Economic Mischief - Contrarian Political And Economic Analysis

Where Is The Hyperinflationary Tipping Point?

2010-10-20T05:03:00.000-07:00

With all the money printing going on at the Fed, why is the Fed having trouble creating inflation in the economy?

One of the reasons is that asset values are rapidly declining. This leads to a collapse in available sources of consumer credit. For instance, now that home values have fallen, home equity lines are not available. Existing lines are gradually being paid down or defaulted on.

Fed liquidity programs such as TARP, which swaps cash for mortgage backed securities, is going into equities and not into new loans. It also seems to be about the only liquidity entering the system. The rest of the liquidity sits on the bank balance sheets, unable to find a home in an asset bubble. Bank lending needs an asset bubble to get into the economy because Banks are too conservative to lend like venture capitalists. They only really want to lend against assets, which are all falling in price due to the aftermath of the once great asset bubble. Since banks only want to lend against assets, decreased collateral values means decreased credit.

SO where is all this going? Bernanke will buy treasuries forever and the interest on the national debt will slowly drift higher until exactly what happens? What is the proper equivalent economic situation? Is it the Weimar hyperinflation, as so many pundits state? No, Weimar owed its debt to external creditors in foreign currency and its economy was largely destroyed by the French occupying the industrial region of Germany after non-payment of reparations.

The equivalent is actually Argentina in the 80s. Why?

* Excess government debt denominated in local currency
* No Currency Controls (Yet)
* Functioning, but inefficient economy
* Reasonably politically stable.

There's a great postmortem on all this over at the World Bank:

Public Sector
"Debt Distress" in Argentina, 1988-89

The most interesting parts of the paper:

6. common characteristicsof the Primavera and B8 Plans.

Many observers noted the parallels with the Primavera Plan
even at the outset of the BB Plan, and there are evident
retrospective parallels. Both failed because they sought to
stabilize a macroeconomy burdened with excessive, and exces-
sively expensive, public-sector debt by having the public sector
take on more debt. The architects of both plans were fully
aware of the contradiction:they felt their only hope of avert-
ing public-sector bankruptcy was to borrow time at high interest
rates, win sufficient confidence to bring down the interest
rates, and then carry out structural reforms quickly enough to
enable the public sector to pay the interest and, ultimately,
the principal.

The orders of magnitude of the aggregates involved made
this approach dauntingly difficult. With monthly interest rates
on the order of 5 per cent, domestic debt totalling US$7 bil-
lion, and monthly GDP running at US$5 to $6 billion, the monthly
interest bill of US$350 million was 6 to 7 per cent of GDP.
Even after the massive devaluation and public-sector price in-
creases of July 1989, the non-interest public-sector surplus was
barely positive at best. It may have reached 2 or 3 per cent of
CDP in November 1989. An additional increase of 3 or 4 percent-
age points in the non-interest surplus -- whether through ex-
penditure reductions or tax increases -- would have strained the
economy severely at a moment when it was emerging from the dis-
array induced by the hyperinflation. Even if successfully im-
plemented, such fiscal improvements might have had short-term
contractionary consequences so sharp that they might have dimin-
ished private saving, which might in turn have inc.reased
domes-tic interest rates. (The peculiar hydraulics of Argentina's
macroeconomy made this possible: demand for broad money depended
positijvel on interest rates and the public sector itself was
heavily indebted at high interest rates.)

Interest-rate determination in the Primavera and
BB Plan contexts clearly operated rather differently from usual.
In conventional settings, borrowers and lenders presumably come
to market with real "reservation"interest rates based on their
propensities to borrow and lend, then negotiate nomii4a!
rates by taking account of exogenous anticipated
reserva-tion interest
inflation. In a financial system as open as Argentina's, lend-
ers' opportunity cost is governed by anticipated devaluation and
external interest rates. High interest rates induce private
lenders to ration, because high rates make borrowers more likely
to default. Where the public sector owes the debt, however, the
nature of the market changes. A public sector can promise any
nominal interest rate as long as it has unquestioned capacity to
inflate. Knowing this, private lenders can demand any interest
rate from the public sector they collectively wish. The public
sector can place debt at any interest rate the market demands,
effectively financing the interest by placing additional debt.

6.4. As Argentina's public sector borrowed from the private
sector, a perverse distress cycle resulted. The public sector
rolled over its loans and borrowed increasing amounts from the
private sector to pay the private sector its interest; the pub-
lic sector then borrowed still more to service still more debt.
A regressive transfer resulted, from inflation- and convention-
al-tax payers to lenders. The process finally broke down be-
cause the capitalization of interest rapidly increased lenders'
portfolio holdings of austral-denominated assets: once they
elected to balance their portfolios by acquiring more foreign
exchange, they bid down the value of the austral and bid up in-
terest rates. At this point, higher interest rates could only
increase anticipated exchange-rate depreciation. In such cir-
cumstances, financial-market participants, observing higher in-
terest rates, are apt to conclude that the Government will soon-
er or later have to inflate to pay the interest, that everyone
else's inflation expectations are rising on similar reasoning,
and that hers or his should therefore rise as well.

In Argentina, when monthly interest hit between 6 and 7 percent of GDP, money started moving into foreign exchange very quickly causing a currency devaluation downward spiral.

Since money won't rush into Yuan because its pegged and the Chinese currency is not convertible, where will it rush into? Gold? Commodities? A Europe with raised interest rates? At some point though, there is going to be so much money being made passively on U.S Treasury interest that it won't be capable of being recycled into the U.S economy and will start to flow out to foreign exchange and into foreign property(?) and stock market bubbles.

Perhaps at some point, taxes and commodity prices will get so high that imports will slow to a trickle and the entire velocity of money will be absorbed in paying interest and non-discretionary budget items on the national debt. The fed will be buying all treasuries at negligible interest rates. Now what? Well then you might start to see a carry trade further weakening the dollar, but this isn't really the kind of thing that gets out of hand. It's more likely to create a long slow deflationary misery of the trajectory that Japan followed as the domestic market is starved for debt as the banks look to engage in the carry trade.

Over the following years, the yield on U.S assets continues to fall and investment money goes elsewhere as the long slow slog of wage and asset deflation and business decline continues. The other countries will handle the rise in commodity prices better because they are far more efficient per dollar of GDP. This will continue until production costs eventually equalize, which could be never, at least with how much debt there is to service.

The curious case of the Yuan and the Yen

2010-09-15T21:08:00.001-07:00

Two curious pieces of news today:

Geithner Says U.S. Examining Ways to Push China on Yuan Rise

Treasury Secretary Timothy F. Geithner said the U.S. isn’t satisfied with the pace of yuan gains and is considering ways to urge China to let the currency rise faster.

And

Fed refused to comment on Japan weakening the Yen.

NEW YORK (Dow Jones)--The Federal Reserve Bank of New York declined to comment on Japan's intervention in currency markets that has pushed the dollar sharply higher against the yen.

So why are we perfectly happy, or at least neutral, with Japan, the #3 economy, weakening the Yen and are furious at China, the #2 economy, decreasing the value of the Yuan.

This is a good question for any would be political economist to ponder. The treasury is certainly in charge of the political aspects of the dollar's relationship to other currencies. The Fed's political objectives are somewhat murky but assumed to be largely the same as the treasury's.

Let's call this the Asian currency political paradox.

I have my thoughts, which I'll elaborate on in later posts.

Why there will be no hyperinflation

2010-08-05T02:48:00.000-07:00

I have been reading the inflation/deflation debate for some time now on various parts of the web. The inflationists insist that we will collapse like Wiemar. The deflationists insist that we will collapse like Japan. The memory of the 1970s inflation is strong in many an old gold curmudgeon, so the inflationists seem to be more prevalent. I will in this essay attempt to argue that hyperinflation will not happen if global commodity markets remain priced in dollars. The reason for this is that if inflation increases, the rest of the world will bid commodities up drastically, especially oil, and severely throttle U.S economic growth, leading to a more restrictive monetary policy.

Hyperinflation always happens due to a foreign exchange crisis. The population, sensing a high level of inflation, rushes to change their earnings in for real goods or foreign currency. In the case of Wiemar, or Argentina, the rest of the world is largely unaffected. They see their currencies drastically appreciate against the hyper-inflating currency, but that has little affect on their internal economies. Consumption of oil and commodities remains relatively flat in these countries and existing relationships are largely preserved.

If Ben Bernanke were to fire up the proverbial helicopters and start dropping money over the country, the first thing that would happen would be the money would not go directly into foreign currency. Instead, it would go down to walmart and buy itself some imported goods. Then the money would go via walmart, to China and from China, back into treasury bills. Don't worry, there are plenty of treasury bills to go around. In China it would lead to more domestic currency creation and therefore increased production, and workers wages and from there, into domestic consumption.

China is currently the largest market in the world for automobiles. People who buy automobiles need to fill up gas tanks, especially Chinese workers with fresh new currency in their pockets. The increased consumption of oil and other commodities in China would necessarily lead to the price of these commodities increasing on the global market. China intervenes regularly with their dollar reserves to keep domestic prices of commodities stable.

As this dynamic continues, we will start to see the Baltic Dry Index go up as many ships merrily steam across the pacific delivering goods to happy American consumers. We will also concurrently see oil and other commodity prices shoot through the roof. As oil prices shoot up, the economy in the U.S will start to experience a very heavy drag, as it did in 2008, when oil hit $150 a barrel. These added costs will quickly send the inflation indicators out of control, even though FX rates will only be moderately affected due to the Chinese currency peg. At this point, Ben will probably hit the pause button on the printing machine and we'll have a late 2008 style deflationary crash.

Recently, Bullard at the Fed was talking about doing an instant-refi of all mortgage holders at lower rates. This will provide another temporary boost that might last a year or two. It would annoy the lenders, who would have to accept a lower coupon and might be outside the fed's mandate. It's not the kind of hyperinflation generating event though that would precipitate a scenario like the one above, mainly because I don't think it can start another asset bubble as all the loans in question are still underwater.

Keeping up to date on China Stock/Economic news

2008-07-02T05:11:00.000-07:00

I have been trying to get a daily reading list together so I can more closely follow economic developments in China. I was trying to stay as far away from western viewpoints of China as possible. Reading western news sources is like reading about science in newsweek vs reading china business based and focuses news sources -- which is more like reading the actual technical journal articles.

Ok here's my notes on the topic so far:

http://www.chinaview.cn/business/index.htm

-Decent - basically Xinhua's (Official Chinese News Agency) business section

http://english.gov.cn/service/business/sbw.htm

-brief gov news agency business headlines.

http://www.chinadaily.com.cn/english/bw/bweconomy.html

-Not bad with a lot of original information! for example:
Quote:

"Tax treaty benefits
In this article, we shall analyze the process of adopting a Mauritius company as a holding vehicle. The China-Mauritius tax treaty offers some tax benefits in structuring a tax efficient holding structure for PRC investment."

http://www.atimes.com/atimes/china.html
- This is an example of what I didn't want to read. It's all about what other countries think of China and not what is actually going on in China. Every article has political overtones and implied western criticism of China. This is just a bunch of noise IMHO.

http://www.einnews.com/china/newsfeed-china-business
Looks good but you have to subscribe.

http://www.cbiz.cn/
Oh you bears will like this site :). Not bad stuff...No new original content for a while...
Quote:

The accusation of endemic, pervasive corruption that foreign critics of China, particularly Americans, level at it is now rendered passe, unfashionable in light of the systemic, widespread and criminal fraud that defines the American financial system and its manipulations of securitized mortgage debt.

http://www.china.org.cn/english/business....

Pretty Focused

More to Come....

Behind the "Global Savings Glut"

2007-11-18T15:55:00.000-08:00

A recent article in The Arab Times seems to shed some light on where all the money sloshing around the world creating asset bubbles is coming from:

We in Kuwait seem to have run out of ideas for the time being and our past generations were more creative and looked deeper into our human resources to give their best. The overseas investments have their limits and it is time to seriously think of ways of making and creating new job opportunities for our youngsters and improve their capabilities and abilities. This is the only way to move forward as our financial resources are beyond our abilities and capabilities. It may take some time to come with the right answers but this will not happen without passing some laws through our parliament. Most importantly the land utilization law and liberalization laws to allow the private sector to move forward. The government owns more than 95 percent of the Kuwaiti land and with the BOT law still under revision almost all projects have been shelved awaiting the new laws to be approved.

The Super SIV? Will it work or are there one too many holes in the dike.

2007-10-21T00:10:00.000-07:00

The Super SIV appears to be on it's way to sanitize all the sub-prime CDOs.

Will it work?

Probably Not... Why?

Hole in the Dike #1:

The Chinese and the Japanese aren't buying it anymore as outflows of capital show:

Asian Investors Dumping Treasuries

Asian investors dumped $52bn worth of US Treasury bonds alone, led by Japan ($23bn), China ($14.2bn) and Taiwan ($5bn). It is the first time since 1998 that foreigners have, on balance, sold Treasuries.

Mr Ostwald warned that US bond yields could start to rise again unless the outflows reverse quickly. "Woe betide US Treasuries if inflation does not remain benign," he said.

See that chart above? That's the August data, before they lowered rates!

Hole in the Dike #2:

The worst isn't even here yet! See below for a timeline of when rate resets are going to hit. It starts in January 2007.

No foreigners want to buy our debt and there are going to be a ton of people defaulting on their mortgages in the coming months. So all that debt, wherever they hide it is going to be worth WHAT Now?? The U.S financial system has suffered an epic mortal blow. The blow is to the credibility of the system is now totally shot. Bernanke is a smart guy and a well trained economist but I don't think he realizes that we are operating in a vastly different economic climate than 20 even 10 years ago where suddenly the U.S isn't the only place to invest anymore. The world has caught up to the U.S in many ways but we aren't anymore cautious.

SIVs ..... financial panics, august credit crisis, etc, explained...

2007-10-20T23:02:00.000-07:00

Financial BS is so entertaining when you actually try to take it seriously.

The Big Sub-Prime Bailout Game

2007-09-01T10:12:00.000-07:00

It seems that everybody is trying to sort out the justice of the situation. People see empty neighborhoods with unkempt lawns and they want to help, it's only natural.

Bush: Nobody did anything wrong, there's just a confidence crisis keeping people from being able to re-fi. In this sense, this is the most blissfully academic conventional macro solution because it looks at the whole situation as composed of undifferentiated perfectly uniform economic quantities like interest rates and monthly payments.

Bernanke: Bernanke thinks that again no one should pay it's just that whoever bought the MBS paper got too smart and got scared and we need to add more complexity to get the con-job started again.

Obama: Think that obviously it's the financial industry that is to blame. He is right about the perpetrator but wrong about the victim. The borrower got to live in a nice house they would never be able to otherwise afford for a couple months and got tons of money for toys via home equity. Ruined credit ratings aren't that big of a deal, especially if it happens to everyone else at the same time. The real victims are the foreigners who bought all the loans.

Pearlstein: Pearlstein thinks that a mortgage is a kind of progressive income tax that is paid to banks and should be apportioned by income. He doesn't know yet that someone on the other end of the liar loan deal plunked down $500,000 because they had an open order to buy anything moody's said was AAA paper and doesn't think they should be getting such a painfully low ROI on their money when there are plenty of other investments like U.S Treasuries that yield better.

The real just solution would be to have the foreign banks, hedge funds, pension funds, etc owning the houses, the brokerage firms, the ratings firms, the banks, the conduits and everything in between. They'll only get 50 cents. The big problem is is that during the global savings glut all the global money managers had too many dollars flying around and couldn't figure out what to do with them all. Nothing could absorb all those dollars so they just plowed them back into the U.S markets. They should have all just stayed in cash but hey, they are fund manager and so they have to manage.

The most interesting unreported wars of the last 10 years

2006-12-31T01:35:00.000-08:00

Second Congo War - A.K.A Africa's World War

Second Congo War at Wikipedia

Why : 3.8 million people died... Since 1996 6 to 7 million people have died in Congo. Seems like a big free-for-all grab for resources by the regional powers. A kind of preview of the new wars of multi-faction anarchy and bloodshed in the midst of plenty that Iraq is now an example of.

---
The Second Chechen War

Second Chechen War At Wikipedia

Why: Russia goes head to head with entrenched Islamic fundamentalist separatists, fights with total disregard for Geneva Convention, and wins. This is the first war that I am aware of where the full brunt of advanced weaponry was brought to bare in unrestricted warfare.

Gen Yer gives up on Reality TV Strategy

2006-09-30T23:21:00.000-07:00

Mr. "I Am Facing Foreclosure" shut his blog down. It's really ugly. I tell ya. The guy tried splattering his whole arguably legally dubious situation onto the Internet and it didn't work.
More on this at Another FB'er

———————————
What I did was Stupid!!

September 24, 2006.

This blog was the WRONG kind of exposure. I APOLOGIZE to my friends, family, associates and especially EVERYONE WHO HELPED ME with my real estate transactions.

I DO NOT BLAME ANYBODY for ANYTHING and take full responsibility.

What started as an honest desire to share my experience turned into something dangerous - playing with fire. After talking to a business associate this morning I realized I went TOO far and shared TOO much. I turned something small into a big exaggerated mess. Others were telling me this too, but I wasn’t getting it. Now I crossed the line. I misused my ambition.

I have damaged my reputation and I have damaged many good relationships through this. I never meant to hurt anyone. So to stop any further damage I am shutting down and laying low.

I am sorry.
–
Casey Serin [email}

—————————————————————–

Inflation vs Deflation

2006-09-30T22:23:00.000-07:00

Over at Mish's blog I've been having a lively inflation/deflation debate. Here's some of it.

Ok I've heard the "Imbalances" argument over and over again. It has been popular for at least 20 years since Regan lamented about our national debt. Remember Ross Perot and how we did very well lamenting about the trade deficit back in the early 90s? Well, we're still here...

The big hole in their argument is that on an interest rate basis and on a purchasing power parity basis, which are the ony two things that matter with regards to currency values, the dollar is doing fine. Europe and Japan are very expensive and interest rates are lower. It's as simple as that. China, India, Russia and Brazil are cheaper but nobody trusts their financial system to handle institutional size investments. Face it, no country in the world treats wealthy people better than the U.S (with the exception of Singapore, and Hong Kong) and they know it, which is why they keep their money here.

That's it. Sorry to let all you guys waiting for the great economic "turning". As things get cheaper here because the consumer taps out there will be deflation because the U.S will be on an even better basis Purchasing Power Parity wise and the dollar will probably strengthen because all those dollars will start getting sucked up for debt repayments exceeding income growth.

....

The real problem is Ben Bernanke and his "electronic printing press" comments. The guy could try something really stupid and just start printing endless money. Up till now our financial system has been based on debt creation. That has a limit, at some point you reach the point where nobody can pay or doesn't want to pay anymore out of current income anymore and then the defaults start. The bigger the bubble, the more people who were able to borrow wildely, the fewer people left with money around to buy the dips and soften the drop out.

Now Benny has made some speeches were he said that there are all kind of wild "unconventional measures" he is willing to try in the event of a possible deflation.

However, when they started their anti-deflation campaign in 2002 all this money started really flooding into gold and to some extent, the Euro. The offical reason rates were raised in 2004 was inflation. I think that there was also some fear of the dollar collapsing. They had to raise rates quite a bit to pop the commodity bubble and to keep gold from launching into outer space.

http://www.kitco.com/LFgif/au3650nyb.gif

I think they are still scared of gold and the euro enough to keep rates above whatever the ECB is offering. If they weren't why did they raise rates since mid 2004? Buffet probably doesn't trust Bernanke and the Bush admin and is hedging his bets just in case they try something monumentally stupid.

....

From what I've read, there are a lot of VERY intelligent people posting on these boards. How come such massive gaps exist between what each believe will occur in the future, when, for the most part, they all agree on what I described in the first paragraph?

I think the main difference is that the inflationists are unaware how money is created. I don't even think they know how money is created. They just point to the trade deficit and the national debt and demand the creditor debtor relationship between the rest of the world and the U.S re-adjust and think it will be a hyperinflationary dollar decline that will do it. A lot of this inflationist sentiment is driven by a obsession with the Weimar germany analogy of the present American government and a strong desire to see the end of U.S hegemony.

The truth is is that not withstanding Bernanke's crazy talk about electronic printing presses, the government does not print money and hand it out. It is created out of thin air by the fed and handed by the fed to the government in exchange for a treasury note. The more debt we are in, the larger the money supply. If debt levels fall then the money supply decreases and there is deflation. All this money needs to be paid back with interest and must be continually replaced by new debt. There is no other way the government creates money so when lending slows down, barring some really stupid "new paradigm" Congress/Bernanke deus ex machina" there will be deflation.

---

Just for completeness, there is another important way that money is created, which is by the multiplier effect, that is that banks can lend 90% of their reserves out, the money then winds up in other banks who can lend 90% of their reserves out, etc.... This isn't that important though because there is so much money floating around in the world dollar pool because of the deficit that now all those dollars floating around are starting to overwhelm the domestic money supply as far as the amount of power they have over the economy

Why did gas prices fall?

2006-09-25T23:17:00.000-07:00

http://www.financialsense.com/Market/daily/monday.htm

Good article on why gas prices came down so suddenly. Seems to be a short term fix. After the elections prices will probably ricochet right back up again.

Ever wonder what's going on in those half vacant mc mansion exurbs?

2006-09-25T03:37:00.000-07:00

http://cbs5.com/topstories/local_story_264014839.html

“Not only are Bay Area families moving inland in search of cheaper housing, but apparently so are Bay Area drug operations. Nearly 50 homes in the Sacramento and Stockton areas have recently been exposed as elaborate marijuana growing operations.

Since Aug. 2, agents have raided five homes in Sacramento, one in Rancho Cordova, 19 in Elk Grove, and 19 homes in Stockton, three of which were raided Thursday.

Marijuana growing operations in upscale neighborhoods are becoming a common problem in North Stockton. Police say that one bust turned up 500 to 600 plants in all, with rows of the plants filling the dining room and great room of the home. In the utility room, an elaborate electrical setup fed power to lights for growing.

Authorities believe the operations have the markings of a regional crime ring capable of purchasing dozens of multi-million dollar homes and thousands of dollars in sophisticated equipment.

Antioch real estate agent Kevin Parker was involved in the sale of 20 homes in the Sacramento area.”

Generation Y Meets it's First Housing Bubble!

2006-09-23T21:17:00.000-07:00

Regarding these two web sites:

http://www.buydanshouse.com

http://iamfacingforeclosure.com/

Yes, Generation Y, you do not need to fear the first housing decline you've ever seen in your life times. That's because the panacea of all panaceas, the Internet, will save you. Just take your whole life and splatter it onto the Internet in blog format, add a litle Youtube, and Web 2.0 and everything will work out. Putting a blog up will generate so much interest that you'll get a buyer in no time! With all those pageviews to your website you might even be able to pay for your mortgage payments with Ad revenue!... Worked for the MillionDollarHomePage didn't it?

What's Bernanke going to do during the housing crash?

2005-12-26T10:32:00.000-08:00

A Recent NY Times article on the Japanese Housing Bubble got me thinking. Especially this quote:

Japanese economists say the United States is not likely to suffer a decline that is as severe or long-lasting as Japan's, because they see a more skilled hand at the tiller of the American economy: the Federal Reserve. Japan's central bank, the Bank of Japan, failed to curb the stock and real estate bubbles until mid-1989, when it was too late and prices were sky-high, they said.

Translation: It's different this time! Is it really? Let's listen to some words from Mr Bernanke:

But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Sounds different, but in a really bad way. It won't be like Argentina. Argentina owed external debt in a foreign currency and had a currency peg. I think we will have very serious deflation but Bernanke might take "unconventional measures" and then all bets are off. If only conventional measures are used we'll see the government make a beeline to zero percent interest rates very quickly as soon as the housing bubble starts to affect the economy. Once rates fall below european rates that will start eroding the currency. Europe of course will lower rates too because they can't have an appreciating currency so early in their economic recovery. When rates fall and hit zero thigs will go for a while and the housing bubble, or another internet bubble might come back but if no inflation shows up this time at zero percent, which it might not, then we reach the problem of rates at zero percent. This is the nightmare of central bankers. Bernanke has taken a keen interest in this and has recommended "unconventional measures" like buying things besides treasuries to create liquidity. The central bank will play this where's the money going now game with the investment community. Buying stuff in different markets all over the place confusing investors and the economy to no end.

Why there are fewer people in engineering in the U.S : Money

2005-10-18T09:36:00.000-07:00

There have been all kinds of articles recently about how the United States is losing its scientific edge because fewer people are going into the sciences and engineering. There is a great deal of handwringing and people talking about the anti-intellectualism of our country, its poor schools, etc and all sorts of wild guesses as to why this is happening. Well India has plenty of anti-intellectualism, poor schools, etc but they are turning out a lot of engineers. The real reason is that being an engineer in the United States does not mean you're going to get rich relative to your real estate speculating condo flipping peers.

Let's look at some facts:

The International Herald Tribune says that the average wage for an experienced programmer in India is $11,423 a year. The average wage for an experienced programmer in the U.S is $83,000 a year. However the average per capita income in India is $3,100 and in the U.S it is $40,100. Per capita income is a good indicator of the relative cost level for people living in a particular country.

So the programmer vs average salary ratio in India is 3.684 while in the U.S it is 2.069. To feel as rich as an experienced Indian programmer an American Programmer would have to make $147,728.

Fun with Hyperinflation

2005-10-10T01:43:00.000-07:00

THIS week, we broke a milestone of sorts - the Zimbabwe dollar collapsed to 100 000 to 1 against the US dollar.

Article Link

Capitalism comes to the rescue of health care.

2005-09-25T08:53:00.000-07:00

It's always nice to see that people can come up with all kinds of new ideas for dealing with society's problems. One of those problems has been delivering simple health care in an inexpensive manner. Some enterprising person has come up with a Retail Mall Store that offers health care services.

Being a "better" contrarian investor

2005-09-21T21:34:00.000-07:00

I for some sick reason am drawn to contrarian investment ideas. I like laughing at the latest hot investing trend; for example, the current housing mania. I did however find that during the last two years, I spent a lot of time looking for ways to criticize the mania more or less so I could find a way to keep the pressure off from my friends and relatives to get a house and a mortgage.

This was a big waste of time. Being a bear in a market with upward momentum is impossible. Trying to call a top is something the smartest investors have a hard time doing. There will be a lot of air coming out on the downside and one is unlikely to miss it but waiting for the top can drive one nuts.

That's why I've found it far more productive to instead go hunting for the next bubble while everyone is chasing around the current one. How does one know its a bubble by the way? If one is reading about it and one grin starts getting to big, to the point of giddyness one may be becoming emotional and losing perspective. Manic handwringing should be avoided to. If any of these two situations occur it can be difficult to be open to new information that could change ones perspective on a future of an investment.

The U.S is saved from peak oil by.... Coal!

2005-08-28T22:51:00.000-07:00

Put your mad max costume away. Looks like a the peak oil energy crisis will be held off for quit a while thanks to coal into gasoline tech.

Fischer-Tropsch technology converts coal to gas at $32/barrel

This is what i mean when I say that huge economic forces will be unleashed reshaping the world economy and infrastructure as oil prices start rising.

The current credit cycle dynamic

2005-06-16T12:56:00.000-07:00

I read this article Article over at the Economist about the current global credit bubble situation.

I think that there is an excess of money flooding into the bond market from the savers and currency peg maintaining central banks in Asia. It is being sent back to them by debt financed consumption in the developed world which they are putting back into bonds. As long as the trade volume keeps increasing at greater than the rate of interest this will keep going as the Asians keep giving the rest of the world the liquidity to issue new debt and make the interest payments on the bonds.

This will continue until trade volume becomes flat or falling.

A good analogy is that of a person who buys everything he owns from walmart on his walmart credit card. All the profits from walmart gets lent back to the customer so he can pay his interest payments on the credit cards. If walmart stops lending then walmart can't sell anymore. If the customer stops buying than walmart can't fund his interest payments anymore. Of course there is no free lunch in economics. Eventually the interest payments become so high that they exceed walmarts profits. The thing about walmart though is it pays its laborers 50 cents an hour and there are constantly billions flooding in from the countryside to work at walmart. As long as labor is the core cost everything works for now.