The China Syndrome - part the sixth

A meaningful factoid, known to the econ crowd for some long time, is that the problem with Evergrande isn't totally of its own making. There's no Blythe to blame; so far as I can find. No, as mentioned in this missive and this report going back nearly as far, housing Ponzi has been ingrained in China for a long time. Eventually, it had to collapse. Whether Evergrande does, and is the failing keystone of the Chinese economy, is the question.

So, we get reporting like this.

Still the ripples were felt across the market. Bond yields fell as prices rose because investors fled to safety. Bitcoin, another risky asset class, also felt some pain and dropped more than 7%.

In the world of commodities, US oil prices fell 2%, while gold prices inched up 0.2%.

As is ever the case: real estate, esp. residential, only makes money on a Ponzi basis. There is no direct productivity from a fancy house or apartment unlike a fancier semi fab. It's value can rise if, and only if, the underlying income of mortgage holders increases. More specifically, incomes of new, prospective, mortgage holders: they're able and willing to pay more per square foot than the last guy. If they can, then the market value of existing properties rises a bit in concert. If not, then all properties devalue. And Blythe saw to it that such a contagion can be country wide (he he).

Recalling Philip Morris

So, we know that Newsom/Dems wiped Elder's ass. So, again, was it worse than Biden/Trump of 2020? We don't know for sure as I type, in that the latest numbers I find are for 74% of the Recall Vote.

Let's scale up. The NYT results 74%

   Newsom:  5,481,689  64% 
 Trumpism:  3,298,988  36% 
scaled 
   Newsom:  7,407,688  64%
 Trumpism:  4,458,092  36% 
    delta:  2,949,596 

The 2020 results

Biden: 11,110,250  63% 
Trump:  6,006,429  34%
delta:  5,103,821 

So, Newsom gets a smidgen more percentage than Biden. A big deal? Not likely. The idea that Trumpism would prevail in California is, to quote Mike Pompeo, "fucking moron". That was never going to happen. Larry Elder is no Ahnold.

I Still Hate Neil Irwin - part the nineteenth

Once again, Mr. Irwin has been reading my musings? Of course, it helps that he has easy access to arcane (for the average citizen) professional/academic research papers. In this case, a Fed regional paper studying the correlation, and likely causative direction, of wealth/income inequality and the 'natural rate of interest'. Both his report, and the reported on paper, reflect what you've read here over the years: scardy cat holders of excess moolah can't and/or won't turn said funds into physical capital, thus we got the Great Recession when a very lot of that moolah decided to chase the nearly (so far as they were concerned and convinced) riskless residential mortgages.

Both he and the reported paper (at least, as reported) ignore two salient facts:

1 - this process he describes is what drove the Great Recession in the first place, the demand for 'riskless' high returns
2 - economists, even the Right Wingnut cabal, have known since Adam Smith (the real one) and raised to importance by Keynes, that the greater one's relative wealth, the less each additional Bongo Buck is spent on goods and services; it's either horded or invested (Jesus saves; Moses invests)

But, here's his take-away

New evidence suggests high inequality is the cause, not the result, of the low interest rates and high asset prices evident in recent years. That is a provocative implication of new research presented on Friday at the Federal Reserve Bank of Kansas City's annual Jackson Hole economic symposium (which was conducted virtually because of the pandemic).

I could have told you that. Wait, I have. More than once. And it didn't cost you anything.

And the reason, as described here a few times, is that those with excess moolah drive the asset markets, and when they are feeling scardy cat, they turn to 'riskless' instruments. When they tired of Treasuries' returns, they convinced themselves that residential mortgages were almost riskless (thanks Blythe!) and they all jumped in feet first. We now know what happened next. As mentioned in a recent missive, banks are so scared they're sucking up Treasuries, too.

It's not that the high earners increased their savings rates. Rather, they were winning a bigger piece of the economic pie; by the researchers' calculations, the share of income going to the top 10 percent of earners rose to more than 45 percent in recent years, up from about 30 percent in the early 1970s.

In other words, if they be necessary, keeping an ever increasing proportion of the GDP in the hands of the 1% leads to an ever larger pile of moolah chasing returns without a change in MPC/MPS of the wealthy class. Fundamental Supply And Demand means that the price of assets will rise and returns on assets will fall. Econ 101.

"These forces pushing down r-star are probably so powerful that the Fed could never fight against them," Professor Sufi said in an email.

Oopsy! Here's a prediction (which won't likely be tested for some time yet): the fiction of Social Security 'investment' in Treasuries will collapse, and SS will be funded directly without all that hand-waving about instruments and imputed returns and other lies.

Cops (of the world)

With all the finger pointing going on about the Afghan withdrawl, it's worth a minute to review the USofA's other 20 year war: Viet Nam. Yes, most Lamestream Media and Right Wingnut Propaganda date our involvment to the mid-60s. Ain't true.

Here's Phil Ochs' 1966 anthem, "Cops of the World".

Come, get out of the way, boys
Quick, get out of the way
You'd better watch what you say, boys
Better watch what you say

We've rammed in your harbor and tied to your port
And our pistols are hungry and our tempers are short
So bring your daughters around to the port
'Cause we're the Cops of the World, boys

We're the Cops of the World
We pick and choose as please, boys
Pick and choose as please
You'd best get down on your knees, boys

Best get down on your knees
We're hairy and horny and ready to shack
We don't care if you're yellow or black
Just take off your clothes and lie down on your back

'Cause we're the Cops of the World, boys
We're the Cops of the World
Our boots are needing a shine, boys
Boots are needing a shine

But our Coca-cola is fine, boys
Coca-cola is fine
We've got to protect all our citizens fair
So we'll send a battalion for everyone there

And maybe we'll leave in a couple of years
'Cause we're the Cops of the World, boys
We're the Cops of the World
Dump the reds in a pile, boys

Dump the reds in a pile
You'd better wipe of that smile, boys
Better wipe off that smile
We'll spit through the streets of the cities we wreck

We'll find you a leader that you can't elect
Those treaties we sighned were a pain in the neck
'Cause we're the Cops of the World, boys
We're the Cops of the World

Clean the johns with a rag, boys
Clean the johns with a rag
If you like you can use your flag, boys
If you like you can use your flag

We've got too much money we're looking for toys
And guns will be guns and boys will be boys
But we'll gladly pay for all we destroy
'Cause we're the Cops of the World, boys

We're the Cops of the World
Please stay off of the grass, boys
Please stay off of the grass
Here's a kick in the ass, boys

Here's a kick in the ass
We'll smash down your doors, we don't bother to knock
We've done it before, so why all the shock?
We're the biggest and toughest kids on the block

'Cause we're the Cops of the World, boys
We're the Cops of the World
When we butchered your son, boys
When we butchered your son

Have a stick of our gum, boys
Have a stick of our buble-gum
We own half the world, oh say can you see
The name for our profits is democracy

So, like it or not, you will have to be free
'Cause we're the Cops of the World, boys
We're the Cops of the World

Note that this was years before the real mess started. Note, also, how the USofA treated the Hmong after we high-tailed it out.

So, when do we demark USofA involvement? Here's the wiki

November 1, 1955 — President Eisenhower deploys the Military Assistance Advisory Group to train the Army of the Republic of Vietnam. This marks the official beginning of American involvement in the war as recognized by the Vietnam Veterans Memorial.[14]

By that measure, a 20 year war. Training the 'country's army? Sound familiar? On the other hand, one might start the clock a bit earlier

May 1, 1950 — After the capture of Hainan Island from Chinese Nationalist forces by the Chinese People's Liberation Army, President Truman approves $10 million in military assistance for anti-communist efforts in Indochina. The Defense Attaché Office was established in Saigon in May 1950, a formal recognition of Viet Nam (vice French IndoChina). This was the beginning of formal U.S. military personnel assignments in Viet Nam. U.S. Naval, Army and Air Force personnel established their respective attaches at this time.

The bottom line, so to speak, is that the USofA has been implementing gunboat diplomacy since, at least, Monroe. At least back then, the notion was limited to the New World. So, what's it all about? Natural resources, the mother's milk of Mercantilism; we take the resources for cheap (we prop up a compliant dictator to ensure the price) and sell back, at a nice premium, finished goods. We, and the West generally to spread the blame, only care about shithole countries when there is something in the ground we've decided we need. That's the reason Bush Jr, et seq, have steadfastly ignored the simple fact that 15 of the 19 9/11 perps were Saudis; toss in their UAE brethren and it's 17. Interesting factoid: now that Guinea is in something, looking like our new dictator, whomever 'our' is, Mr. Market is nervous about the supply of raw aluminum ore. It never stops, does it?

Cliff Diving

It's hard to keep absolute track of the content of these missives, since they're not stored in my beloved RDBMS, but at least by the end of February these missives pondered the odd shape of the Covid infection curve. Why would it look like a witch's hat rather than having a slower decline than rise? What would explain that?

All these months later, David Leonhardt questioned some experts in epidemiology. And guess what? They still don't have an answer yet, either.

We have asked experts about these two-month cycles, and they acknowledged that they could not explain it. "We still are really in the cave ages in terms of understanding how viruses emerge, how they spread, how they start and stop, why they do what they do," Michael Osterholm, an epidemiologist at the University of Minnesota, said.

Note that at one point, Osterholm allowed as how the next few weeks would be the worst.

There have been plenty of exceptions to the two-month cycle around the world. In Brazil, caseloads have followed no evident pattern. In Britain, cases did decline about two months after the Delta peak — but only for a couple of weeks. Since early August, cases there have been rising again, with the end of behavior restrictions likely playing a role. (If you haven't yet read this Times dispatch about Britain's willingness to accept rising caseloads, we recommend it.)

Listen up wannaBePresident Huey Long 2024-sters

In a few countries, vaccination rates have apparently risen high enough to break Covid's usual two-month cycle: The virus evidently cannot find enough new people to infect. In both Malta and Singapore, this summer's surge lasted only about two weeks before receding.

Thought For The Day - 31 August 2021

Another island going down the tubes. I suppose because it's many thousands of miles from Soho, Hawaii doesn't make the headlines. Talk about exponential! Of course, the situation could go in reverse if you're visiting the graph some days later.

On the 29^th, the case count is 1,658. That's more or less 10 times the next worse day in all the pandemic. "Death in Paradise".

I Told You So - 30 August 2021

Many's the times these missives have dissed the scardy cats in the Corner Offices for their demand for for-certain high returns on fiduciary capital. Such, of course, don't exist, so the Corner Offices now load up on Treasuries. We got the Great Recession just because the Corner Office guys gulled themselves (and we civilians) into believing that pell-mell residential housing mortgaging wasn't Just Another Ponzi Scheme. Thanks Blythe!

These days, we get conflicting arguments. Some say Powell will turn off the faucet of Fed Treasury buying: the party's over. The Fed's the reason Treasuries draw historic returns, and not in a pleasant way for the capital rich.

The short answer: Money is essentially free now, thanks to the Fed's double-barrel shotgun approach to economic stimulus — interest rates near zero and a massive investment in bonds that keeps yields near rock-bottom. If the Fed eases off the stimulus pedal, borrowing could grow more expensive, making businesses pay more, which means less profit which means Wall Street is sad.

Of course, that assertion is true IFF Treasury interest rates are solely the result of Fed buying. But what if that's just not true?

Rates on Treasury bonds are still near historically low levels, but banks have been buying government debt like never before. In the second quarter of 2021, banks bought a record of about $150 billion worth of Treasurys, according to a note published this month by JPMorgan analysts.

My my!!! The Smartest Guys In The Room just can't, or won't, find any useful ways to turn fiduciary capital into physical capital. There's the meme, been around for some years: "Software ate the world!" Meaning - real goods making is terminal, and so is most need for significant physical capital. (Of course, that tic again, the glow of AI has dimmed rather a bit in two years.)

It's worth keeping in mind that what Powell/Fed have been engaged in is not just more of Great Recession QE. It looks the same, but the two are separated by some years and events in time. It's arguable that Powell's Fed's action is more necessary than Bernanke's of a decade ago. Why, one might ask? Because Covid is a truly external systemic shock, while the Great Recession was the product of those self-same Smartest Guys fiddling the system.