Wednesday, July 26, 2017

Michael Lewis — Why the Scariest Nuclear Threat May Be Coming From Inside the White House

Donald Trump’s secretary of energy, Rick Perry, once campaigned to abolish the $30 billion agency that he now runs, which oversees everything from our nuclear arsenal to the electrical grid. The department’s budget is now on the chopping block. But does anyone in the White House really understand what the Department of Energy actually does? And what a horrible risk it would be to ignore its extraordinary, life-or-death responsibilities?
Vanity Fair
Why the Scariest Nuclear Threat May Be Coming From Inside the White House
Michael Lewis

Brian Romanchuk — Book Review: GDP

GDP: A Brief but Affectionate History by Professor Diane Coyle offers an interesting popular history of the concept of gross domestic product (GDP). GDP is a mental construct, and is the result of somewhat arbitrary decisions. The book discusses the history of the idea, tied in with economic history as well as the history of economics.… 
GDP is one of three aggregates that are theoretically equal to each other (in practice, there is a statistical discrepancy, since they are based on three different input data sets).
  1. The sum of all production in the domestic economy.
  2. The sum of all expenditures in the domestic economy.
  3. The sum of all incomes in the domestic economy (Gross Domestic Income, or GDI)....
I believe that a lot of the kvetching about GDP would disappear if we got rid of it, and replaced it with Gross Domestic Income. Since the two values are theoretically the same, we would be theoretically in the same boat. However, economists would be less hung up on their theoretical preconceptions....
Bond Economics
Book Review: GDP
Brian Romanchuk

Egg Glut

"We're out of eggs!"

Tuesday, July 25, 2017

Dustin Volz — Russia’s Kaspersky Lab launches free antivirus software globally

Free is good.

Russia’s Kaspersky Lab launches free antivirus software globally
Dustin Volz

Fund Managers and Strategists Think the Bull Market Is Ending Next Year

Bearish sentiment fomented by projected CB actions.

Central bank policy cited as main risk over coming year or two. 
Bloomberg poll captures views of 30 investors across globe. 
The would-be end of a great cycle for financial markets would come just about when central bank balance sheet contraction is expected to kick into high gear. 
By mid-2018, the Federal Reserve’s wind-down may be well under way, and the European Central Bank might have joined the Bank of Japan in tapering asset purchases.

Jason Smith — Causality in money and inflation ... plus some big questions

That pesky causality again.

Information Transfer Economics
Causality in money and inflation ... plus some big questions
Jason Smith

Stephen S. Roach — Deciphering China’s Economic Resilience

International economic forecasters find it difficult to resist superimposing the experience of crisis-prone developed economies onto China. But, once again, the Chinese economy has defied the pessimists: after decelerating for six consecutive years, real GDP growth appears to be inching up in 2017.
Project Syndicate
Deciphering China’s Economic Resilience
Stephen S. Roach | senior fellow at Yale University's Jackson Institute of Global Affairs and a senior lecturer at Yale's School of Management, and former Chairman of Morgan Stanley Asia and the firm's chief economist.

Bill Mitchell — There is nothing much that Milton Friedman got right!

“If we want to ensure more people are well-employed, central banks alone will certainly not suffice” is a quote I am happy to republish because I consider it to be 100 per cent accurate. The only problem is that the way I think about that statement and construct its implications is totally at odds with the intent of its author, who claimed it was “an important lesson of Friedman’s speech”, which “remains valid”. The quote appeared in a recent Bloomberg article (July 17, 2017) – What Milton Friedman Got Right, and Wrong, 50 Years Ago – written by journalist Ferdinando Giugliano. It celebrates the Presidential Speech that Friedman gave to the American Economic Association on December 29, 1967 at their annual conference in Washington D.C. In terms of the contest of paradigms, the speech is considered to be the starting point proper of the Monetarist era, even though it took at least another 5 or 6 years (with the onset of the OPEC oil crises) for the gospel espoused by Friedman to really gain ground. The problem is that Friedman was selling snake oil that became the popular litany of the faithful because it suited those who wanted to degrade the role of government in maintaining full employment. It was in step with the push by capital to derail the Post War social democratic consensus that had seen real wages growing in proportion with productivity, reduced income inequality, jobs for all who wanted to work and a strong sense of collective solidarity emerge in most advanced nations. This consensus was the anathema of the elites who saw it as squeezing their share of national income and giving too much power to workers to negotiate better terms and conditions in their work places. Friedman provided the smokescreen for hacking into that consensus and so began the neo-liberal era. We are still enduring its destructive consequences.

Friedman’s speech was subsequently published in the American Economic Review as ‘The Role of Monetary Policy’ in the 1968 volume 58(1) (pages 1-17). 
The Bloomberg article goes along with the view that Friedman’s speech represented a “paradigm shift” in economics....
Bill Mitchell – billy blog
There is nothing much that Milton Friedman got right!
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Capital and Leverage Ratios

A couple of good articles on these two regulatory ratios from Clarus Financial:

Capital Ratio here:


Leverage Ratio here:


If you look at it systemically, via the Fed's H.8 report of the system level asset composition, you can see that currently it is the Leverage Ratio that is the control ratio; due to current Fed monetary and Treasury fiscal policies forcing about $5T of non-risk assets into the system's asset accounts.

We have about $12.5T total assets so with a LR of 7% that requires about $900B capital, risk assets of about $7.5T so with a CR of  8% that requires only about $600B.

Capital requirements are being driven by the amount of non-risk assets govt policy is creating in the system.

Banks are over-capitalized via the Capital Ratio by 100s of $B and accordingly we see them increasing dividend and share buybacks with their earnings rather than adding to their regulatory capital accounts; they dont need any more or at least much more capital to operate the risk side of their business.

This should start to reverse somewhat when Fed starts to reduce the reserves in September...

Monday, July 24, 2017

Chase Madar — The Conservative Case for Universal Healthcare

Democrats may be about to lose a core issue if they don't wake up.

The American Conservative

Zero Hedge — Former CIA Director Calls For A Coup If Trump Fires Mueller

In the most vocal opposition to president Donald Trump yet, former CIA Director John Brennan said that if the White House tries to fire special counsel Robert Mueller, government officials should refuse to follow the president orders, as they would be - in his view - “inconsistent” with the duties of the executive branch.
"I think it's the obligation of some executive branch officials to refuse to carry that out. I would just hope that this is not going to be a partisan issue. That Republicans, Democrats are going to see that the future of this government is at stake and something needs to be done for the good of the future," Brennan told CNN's Wolf Blitzer at the Aspen Security Forum, effectively calling for a coup against the president should Trump give the order to fire Mueller.... 
Zero Hedge
Former CIA Director Calls For A Coup If Trump Fires Mueller
Tyler Durden

See also
Just six months after his inauguration, Americans already are split down the middle, 42%-42%, over whether President Trump should be removed from office, a new USA TODAY/iMediaEthics Poll finds.…
Those findings, designed to measure the intensity of opinion, also show a perfect divide, 34%-34%.
USA Today
Poll: Americans split 42%-42% on impeaching Trump

Yasser Abdih and Stephan Danninger — What Explains the Decline of the U.S. Labor Share of Income? An Analysis of State and Industry Level Data

“The U.S. labor share of income has been on a secular downward trajectory since the beginning of the new millennium. Using data that are disaggregated across both state and industry, we show the decline in the labor share is broad-based but the extent of the fall varies greatly. Exploiting a new data set on the task characteristics of occupations, the U.S. input-output tables, and the Current Population Survey, we find that in addition to changes in labor institutions, technological change and different forms of trade integration lowered the labor share. In particular, the fall was largest, on average, in industries that saw: a high initial intensity of “routinizable” occupations; steep declines in unionization; a high level of competition from imports; and a high intensity of foreign input usage. Quantitatively, we find that the bulk of the effect comes from changes in technology that are linked to the automation of routine tasks, followed by trade globalization.”

Lord Keynes — The 10,000 Year Explosion, Chapter 6: A Summary

Chapter 6 of Gregory Cochran and Henry Harpending’s The 10,000 Year Explosion: How Civilization Accelerated Human Evolution(2009) is called “Expansions,” and examines the genetic effects of large-scale migrations of human beings.
History is filled with examples of certain population groups that conquer, migrate into, or spread over large areas and replace other groups, or replace other groups with some mixing.
Cochran and Harpending (2009: 156) accept that cultural and technological advantages have played a large role in the success of such movements, but also contend that sometimes, in important cases, evolutionary genetic traits have also been a factor. In this respect, as in normal evolutionary theory, we must look at group fitness, and not just individual fitness, as factors in human history (Cochran and Harpending 2009: 158).
Social Democracy For The 21St Century: A Post Keynesian Perspective

Pepe Escobar — A coup in the House of Saud?

Gives "MBS" new meaning. It's no longer mortgage backed security but Mohammad bin Salman.

But just as MBS were involved in the global financial crisis that began with the housing bubble in the US; so too, Mohammad in Salman is poised to initiate a global political crisis. Pepe Escobar explains.

Asia Times
A coup in the House of Saud?
Pepe Escobar

James Petras — Imperial Power Centers: Divisions, Indecisions and Civil War

One of the most important outcomes of the Trump Presidency are the revelations describing the complex competing forces and relations engaged in retaining and expanding US global power (‘the empire’). The commonplace reference to ‘the empire’ fails to specify the interface and conflict among institutions engaged in projecting different aspects of US political power.
In this essay, we will outline the current divisions of power, interests and direction of the competing configurations of influence.
James Petras Website
Imperial Power Centers: Divisions, Indecisions and Civil War
James Petras | Professor (Emeritus) of Sociology at Binghamton University in Binghamton, New York and adjunct professor at Saint Mary's University, Halifax, Nova Scotia

David Dayen — Single Payer, Meet All Payer: The Surprising State That Is Quietly Revolutionizing Health Care


Lord Keynes — The 10,000 Year Explosion, Chapter 5: A Summary

Chapter 5 of Gregory Cochran and Henry Harpending’s The 10,000 Year Explosion: How Civilization Accelerated Human Evolution (2009) is called “Gene flow,” and looks briefly at the evolutionary changes induced by mixing of genetically distinct populations.
Social Democracy For The 21St Century: A Post Keynesian Perspective
The 10,000 Year Explosion, Chapter 5: A Summary
Lord Keynes

VIPS — Intel Vets Challenge ‘Russia Hack’ Evidence

Letter to the President.

Consortium News
Intel Vets Challenge ‘Russia Hack’ Evidence
Veteran Intelligence Professionals for Sanity (VIPS)

Awara — Doing Business in Russia: Russian Financial System

Short summary. Essentially, Russia is internationalizing (in effect Westernizing) its banking and financial system, as is China also.

Doing Business in Russia: Russian Financial System
Eugene Isaev

David Glasner — Hayek, Deflation and Nihilism

At least Hayek later admitted he was wrong about deflation being useful in breaking rigidities.

Uneasy Money

Martin Armstrong — China – A Different Central Bank Altogether

When I returned to the States, people I knew in the Fed and in Treasury called to ask me my opinion after these meetings with the Chinese government. I responded: It was great. They only hired people with experience!
Armstrong Economics
China – A Different Central Bank Altogether
Martin Armstrong

Steve Cecchetti and Kim Schoenholtz — The Other Trilemma: Governing Global Finance

Courses in international economics usually introduce students to the impossible trinity, also known as the trilemma of open-economy macroeconomics: namely, that a fixed exchange rate, free cross-border capital flows, and discretionary monetary policy are incompatible (see left panel of diagram). Why? Because, in the presence of free capital flows under a fixed exchange rate, private currency preferences (rather than policymakers) determine the size of the central bank balance sheet and hence the domestic interest rate. We’ve highlighted this problem several times in analyzing China’s evolving exchange rate regime (see here and here).
While many students learn that a country can only have two of the three elements of the open-economy trilemma, few learn that there also exists a financial trilemma. That is, financial stability, cross-border financial integration, and national financial policies are incompatible as well (see right panel of diagram). The logic behind this second trilemma is that increases in financial integration reduce the incentives for national policymakers to act in ways that preserve financial stability globally. Put differently, as the benefits from financial stability policies spread beyond borders, the willingness to bear the costs of stabilizing the system at the national level decline. This has the important implication that, if we are to sustain increasing financial integration, then we will need greater international coordination among national financial regulators (see here, or for a much broader case for international economic governance, see Rodrik). While this conclusion applies widely, nowhere is it more true than inside the euro area, where policymakers would like a fully integrated financial market, but still protect national champions (including financial intermediaries as well as exchanges)....
Money & Banking
The Other Trilemma: Governing Global Finance
Steve Cecchetti and Kim Schoenholtz

Deborah Bach — Babies can learn a second language in 1 hour per day

“Science indicates that babies’ brains are the best learning machines ever created, ...” says coauthor Patricia Kuhl, codirector of I-LABS and a professor of speech and hearing sciences.
A primary ask of educational research is how to harness this most effectively and efficiently. Presently, a lot of potential is going to waste. Waste is uneconomical.

World Economic Forum | Agenda
Babies can learn a second language in 1 hour per day
Deborah Bach

House passes budget-busting Defense bill

This same type of thing is going on with the Authorizations in the other departments as well.  FY 2018 shaping up nicely.

Seems like the authorization people and appropriation people are finally getting fed up with the moron budget people.

Always better to watch what people do vs. what they say.

The bill would exceed the president's $603 billion defense budget request. But it also would blow past the $549 billion cap on defense spending set under the 2011 Budget Control Act by about $72 billion.

Sunday, July 23, 2017

Paul Richard Huard — FACT: Viet Cong Commandos Sank an American Aircraft Carrier

Bet you didn't know this.

Here's why.
Not surprisingly, North Vietnam celebrated the sinking of Card, considering it a propaganda victory of the first rank. The U.S. government refused to even acknowledge the vessel’s sinking, telling the public the carrier had only been damaged.
Paul Richard Huard | military historian, free-lance journalist, and contributor to War Is Boring

Bill Mitchell – Germany fails to honour its part of the Greek bailout deal

In this blog – The fiscal role of the KfW – Part 1 – I recounted how the government-owned German development bank, KfW (Kreditanstalt für Wiederaufbau) – interacts with the German Finance Ministry to allow its fiscal balance to move into surplus without the commensurate level of fiscal drag that would normally be associated with that degree of fiscal withdrawal. The intent of the blog was to show how the Germans cleverly use their state-owned development bank to advance ideological positions not available to other states that have either privatised these type of institutions or never created them in the first place. It is ironic given the Germans insistence that countries like Greece privatise everything in sight. Today’s blog returns to the KfW, in part, because new information has emerged where we learn that the Greek crisis has allowed the German Ministry of Finance to run surpluses without melting their economy down. The KfW’s role in that regard is undoubted. It has been a source of bailout funds for Greece, on behalf of the German government, and has been pocketing handy profits ever since. This information shows that the popular claims that German taxpayers are bailing out Greece are clearly false and just political verbiage. Further, despite the understanding that the Member States (bailout partners) would remit any profits made on asset holdings associated with the Greek bailout, the Germans have reneged on that deal, in part, because it has channeled those profits through the KfW, which it claims is at hands length to the government, despite being 100 per cent government-owned.

Bill Mitchell – billy blog
Germany fails to honour its part of the Greek bailout deal
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Peter Cooper — Short & Simple 10 – Spending Independently of Income

It was mentioned (in part 2) that a currency-issuing government issues its currency in the act of spending. An implication of this is that a currency-issuing government does not need income in order to spend. We have also noted (in parts 5 and 9) that a household or business can spend independently of current income. They can do this either by drawing down past savings or through borrowing.
Short & Simple 10 – Spending Independently of Income
Peter Cooper

Steve Roth — Two Big Questions About the Job Guarantee: God, Devil, and the Details

More blather about the JG.

Answer to question 1: It's a job guarantee. It's advertised as a job offer for those willing and able to work that don't have a job offer from private sector employers in their area. To get the wage you have to show up and do the job you signed you for. What is so hard to understand about that?

Answer to question 2: These issues need to be articulated clearly and formulated into a legislative bill. The initial bill will likely be debated in the House and Senate and modified based on hearings, debate and lobbying. Just like every other policy proposal that becomes law.

Saudi Arabia turning off US oil tap

Wayne Madsen — The End of the ‘New American Century’ Pronounced by the Pentagon

Is the US military quietly signaling a historical turn of events comparable to Britain's decision to abandon empire? One item doesn't tell the whole story but it is indicative that it is being discussed at high levels.

Strategic Culture Foundation
The End of the ‘New American Century’ Pronounced by the Pentagon
Wayne Madsen