaking of some other security? I would be impressed, if you say your risk was max 2-3% of capital on that position.

The only reason I can come up with to support U.S. securities being bad debt would be that it is currently another bubble. Personally, I would also rather take that risk and ride it.

[reb]

just a general comment: i have a few hours in economics, but i find all the theoretical discussion exceedingly tiresome. the basis of theory has no connection to reality, and is generally a smoke screen used by bureaucrats to camouflage their self centered aims. all the computer programs and economists in the world are not going to clean a chicken, nor put food on my plate. the models they develop have not yet completely mimicked reality, nor do i expect them ever to, as reality is more complex than an economist. note that this word ends in 'mist'...mists dissipate with any breeze or change in temperature.

as far as investments, the complete refusal of companies and the government to do anything other than pervert g.a.p. (or CAS, for that matter) for their own puposes makes every 'paper' investment suspect. i manage some, but i am 'beyond cautious' with projection. the hint of 'fold up' and color me gone. the only thing that has any real value in these kinds of times are items with objectified intrinsic value (imagine chicken and dumplings, or a shovel). muni bonds, stocks...any paper...is being devalued at a rapid rate. our government-actually, all governments, as near as i can tell- is/are diluting wealth at an unprecedented rate. this is what comes of having greedy nincompoops gaining control of the money supply.

good luck, Krazy P. you got a hell of a task in front of you maintaining the 'real' value of your assets.

[RBM]

Economics isn't a hard science, and is epistemologically different. Theory takes precedence to empirical events in social sciences, at least in the Austrian tradition. I expound further on this claim in this post (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) from an earlier thread (note that this post contains an error, in that I put quotes around "axiomatic" and mentioned that some Austrians use it in an ideosyncratic manner, when I meant to do so around "a priori" instead).

In this specific case, the quantity theory of money -- which, in essence, is nothing more than the law of supply and demand applied to money -- illustrates that the value of money will decrease when the supply increases (assuming demand stays the same). The value of money is reflected in a rise in prices, aka inflation. Since inflation is a devaluation of the currency, real wages drop. Given that humans prefer increased income to decreased income (for a given amount of work), it can be assumed that, if aware of inflation, they will seek to protect their real income via a rise in the nominal wage. All of this is perfectly reasonable given what we know of human behavior (i.e. more or the same is preferred to less), so I do not need evidence such as statements from union officials citing inflation as a reason for requested pay increases (though I am certain you can find such statements, if you research hard enough).

Thanks for the reply and link. Deductive method is what is unnatural to me, at first impression.

Real income protection behavior is understandable to me, and what I failed to appreciate in making the citation request is the unimportance of real events in theory making via deduction.

So where is the value of theory if it is not to effectively model reality ?

Or is piss poor tools the best that can be had ?


@reb

the reputation was inadvertently clicked early, but thanks for your post. It is a much more articulate exposition to the broader view I also hold.

[Lohengram]

You say your gold went up 13%. You must be speaking in terms of your leveraged position size in the market as gold has not moved 13% in the last few days? Or are you speaking of some other security? I would be impressed, if you say your risk was max 2-3% of capital on that position.

The only reason I can come up with to support U.S. securities being bad debt would be that it is currently another bubble. Personally, I would also rather take that risk and ride it.

If that's what you want go for it, if more people like you come out maybe I'll put everything I have into shorting the USD.

@reb

The ignorance is strength philosophic approach to knowledge is old and exceedingly tiresome. If a theory doesn't explain how reality works then it's simply not true, that doesn't mean you can't use theory to understand it. In fact you can only use theory to understand it; everyone has a theory within which to interpret the world even if they mouth off garbage about not using theory. Not using any theory however crude to interpret the world is to look at the world as a kaleidoscope where no cause and effect relationship can be determined. You even disprove your own complain about theory when you say governments are destroying wealth, how do you know that? how do you know what the affect of any government action will be unless you have a theoretical framework within which you deduct the consequences of current government action into the future? Indeed, even looking into the past unless you have a theory of cause and effect how can you know what caused what to happen? You can’t is the answer, so either you understand nothing about everything or you have a theory within which you interpret the world, of course your theory can be wrong but that’s a different issue.

[reb]

If that's what you want go for it, if more people like you come out maybe I'll put everything I have into shorting the USD.

@reb

The ignorance is strength philosophic approach to knowledge is old and exceedingly tiresome. If a theory doesn't explain how reality works then it's simply not true, that doesn't mean you can't use theory to understand it. In fact you can only use theory to understand it; everyone has a theory within which to interpret the world even if they mouth off garbage about not using theory. Not using any theory however crude to interpret the world is to look at the world as a kaleidoscope where no cause and effect relationship can be determined. You even disprove your own complain about theory when you say governments are destroying wealth, how do you know that? how do you know what the affect of any government action will be unless you have a theoretical framework within which you deduct the consequences of current government action into the future? Indeed, even looking into the past unless you have a theory of cause and effect how can you know what caused what to happen? You can’t is the answer, so either you understand nothing about everything or you have a theory within which you interpret the world, of course your theory can be wrong but that’s a different issue.

lol! that's really a vapid attempt to explain why 'i don't know unless i have theory'. having read theory until i puked, theory is all well and good. but it's just a word. watching investments plummet by 30-50% or more is way more than theory....give me chicken and dumplings. i can't eat paper, whether it's 100% or 1%. a share of citi stock was cheaper than toilet paper, but not as good just a few weeks ago. theorize all you like; i know what i know, and i don't consider it theory....immerse yourself in theory and be happy. personally, i'm raising chickens. that theoretical framework does not feed them nor shovel the coop, nor collect and cook the eggs. the government does not do shit when it comes to clipping wings and filling the water bowl (although they did build this nice lake, but i woulda drilled a well if not). theory has less value 'on the ground' than chicken poop. you can clearly see where all the theorists have gotten the collective us to, can you not? 'collective'...wasn't that one of stalin's words? so many theories, so little time-scroll down to #7-i use 'swag' for that 'un:

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[Lohengram]

Thanks for the link, here's one from me to you.

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I tried my best but I've gone to my limit and clearly that's too high a bar for some.

[maxpot46]

I think the main point to understand about theory is that it must be used to explain complex historical events, where the scientific method is inapplicable. In examining past events, which I repeat are complex and unique events emerging from multiple factors (many of which are subjective and unmeasurable), one must apply theories to the events in order to understand them. If we observe supply rising yet price also rising, it is only our understanding of the apodictic law of supply and demand that would inform us that demand must also be rising more than supply (something that can't be directly observed). Without this theory to inform us, it would simply be impossible to derive an explanation of price behavior, because even though most empirical data will show that a rise in supply leads to a reduction in price (likely leading to a hypothesis of supply and demand), it will also sometimes show the opposite which would "falsify" the hypothesis.

Deductive theories can be wrong, of course, but must be disproved by showing flaws in the premises or inferences, not by presenting evidence.


maxpot46 added to this post, 2 minutes and 54 seconds later...

@Maxpot: I'd suggest you don't talk about things like the methodology of Austrian economics when you explain it, just talk about the conclusions that are derived from it. Even if the people you're directing it to understand the dictionary meaning of things like a priori reasoning, they almost certainly won't get what you're really saying. When you study Austrian economics you can easily learn more than you think and when you reference a term the subtle and intricate meanings come to you without being overly aware of it. In Human Action it took Ludwig Von Mises some 200 pages of extremely concise explanation to explain the methodology, I don't think people can truly get it from a few paragraphs on a forum and in my own experience it merely creates confusion and scepticism because it's so vastly different from anything most people have studied.Agreed, but if you don't the discussion often gets dominated by "evidence" in the form of anecdotes and statistics, which of course are cherry-picked to death. Tough row to hoe, either way :(

[Lohengram]

Agreed, but if you don't the discussion often gets dominated by "evidence" in the form of anecdotes and statistics, which of course are cherry-picked to death. Tough row to hoe, either way :(

That's true, although evidence can draw attention to something and highlight a failing in an existing theory. The use of deductive reasoning can also be used to forecast and the accuracy of their forecast can be used as "evidence" in a populist rather than strictly scientific sense to prove a theory. Then of course statistics are useful for the application of economic theory, which I think is an important point not emphasised enough. That statistics and mathematics are essential for applied economics as opposed to theoretical economics where they're of no use.

Personally a rule of thumb I've found in simply explaining why mathematics isn’t useful in the formulation of economic theory is to explain the difference between ordinal and cardinal numbers. So many theories just act as if you can measure things cardinally when you can't and even more absurdly act as if you can attribute a magnitude to ordinal numbers from varying individuals.

[eternaltriangle]

"I think the main point to understand about theory is that it must be used to explain complex historical events, where the scientific method is inapplicable. In examining past events, which I repeat are complex and unique events emerging from multiple factors (many of which are subjective and unmeasurable), one must apply theories to the events in order to understand them."

I suppose we are both aware of our epistomological differences by now, but I haven't really put forth my view. I agree that complexity, unique events and the existence of noise throughout the universe make it more difficult to analyze and make predictions. That said, I also think we can develop techniques that do a better job of separating noise from laws, and of addressing complexity (which biologists are starting to do).

The axioms of Austrian economics have not developed in a vacuum. The have at the very least been influenced by some empirical evidence (and surely norms) from the 19th century. Rejecting falsification or the addition of new laws/theories/axioms drawn from evidence is only committing the sins of today's over-eager economists drawn from a much smaller [and unacknowledged] data-set.

That isn't to say modern social science is perfect - it is not. Empirically we tend to look at short spans of time (my advisor studies war, and sometimes gets surprised glances because he looks at things that occur over very long periods of time). The emphasis on the short-term has made us very good at predicting what will happen tomorrow if say, Denmark were to leave the Euro, but very bad at predicting things like the stagflation of the 70's (or Japan in the 90's), or the financial crisis, or the Asian crisis of 1997. Economics emphasizes static equilibrium models, instead of dynamic ones. Vast efforts have been expended to explain short-term phenomena, while probably the central driving factor (productivity growth and technical change) to our relative prosperity (compared with that in 1800) is theoretically under-examined. That isn't to say some of our concepts are useless - obviously moral hazard has a lot to do with the financial crisis, but that isn't to say we wouldn't see another bubble in some other area.

Social science is badly integrated. Economists assume government policies are largely exogenous to their models. They aren't. Almost nobody in academic economics, for instance, opposes free trade, yet in many instances, protectionism remains. Economic theory and political science, and sociology are inter-related, but kept separate because we tend to emphasize different methodological traditions. Economists have a hard time using ideas from political science, because political science has a lot of incorrectly specified statistics and political scientists mostly can't read formal models. So of course we confuse noise for laws, and of course we can't address complexity - the construct of our separate disciplines almost command us to ignore a complex world.

It is understandable that people are angry (it is less understandable that they bought into a myth that something real lay underneath the bubble they were part of). Though, if that reflects any failure, it is a failure to properly explain the limits of existing economic theory. That isn't to say that, for instance, derivatives traders were sanctioned by mainstream economics. One of the key mechanisms driving the calculation of the value of derivatives was contrived by a graduate student at a not-so-reputable Canadian school, published in a less-than-reputable journal. His main flaw was in constructing a device that was just simple enough that investment firms could apply it mechanistically, while too complicated for them to really understand what they were getting.
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Indeed, computerization poses a challenge as much as it poses an opportunity to the social sciences. We can write stats programs (like Stata) that make it easier and easier to make regressions, but harder and harder to get at what assumptions underlie the regression one is making. They also make the job of producing models accessible to statistical illiterates. That, along with confirmation bias, give us models for every occasion. Even among very good statisticians, there are limits to our methods. For instance, in my discipline (international relations) we often use cross-sectional time series data (many countries or dyads over time). It is still not entirely clear how to deal with stationarity in such a context, and I have had numerous questions go unanswered, though posed to widely cited and well known stats professors.

Yet, after all is said and done, I think we are better off than if we just guessed or used "common sense" (reality is often counter-intuitive and complex, we may fail at anticipating things sometimes, but common sense will always fail), and better off than if we relied on unfalsifiable "laws" (if the problem with studying humans is complexity, it seems strange to insist on a set of unchanging laws). I propose a middle path of pragmatic scholarly enterprise.

First, we need to be more rigorous about stats. In my classes they always say "replication, replication, replication", but everybody with half a brain knows that an academic cannot make their career out of replicating and critiquing the work of others (particularly when those others are well-established, well-connected, and the editors of major journals). We need to stop teaching statistical methods as separate "packages", but rather, as a holistic set of ideas drawn from first principles, as it is taught to students of statistics. When we teach people statistical methods piece-by-piece, they know how to do things mechanistically, but do not know all of the assumptions underlying their predictions.

Secondly, the softer social sciences (economic and sociology) need to either do better at formalizing their theories, or economists have to stop formalizing their stuff (I don't think formal models add much, though they can sometimes produce counter-intuitive hypotheses that would otherwise be missed). We need to be more interdisciplinary, which means we need to communicate.

Thirdly, economists need to learn case study methodology. Why? Because you cannot have causal explanations simply from abstract theory. The Milton Friedman standard (what matters is that theory predicts) only works in the short-run - mistakes can be cataclysmic if we don't really understand what is going on. Process-tracing - finding out what the actual actors in the system are doing - is useful. Unfortunately, the folks that tend to use such methods often use them exclusively. Area studies people are content to find that something holds in one country, for one time period. We want to be able to seek generalizable theories, obviously, and so the anthro/history/area studies standard just isn't good enough.

Finally, we need a good metric of how effective our theories are. We shouldn't (as the laymen sometimes does) expect economics to have physics-like exactness. My only criteria for success would be whether we are improving and evolving - rejecting bad ideas, and developing new ideas that are less bad than the old ones (presently we reject few bad ideas, but produce many new ones, even as we also produce some good ideas). This probably won't happen, I should add, until we start looking at social science itself with social science techniques. We are, after all, a human-created structure with individual impulses that undermine our collective efficiency.

We probably won't predict the next crisis, but that doesn't mean we can't try. At the very least, our failure is a useful datapoint for further study.

[reb]

[QUOTE]// Finally, we need a good metric of how effective our theories are. We shouldn't (as the laymen sometimes does) expect economics to have physics-like exactness. My only criteria for success would be whether we are improving and evolving - rejecting bad ideas, and developing new ideas that are less bad than the old ones (presently we reject few bad ideas, but produce many new ones, even as we also produce some good ideas). This probably won't happen, I should add, until we start looking at social science itself with social science techniques. We are, after all, a human-created structure with individual impulses that undermine our collective efficiency.[QUOTE]//

...and that's my point, exactly. theory will never explain perfectly. fancy language does not address the gymnastics done by greeder traders in skewing the system. living in an ivory tower about 'money' and demand/supply does not cut the mustard when the rubber meets the road. to confuse theory with fact only proves that someone can live in their head and make up complex scenarios, yet not solve problems.

there is a complete disconnect from the current application of economic theory and sane management of economies. the 'smart' economists have led us into a mire; they have no solution, only 'theories'. for the 'average person', the only way to stay out of the grasp of 'theoretical real failure' is to stay the hell out of debt. even then, the insane reliance on a floating currency (and the dunderheaded, fanciful imaginings that that allows for the etymologically and mathematically facile) may cause one's currency to amount to naught, or to be devalued to the extent it has no purchasing power.

frankly, what are the purposes of currency, theory and economics, anyway? not to obscure the utility of 'managing the supply/demand' or 'providing a stable environment for business'; at a macro level, why do economists 'econ'? why, to make a good salary slinging bullshit, of course. but the public purpose-the service they should be providing-is completely, transparently nil in the current situation. their theories have led to financial disaster, along with the politicians' meddling....of what use is this? none. Shakespeare was sadly wrong...the lawyers alone are not to blame....

[eternaltriangle]

Reb, are economists so often wrong that we would be better off without them - with policymakers guessing, or following their gut/past experience?

[reb]

eternaltriangle,

i do not know. the problem, as best i can tell, is the 'new world economy' is so complex, the models tell us next to nothing. nor do the models account for human factors other than those taught in school (which is 30 years behind reality).

being a 'generalist', and having more of an overarching view than 'pure economics', i tend to read or listen to others spout the results of the models, and their interpretations. i then over time keep my ear to the ground as to 'psychology' and current events. at some point, the 'n' kicks in, and i get an idea of what's going on 'macro'. when the market was tanking, i got almost completely out-early-still lost about 20% of the portfolio i manage. the economists were still saying all was well-the traditionally trained ones. the problem was they were so hung up on figures and their training, all they could see was the models' results...the models cannot project except off of 'the past'. some of them 'smooth data'; others attempt to introduce 'factors' of different sorts, but none of them to my knowledge take into account wars, psychology, manipulation by traders, bad decisions by ceo's, disease (although some will state that their model does)...these kinds of things don't mathematically translate well into a computer. perhaps new ways of forecasting with 'chaos theory' into the math (if that can be done in some fashion) will result in me having a different view at some time. for now, the strict mathematical 'swag' entering of data into computers, and highly trained economists who have never been 'on the floor in the pit' assessing data (especially those who do not have a mil or three of their own $ involved) does not impress me as an exact science.

economists have an affect on governments. poor forecasting, greedy politics and non-working theories have the effect of causing people 'living on the edge' to be tossed out of their houses, lose their cars, go bankrupt. in this sense, economics as traditionally practiced and proselytized would be like me firing a 155mm cannon at a 45 degree angle into an urban area, and stating it will hit in a city park, and not kill anyone. actually, with the proper firing tables, the howitzer would be more accurately predicted.

i come not to bury economists, but to praise them...if only they would realize their forecasts leave something to be desired, and their theories have real consequences for 'the people'.

i am no boy scout. to me, however, the central principle of business has to be self survival and prosperity, yet there must be some element of public service involved. if all anyone is doing is 'working for myself', and there is no element of 'what is good for the rest', that is an rx for just what we have now. the principle of 'service to humanity' has been completely lost by many businesses and government. without this, they serve no identifiable purpose at all, except that of a hyena or a parasite. getting lost in 'theory and numbers' to the extent that the principle of 'service' is no longer viewed is what leads to corporate jingoism...in the sense of 'my corporation, right or wrong' or 'my profession, right or wrong'.

[maxpot46]

Econometric forecasting doesn't work and never will, but it will always be used to justify political actions because it basically offers "tools" (more IMO magic wands) that ostensibly allow governments a way to "improve" on the market. Whereas deductive economics says that you can't improve on the market and basically provides a long list of what government isn't allowed to do. The former view comes with a magic checkbook; the latter an onerous gold standard that limits spending. Guess which brand the government prefers and supports?





maxpot46 added to this post, 15 minutes and 27 seconds later...

i am no boy scout. to me, however, the central principle of business has to be self survival and prosperity, yet there must be some element of public service involved. if all anyone is doing is 'working for myself', and there is no element of 'what is good for the rest', that is an rx for just what we have now. the principle of 'service to humanity' has been completely lost by many businesses and government. without this, they serve no identifiable purpose at all, except that of a hyena or a parasite. getting lost in 'theory and numbers' to the extent that the principle of 'service' is no longer viewed is what leads to corporate jingoism...in the sense of 'my corporation, right or wrong' or 'my profession, right or wrong'.That might be true in the financial sector, much of which is basically mental masturbation with the lube of new money, but I think in other sectors you can still improve humanity by pursuing your self-interest, ala the invisible hand.

[Indy]

On the topic whether top-management should use the principle of 'service to humanity', I don't think it should be their responsibility to decide. It's the owners, the share-holders and board of directors job to make sure they demand it of their management. Traditionally, management's job is only to maximize share-holder value. If a CEO want's to use the shareholders' money to promote his own favorite social projects for example, he is irresponsible. Milton Friedman was known for hammering on this issue.

In the case of the bonuses at AIG and other financial institutions, for example, the blame rests primarily on the board of directors to have awarded these ridiculous packages. Since these boards are composed of other (former) CEOs, you can get a 'I scratch your back, you scratch mine' situation, since compensation is related to industry benchmarks, they can get totally out of proportion of their real value to companies. Plus, there is a far to great emphasis on short-term vs. long term interest. The incentives are really screwed up. Media and government have a role to play in this, though they are always way too simplistic and superficial to judge these things acurately. But they do expose these kind of market failures.

The reason for a heavy reliance on math is partly due to way the academic world judges 'success' as a scholar. To get a PhD and seriously contribute you have to demonstrate a certain level of intelligence and capability. To make your paper/thesis/publication to be considered 'worthy', it is less important have something profound to say about economic issues, but rather to display that you can handle the methodologies. Words of praise should include adjectives such as 'solid', 'rigorous', instead of 'relevant'.

I view this crisis as a time where economics as science has only gained in importance. Sure, some theories are being discredited, but it only underlines the fact these things should be more fully understood. If we knew all the answers were simple, then economics would cease to be relevant as a science.

How do you fix a mortgage market, a currency crisis or a huge budget deficit, when you go out and state: what do need economists for, they know nothing.

[reb]

i would not say 'they know nothing', but they (due to the academic 'narrow mindedness' they are subjected to as you state) tend to get so wrapped up in the theory, numbers and programs they become 'owners' of their process. and their ego defends this process as if it were gospel, aka 'discussing religion with true believers'. there are flaws in economic theory; recognizing that, i take the best and leave the rest in my cogitation.

the fact that 'governors' use economics as an excuse to do as they please, i am well aware of....this does not make it 'correct' at all; i'm sure most would agree.

nay, verily...the blame for what happened at aig rests with those who issued the money. the tarp and later iterations are like giving a loaded, off safe mp5 to a child and saying 'do as you will'. the complete lack of responsibility of governors is worse than criminal....aig execs only did what they ahve been doing for some time-they padded their own accounts (thusly, my commment about social responsibility). the bailouts have done nothing to loosen credit markets, there has been little to no trickle down or trickle out. the middle class and the poor are getting the shit kicked out of them; i know people here who need loans to continue rehabbing houses, and cannot get them. i kknow people with 'super loans' who are dancing the edge of the scalpel-good jobs, but too much debt. where are all those trillions? the blame is in the idea ever taking shape and being acted upon; such an flood of 'digits on a computer' to a few big companies, and it went in but dint come out? wtf? a black hole? an infusion of money to a few, with no contractual obligation to spread it, and no oversight (goddam, the government sucks at oversight...if i wanted oversight on a contractor, i had to put my ass on a plane and go there...if it was a big plant, i had to have two or three straphanger government people i could trust to watch other areas to be sure poor quality items or stuff wasn't hidden from me and moved as i went around the plant-even then MY OWN MANAGEMENT would deny what i told them...they were influenced by congressional oversight into 'not seeing flaws'-not politically correct). i digress mightily.

the bottom line to my thinking is if something an economist says make sense-passes the common sense test-i will dang sure use it for as far as it applies. if it does not, i will not. if the guy who raises goats down the road tells me chevron prices are falling, i pay attention. he knows whereof he speaks. but the numbers and programs spit from a computer or analyzed by a 'captive phd' (one employed by some financial firm) do not tell the whole story, and it behooves those of us who know better to so state. neither the government, economists, bernancke or geithner have a corner on 'being right'. in fact, due to my past experience, anything they say i examine for 'the axe they are grinding'. bernancke cannot say at this time 'we are screwed...we made a mistake'. to do so would collapse world markets and create a panic, so he MUST have econometric models which support his positions or recovery....just over the horizon...we shall overcome. even if he has to lie like a rug. a bernancke confession at this point would be akin to the cdc admitting that mosquitoes can spread aids.

this whole mess is so complex, no one person has 'the answer'; i find it ridiculous to think that economists would come across as if they do, and have simply been saying so.

the 'public service' aspect of my comments....yes, i agree. as a stockholder, i want my company to make a profit, but not by creating another love canal or working indians 20 hours a day for 3 bowls of dirty rice. i want responsibility in my managers, but not blind responsibility to the extent they enslave their employees. i do not want excessive kowtowing to unions nor to government. there is a balance between profit and social responsibility. we can argue 'where that is' all we want, but it is a continuum....and somewhere between 90/10 and 10/90 is acceptable to me. if the chair of ge wants to give money to alchoholics anonymous, i would applaud that decision, but depending on level and what strings are attached. what bugs me is i could never, as a government agent, see home office overhead (g&a) for one company that had a congressman bought and paid for, so i am sure there is 'black money' hidden in these companies books (even got shown the wrong set of books once-that was hilarious....what i don't know can hurt me, and economists are not going to save the injection i might get...just like the subprime mess...if the models are so good, why were they not predictive of this? i could see it starting about 2 years ago, but it wasn't from models...it was from intuition. admittedly, i have several advantages that a narrowly trained and educated person would not have...cynicism, and a long history in the bowels of major companies being a tapeworm or a virus if you might prefer. lol! 'trust, but verify', which i modify to 'mistrust, and verify stringently'.

wax your board; surf the chaos....