Just a few minutes ago my son told me that there is snow in Las Vegas, Nevada. Well, "the hell is offically frozen over"...
I guess that would be the best for a twitter than a blogspot, still worth mentioning.
Wednesday, December 17, 2008
Social Security: communistic version of Chinese retirement plan
Comment to MarketWatch "Schooled by scandal: Commentary: Madoff case shows investors the red flags of financial advice" in response to comparison of Social Security to Ponzi scheme:
I'd argue on that. Social Security is more of the communistic flavored Chinese retirement plan (that is, Chinese retirement but made more communistic than Chinese do). Let me explain.
In China there is no (at least there was no until lately) retirement plans at all. If you grew old and sick you should have raised children who'd take care of you. Your family is your 401(K). If you did not put enough into your 401(K) - children, well, tough luck. Ponzi scheme or not, this sort of retirement plan was used by humans since we become humans. Unfortunately it does not work in industrial societies where most salaries are pushed below the level where worker can support anybody but him/herself. While most people here are more fortunate, check "Nickel and dimed", so some social solution was necessary.
Social Security is a kind of communistic version of such retirement plan, where all the children are pulled together and forced through payroll deductions to support all aging people.
As any communistic ideas it has some problems with longevity. It also hurts our family values. I bet, if people would look at family as 401(K) retirement savings and not as a way to get regular sex on budget, we'd have much less divorces and much more children per family.
However, doing it in an "honest" way has some problems too. Imagine the state accumulating money for you from the time you graduated from college for 40-50 years. Nation-wide it's a huge pile of money. Can you imagine the temptation politicians and financial guys (like Madoff) would have to use that money on some of their pet projects and us standing in the way? It's like standing between a hungry bulldog and a bunch of sausages.
Friday, December 12, 2008
Ford most advanced factory
http://info.detnews.com/video/index.cfm?id=1189
Just beautiful. Now I get why Ford cannot build enough cars to satisfy demand in Eastern Europe.
Just beautiful. Now I get why Ford cannot build enough cars to satisfy demand in Eastern Europe.
Chinese Yuan
In response to:
China's yuan set to weaken for six months:
Analysts forecast gradual depreciation as China grapples with global slump,
December 12, 2008
China's yuan set to weaken for six months:
Analysts forecast gradual depreciation as China grapples with global slump,
December 12, 2008
AFAIK, Chinese offered to buy a lot from us (I mean US) in return for greenbacks and T-bills they accumulated, but they were refused, as their main interests were around newest technologies and industrial equipment with potential military use which they cannot buy in a normal business fashion.
They were also expressing interest in a lot of assets in US, and Russians did so also, again, with negative result out of fear of too much foreign influence on US economy.
Yes, I know, with Japanese owning Hollywood, Saudi, Swedish, Germans and British owning significant sectors of our economy and London City still in charge of financial world, it does not make much sense, but at least those were considereed our allies since WW2 (especially Germans and Japanese). Communists did not won Cold War, but they are certainly willing to buy us in an ol' good capitalistic free market fashion.
Tuesday, December 9, 2008
Big 3 and US Auto industry
On a MarketWatch I often see comments that bailing out auto makers "is not capitalism". But I think that's precisely the point.
Concentration of autoindustry left us not with capitalistic companies competing on a free market, but essentially with a "ministry of automobile industry" represented by three huge beaurocratic hierarchies of Big 3. And, as any "ministry", it's not a profit maker.
The problem is what to do about it? Theoretically, we could break up these companies, say, making each brand a separate company. Maybe we even can make each assembly fatory an individual company selling their services to headquerters of brand companies. And we could also separate R&D centers selling their innovations to all brands. And their supplier chain is already detached and unified. That would stir up competition back, but temporarily it will result in raised price on cars and make things even worse.
What's even more hard is that they don't compete with other capitalistic companies. Toyota, Honda and Nissan are essentially a similar "ministry of autoindustry" of Japan. And competing with huge semi-governmental structures is next to impossible, that's why they merged together from hundreds of smaller car companies in the early 20th century in the first place.
Essentially what we learn from this is that even poorly managed corporate socialism is more efficient than free market. Otherwise we already would have many small competeing companies instead of three huge conglomerates.
And odd (and potentially wrong) idea on what we can do is to do bailout through people, give that money as a 0% deferered payment credit to US citizens to buy certified made in USA cars by these three companies. This way people will vote which company should stay and which go broke. And then break just one that went broke. We'll be able to check what will happen and it will be a good enough scarecrow to make all three push to the best of their abilities.
Concentration of autoindustry left us not with capitalistic companies competing on a free market, but essentially with a "ministry of automobile industry" represented by three huge beaurocratic hierarchies of Big 3. And, as any "ministry", it's not a profit maker.
The problem is what to do about it? Theoretically, we could break up these companies, say, making each brand a separate company. Maybe we even can make each assembly fatory an individual company selling their services to headquerters of brand companies. And we could also separate R&D centers selling their innovations to all brands. And their supplier chain is already detached and unified. That would stir up competition back, but temporarily it will result in raised price on cars and make things even worse.
What's even more hard is that they don't compete with other capitalistic companies. Toyota, Honda and Nissan are essentially a similar "ministry of autoindustry" of Japan. And competing with huge semi-governmental structures is next to impossible, that's why they merged together from hundreds of smaller car companies in the early 20th century in the first place.
Essentially what we learn from this is that even poorly managed corporate socialism is more efficient than free market. Otherwise we already would have many small competeing companies instead of three huge conglomerates.
And odd (and potentially wrong) idea on what we can do is to do bailout through people, give that money as a 0% deferered payment credit to US citizens to buy certified made in USA cars by these three companies. This way people will vote which company should stay and which go broke. And then break just one that went broke. We'll be able to check what will happen and it will be a good enough scarecrow to make all three push to the best of their abilities.
Friday, December 5, 2008
Great Depression? Great Flood.
In response to The liquidity trap. Commentary: Financial engineering seems worse than the alternative by Jim Anderson - Dec 4, 2008
el000:
Liquidity trap of course exists, but in 30s one factor was absent, which is present today: huge amounts of live money pumped into the banks instead of bad debt and bad securities.
As such, they replace invetment tools in banks and hang there as investment (makes sense in deflation) but early or later banks will need to make these money grow, not just sit there in piles, and with financial market solutions shut down, what direction will they go?
For now, these money are hanging in investment mode like a dark cloud in the sky full of water. But any point of condensation or triggering event and the drought is over and they will start to rain on real economy, and then inflation will start. Not fun either, but the deflationary state of the economy is simply not stable this time.
Deflation during Great Depression was like drought resulted from no rain. With those clouds of money in our economy sky we are heading to the Great Flood instead. Of course, not today. A very good (and very interesting) question is when?
el000:
Translated to polite language, what you say means that trickle down economy (money flowing from rich to poor) does not work. Yes, I completely agree with you on that. Rich getting richer does not make economy work, otherwise there would be no 19th century overproduction crisises.
Giving money to banks is essentially making rich richer (as you said "BILLIONS FOR THE THIEVES, NO QUESTIONS ASK"). Now "thieves" have tons of greenbacks and sitting on them because deflation makes it sensible and liquidity trap is in place, Great Depression seems inevitable.
But consider such scenario: Obama tries to press on China to free Tibet and pushes Georgia into NATO. China and Russia are pissed off and sell a lot of greenbacks on international markets. Dollar plunges, because they still have tons of them. Your rich "thieves" scurry to save their money and selling dollars for euros, yens, franks, yuans, rubles... making dollar plunge even deeper and making it irreversible. With exchange rate crushed everything imported (that is nearly everything in your local Wal-Mart and gasoline) becomes more expensive. That's called inflation. At the same time our export becomes less expensive and more competitive. It will begin to make sense to produce here and export out there. Depending on how much dollar will fall, we may become destination for outsourcing instead of China. Especially, if we fix our education to continue having great workforce.
And "Free Tibet"/Georgia with panic on ForEx is just one scenario, there is a lot of other potential triggers around.
Of course, free market style as descibed here, it will really hurt too, and trickle-UP elements like infrastructure works or direct cheap credits from the government bypassing banks would soften it a lot. In the end, I am not saying that what's coming is better than Great Depression (although it could be, only complete idiots would not learn in a hundred years), I only say that the Great Depression scenario is not stable today.
el000:
Liquidity trap of course exists, but in 30s one factor was absent, which is present today: huge amounts of live money pumped into the banks instead of bad debt and bad securities.
As such, they replace invetment tools in banks and hang there as investment (makes sense in deflation) but early or later banks will need to make these money grow, not just sit there in piles, and with financial market solutions shut down, what direction will they go?
For now, these money are hanging in investment mode like a dark cloud in the sky full of water. But any point of condensation or triggering event and the drought is over and they will start to rain on real economy, and then inflation will start. Not fun either, but the deflationary state of the economy is simply not stable this time.
Deflation during Great Depression was like drought resulted from no rain. With those clouds of money in our economy sky we are heading to the Great Flood instead. Of course, not today. A very good (and very interesting) question is when?
el000:
Translated to polite language, what you say means that trickle down economy (money flowing from rich to poor) does not work. Yes, I completely agree with you on that. Rich getting richer does not make economy work, otherwise there would be no 19th century overproduction crisises.
Giving money to banks is essentially making rich richer (as you said "BILLIONS FOR THE THIEVES, NO QUESTIONS ASK"). Now "thieves" have tons of greenbacks and sitting on them because deflation makes it sensible and liquidity trap is in place, Great Depression seems inevitable.
But consider such scenario: Obama tries to press on China to free Tibet and pushes Georgia into NATO. China and Russia are pissed off and sell a lot of greenbacks on international markets. Dollar plunges, because they still have tons of them. Your rich "thieves" scurry to save their money and selling dollars for euros, yens, franks, yuans, rubles... making dollar plunge even deeper and making it irreversible. With exchange rate crushed everything imported (that is nearly everything in your local Wal-Mart and gasoline) becomes more expensive. That's called inflation. At the same time our export becomes less expensive and more competitive. It will begin to make sense to produce here and export out there. Depending on how much dollar will fall, we may become destination for outsourcing instead of China. Especially, if we fix our education to continue having great workforce.
And "Free Tibet"/Georgia with panic on ForEx is just one scenario, there is a lot of other potential triggers around.
Of course, free market style as descibed here, it will really hurt too, and trickle-UP elements like infrastructure works or direct cheap credits from the government bypassing banks would soften it a lot. In the end, I am not saying that what's coming is better than Great Depression (although it could be, only complete idiots would not learn in a hundred years), I only say that the Great Depression scenario is not stable today.
Thursday, December 4, 2008
US debt
Comments to "China's sovereign fund 'wary' of western banks. China Investment Corp. chief says he doesn't trust Western financials amid lack of clarity on outlook, effect of government policies"
(http://www.marketwatch.com/news/story/chinas-sovereign-fund-wary-western/story.aspx?guid=%7B5D3506A3%2DA5C5%2D4E21%2DA017%2D83DB4EC282E2%7D#comment1143283)
Dec 3-4, 2008
Leonidas
In order to finance our debt we need to sell assets to foreigners. If not financials then what? real estate? At the moment high dollar value is shrinking the export sector.
el000
Our debt in US dollars. Printing extra to pay for that debt would also make it cheaper and help to increase our export... if we would have any production to export, of course.
Leonidas
el000, don't you think that those who buy the debt are fully aware of any attempts to devalue it? They could be foreigners but not necessarily stupid.
el000
Leonidas, of course they are not stupid. Chinese invented paper money (or, more precisely, Chengiz-Khan after conquering China). The point is, they know well how to use paper money. In some sense better than our bankers.
They've got a lot of milage out of financing US debt: influence on US foreign (and not only foreign) policy, building their own industry/economy to incredible size while driving our industry into a ditch, using OUR companies to sell THEIR products worldwide... They never believed in the magic of the dollar in the first place, but skillfully used it for their advantage, and they got it.
Consider an example: a consumer buys a roll of toilet paper. Then he uses it. Did he lost its value? No, he's got value. And yes, he cannot resell that roll anymore, but that was expected. Chinese bought a lot of green toilet paper and they used it. They've got value. A lot of value.
Granted, as wise people they may not want to waste what's left and try to recycle it in a form of political influence on US policy.
There is also a chance that they will use that influence to prevent us from printing extra money, but that won't really work. With all trllions pumped into the systems by Feds and Paulson's 700+ billions coming, our investment heavens are soaked with dark clouds of money. They are already there. They don't result in inflation because they just hang in the sky for now. It's a matter of time and some triggering event to start raining and then it will flood the real economy.
... and stock market too. I am squeaking like Scrat in a nut heaven trying to decide which stocks to buy now and when exactly... Speaking of Noah's Arc...
(http://www.marketwatch.com/news/story/chinas-sovereign-fund-wary-western/story.aspx?guid=%7B5D3506A3%2DA5C5%2D4E21%2DA017%2D83DB4EC282E2%7D#comment1143283)
Dec 3-4, 2008
Leonidas
In order to finance our debt we need to sell assets to foreigners. If not financials then what? real estate? At the moment high dollar value is shrinking the export sector.
el000
Our debt in US dollars. Printing extra to pay for that debt would also make it cheaper and help to increase our export... if we would have any production to export, of course.
Leonidas
el000, don't you think that those who buy the debt are fully aware of any attempts to devalue it? They could be foreigners but not necessarily stupid.
el000
Leonidas, of course they are not stupid. Chinese invented paper money (or, more precisely, Chengiz-Khan after conquering China). The point is, they know well how to use paper money. In some sense better than our bankers.
They've got a lot of milage out of financing US debt: influence on US foreign (and not only foreign) policy, building their own industry/economy to incredible size while driving our industry into a ditch, using OUR companies to sell THEIR products worldwide... They never believed in the magic of the dollar in the first place, but skillfully used it for their advantage, and they got it.
Consider an example: a consumer buys a roll of toilet paper. Then he uses it. Did he lost its value? No, he's got value. And yes, he cannot resell that roll anymore, but that was expected. Chinese bought a lot of green toilet paper and they used it. They've got value. A lot of value.
Granted, as wise people they may not want to waste what's left and try to recycle it in a form of political influence on US policy.
There is also a chance that they will use that influence to prevent us from printing extra money, but that won't really work. With all trllions pumped into the systems by Feds and Paulson's 700+ billions coming, our investment heavens are soaked with dark clouds of money. They are already there. They don't result in inflation because they just hang in the sky for now. It's a matter of time and some triggering event to start raining and then it will flood the real economy.
... and stock market too. I am squeaking like Scrat in a nut heaven trying to decide which stocks to buy now and when exactly... Speaking of Noah's Arc...
Wednesday, November 26, 2008
Rescuing Big 3 automakers....
Marketwatch, November 24, 2008
I already mentioned it to another post, but I wonder if help to Big 3 may be provided as a low or zero interest federal loans to Americans to buy one of these three brands.
1. You have to be US citizen or legal permanent resident (verifiable by SSN) and live in US
2. You can buy one vehicle of Ford, GM or Chrysler of your choice
3. Price must be fixed to MSRP+$300-400 for the dealer (Big 3 can force their dealers to do so as part of the deal).
4. The vehicle must be certified made in USA
5. Credit is low or 0% interest with deferred payments.
I'd love that. For a difference I'll get something from my tax dollars even if in a form or credit.
Big 3 will get their money but in a more natural way, also market will tell who of them sucks more and pay appropritely. And the money will also stimulate local economies on the way. Also, haugty j**/Euro-brand lovers won't use it, so it will go to poorer states like MidWest or South where people still have to drive cars from 70s and 60s. That will help them and also ensure that these cars won't flood the market soon afterward -- because those people will really need these cars.
Mortgage lending and leveling risks
MarketWatch, Nov 25
Thanks for comments to:
I wonder if our whole mortgage industry is somewhat skewed in favor of banks. You see, in morgage all the risk is on the buyer and all the benefits are to the bank. The only risk bank is taking is buyer's bunkrupcy, which is all-or-none game for them. In a case of ARM the risk is even more overhanging on the buyer. But if we are in a free market, why such an asymmetric deal?MarketWatch, Nov 26
If reguilations would require banks to share the risk of falling house values with the buyer, and put on hold payments for "underwater" portion of the loans or even lose that portion, they (banks) would be much more careful giving our mortgages in a bloated market. And banks have analysts,experts, and they are not under pressure to close the deal to have a place for the family to live in. With such regulation housing speculation will become nearly impossible as banks control real influx of money to the market, and we would get to the old good real market prices with just normal inflation adjustments.
I wonder if I should write about it to my congressmen and senators... sounds like they will discuss the topic in the near future in DC.
Speaking of fantasyland and risks, let's see. A lot of subprime rates were given to uneducated people who just did not know the real value of their house and what it means for them. You may say that they "need to learn", and they do so right now! They are getting their houses foreclosed, their finances in ruins... Anybody’s happy?
See, if you want a functional economy, you have to have a lot of janitors, cab drivers, etc. and they are uneducated, that's why they are janitors and cab drivers. So, you have uneducated masses on one side and greedy banks on another side. You cannot get rid of any, and together they've proved to be a combustible mix.
Now, uneducated masses pay for their errors. But I don't see banks paying for their errors -- they are getting bailed out. In fact, they are getting bailed out every 7-10 years for the last several decades. That's NOT a leveled field. And "masses learning their lesson" does not work. You have to put some breaks on another side too.
I did not borrow against inflated price of my house. I’ve got it for ~$250 and refinanced a couple of times only 30-years fixed to decrease monthly payments. I know it’s not worth half a mil, even though it still would sell for that right now. But despite my education and right choices, I am still caught in a bad economy because stupidity and greed of others met each other. And you are caught in it too! So, now it’s not about learning, it’s about macroeconomics. It’s about OUR SYSTEM HAVING WRONG BALANCE SOMEWHERE.
Uneducated people don't have education or knowledge to recognize the problem. Banks do. Banks can distinct value of the house and price in overheated market. Banks should not give $500K loan for $200K house only because current prices are up in a bubble market. What I propose is not putting all risks on the lender, but PUTTING ONE SPECIFIC RISK on the lender, which they neglected for decades with national disaster consequences. In a sense, it’s about banks learning their lesson.
And if that will be in place, it won’t result in higher interest rates, because no interest rate can counteract loss of value after the bubble burst. It will result with banks lending only real value of the house, not a bloated price tag. “Yeah, friend, you see, seller asks for 1.5 mil, but the house only worth $350K, so that’s max we can give you for it.” And because most money on real estate market comes from banks, it will prevent further real estate bubbles.
BTW, THANKS EVERYBODY FOR YOUR COMMENTS AND CIRTICISM, it really helps to clarify thoughts and polish the idea.
Thanks for comments to:
lnardozi, awesley, ab420, JustTrade, seetheforest, 6TANGO, DC26, and Ostriches.
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