Financial topics

[John]

More of a sudden downdraft than a pocket, but I concur. There is great risk in the markets at this time. Great risk in everything. And the commodities bubble will not be kind, nor will the Greeks. Greece is entering the bandaid mode of thought, wherein people start screaming "get it over with so we can adjust and get on with life". People cannot live in the stress of a crisis forever, even if nothing else forces it to break, the people will eventually break and demand any change that gets away from the stress, no matter what.

And oddly enough, the best stress reducer is a declaration of war.

John

[jdcpapa]

The markets, oil and gold are down. The US$ is spiking up. Hardly hyperinflationary.

[Higgenbotham]

Good analysis of the interlocking problems and a useful comment below: "Great post. Very accurate IMO. I also spent a career in the valley, but left it three years ago. Relocated my family overseas to a (hopefully) somewhat safer place. The writing is on the wall, but few want to admit it. The equation isn't solvable and the US - and the rest of the world in varying degrees - is looking at a hard fall. I think this will severely test our political system. It simply isn't constructed to correctly analyze and deal with interlocking issues of this magnitude. Worse, the leadership is partisan and almost entirely composed of lawyers. I can't think of a worse group to deal with these issues. I suggest silicon valley won't look so nice in a few years time. Reality will eventually intrude." Item 5 in the list seems to be the most commonly overlooked/dismissed item.

http://earlywarn.blogspot.com/2011/08/c ... -more.html

His largest omissions are (in no particular order) the declining birth rates (related is the declining percentage of individuals at peak productivity), the fact that the new technologies favor decentralized and smaller structures, and the increased susceptibility of the world system to systemic shocks (Tokyo earthquake as an example - 200 years ago this would have barely caused a ripple). But all in all a good effort.

I plan to stay in the US.

[aedens]

He is a person until self. Lucid energy points are forwarded but irobot as means until self is just another product stream
of defined Utility. In the final analysis it is the ability of the firm to maintain the productive value of its basic abilities, its human
and physical resources that determines its ability to survive. Capital investment takes place within a perceived decision-making structure,
only part of which consists of the technical intertemporal imperatives of production. In a very real sense, prospective demand has to
be “manufactured” through internal organization, market agreements, distribution arrangements, and marketing efforts, and these will have
to be continually adapted is true. I would consider his thought experiment a means to an end. It does not dilute his interia of thought since
tractors with wifi will exist as a means of production but I will not let it mow my lawn since what the point? I am a technician but do not repair IC
chips so I ponder his worth as mine, since the means of production serve just another calculation to each other and to the chip he bought to for his irobot semantics. My point being social reality the consumer will decide both our fates and in management efficiency and fairness are bound together.
It is also a world in which the capital values of the individual capital items that constitute the capital stock can be easily and conveniently calculated as the present value of the stream to value marginal products thus being identified. And in this world the perception of capital in terms of aggregate economic values makes sense. Distilled further which model survives? I have worked for both models and convey which one still exists. First, many current leaders are the product of past biases against creativity, and hence making them less likely to value creativity. Second, the smartest people have learned over time that being openly creative is not rewarded. Given that the future of most organizations depends on creativity, this finding offers further compelling evidence why traditional management must be reinvented and imperial management structures cease to exist.
The division of labor is complicated indeed but in the forums conveyed is the three steps and consequnces of them to were we are today. If any system pretends to pay we know its course on GD consequences. You mentioned a theme which we do not miss here a few pages back and one was covet. The eye of the beholder starts that cycle, no?

[Higgenbotham]

In the final analysis it is the ability of the firm to maintain the productive value of its basic abilities, its human and physical resources that determines its ability to survive.

That was in the old days when Penrose was a young economist. For the past 4 decades or so, in the final analysis, every large structure is riding the debt wave, the lobbying wave and the corruption wave, which can float a nonproductive entity of any type for a long time.

In the aggregate, the aging of the US population, all things equal, makes the economy less productive every year. But all things aren't equal as medical costs are soaring, etc. In the aggregate, the US economy is operating at a loss and it's only the debt wave that is keeping it afloat. The proof of that would be that the US economy is accumulating more debt on an instantaneous basis than profit (and the accounting is fraudulent anyway). "The so-called Mid-Session Review published by the Office of Management and Budget forecasts a total shortfall of $1.316 trillion in 2011, down from the initial projection of $1.645 trillion in a February estimate." "Corporate profits hit an all-time high of $1.68 trillion (annualized) in the fourth quarter of 2010."

If the suboptimal entities that would already be bankrupt in the absence of the debt wave were allowed to go bankrupt and restructured, a greater percentage of the population as a whole could be productive.

But this year, productivity has taken a “remarkable turn for the worse”. He notes that productivity in the first three months of the year declined by 0.6 per cent on an annualised basis, resulting in a “staggering surge” of 4.8 per cent in unit labour costs. In the second quarter, unit labour costs climbed by a further 3.3 per cent.

http://www.businessspectator.com.au/bs. ... nt&src=rss

[OLD1953]

As several of us have said, the US lost all appreciation for "knowledge" and decided to go with "gut". Thus, yesterday I was lectured about the need for economy and restraint in spending money by a fellow who had just admitted, not ten minutes earlier, that he had spent quite a bit over a million dollars to realize savings of about 100K per month, for a period of three months. The reality disconnect was rather severe.

I should probably note that there was a working system already in place, this "money saving" replacement will itself be phased out in three months. The mind boggles.

[Higgenbotham]

Excess liquidity can make many who are nonproductive appear to be productive.

A good analogy would be that of an amateur fisherman who has come upon a pond that has just been stocked to the brim with fish by the state fish and game department. He catches quite a few fish in a short time and pats himself on the back, convincing himself he is a great fisherman and has no room for improvement.

That's the state most Americans find themselves in. They haven't considered where the money has come from that they believe they have legitimately earned.

[Higgenbotham]

PIMCO's Gross: QE1 and QE2 'destroyed' Credit Creation

This is really a cost of credit versus a creation of credit type of argument. There is no doubt that by purchasing longer-dated Treasuries that they would probably lower the cost of credit. My argument is the creation of it would it be destroyed and has been destroyed over the past several years during QE1 and QE2. To bring the point specifically to what occurred the past several months with a two-year Treasury extension and the conditional freezing of interest rates at 25 basis points for two years, you have that basically flat yield curve destroys systemic leverage...Credit is basically destroyed in the process of lowering and freezing interest rates.

What we have seen since 2008, and obviously this includes QE1, QE2, and the freezing the policy rates conditionally for the next two years, is that the growth size of the repo market which peaked in 2008 at about $6 trillion is now at $2.75 trillion. In terms repo alone, which is part of M3 and credit extension in terms of our banking system, we have seen the destruction of $3 trillion worth of repo over this period of time in which the Fed has basically brought down interest rates in the 2, 5, 7-year portion of the curve.

http://www.safehaven.com/article/22457/ ... t-creation

[aedens]

Given the lines of credit Higg you are correct in direct context to size.
Given the scopes of inquiry here , again I thank all who survey the day we truly are in.
The effects are noted and complicated to scope to the size of the operational reality's.
Still guys like us will fight the good fight in any circumstance. Rather a day late and a dollar short than
two.
http://generationaldynamics.com/forum/v ... pany#p4227

[Higgenbotham]

First, many current leaders are the product of past biases against creativity, and hence making them less likely to value creativity. Second, the smartest people have learned over time that being openly creative is not rewarded. Given that the future of most organizations depends on creativity, this finding offers further compelling evidence why traditional management must be reinvented and imperial management structures cease to exist. The division of labor is complicated indeed but in the forums conveyed is the three steps and consequnces of them to were we are today. If any system pretends to pay we know its course on GD consequences. You mentioned a theme which we do not miss here a few pages back and one was covet. The eye of the beholder starts that cycle, no?

This is very important. First of all, he is looking down and wondering where the qualified hires in engineering are going to come from. He is in fact looking in the wrong direction because he falsely believes that his skill level is at the top of the food chain. It is not. Those missing seats belong to the sharpest minds on the planet and they know what a Dark Age is, how it starts, and where to position themselves. Anyone left in Silicon Valley with their thumb up their ass wondering why they can't get the hires and why they are working 100 hours per week and thinking that's a sign of progress isn't clued in to how the decay process works. It starts with greed. Among the consequences of greed, as you state, is that the smartest rats abandon the ship and work solely for their own interest. The next step in the process is sloth, which I touched on in my second to last post. This, of course, leads to envy which is when the real fun starts.

Once again for any new readers who stumble across this page.

As in the hall, in which there has been a sumptuous banquet, we perceive the fragments of a feast now become prey to beggars and banditti; if in some instances, the spectacle is less wretched and disgusting; it is, because the banquet is not entirely over, and the guests have not all yet risen from the table.

William Playfair
An inquiry into the permanent causes of the decline and fall of powerful and wealthy nations
1805