patrick.net

Neutron,

Congratulations. You must not be from around here.

In these hip and cool Metrosexual parts, when your partner tests positive, it's usually bad news.

I don't know if it's deflation as much as bad karma coming home to roost, but the Merrill Lynch comp package for '09 came out today and it's pretty ugly. My husband (thank God!) won't really see a change but the lower-end brokers got hit hard. Some will see their pay literally cut in half. Merrill is basically trying to get rid of brokers without actually having to fire them. I bet you'll see a lot of brokers leaving the industry because all the firms are going to the same comp package and there's no where else to go for people who don't do enough business. I don't know where they'll find jobs, but the finance industry is likely going to shrink quite a bit.

Here's an item which missed todays Patrick news page...

www.nytimes.com/2008/12/19/business/19tax.html?hp

And thanks to a tax break proposed by President Bill Clinton and approved by Congress in 1997, he did not have to pay tax on most of that profit. It was a break that had not been available to generations of Americans before him. ...
The different tax treatments gave people a new incentive to plow ever more money into real estate, and they did so. ...
By itself, the change in the tax law did not cause the housing bubble, economists say. Several other factors — a relaxation of lending standards, a failure by regulators to intervene, a sharp decline in interest rates and a collective belief that house prices could never fall — probably played larger roles.

But many economists say that the law had a noticeable impact, allowing home sales to become tax-free windfalls. A recent study of the provision by an economist at the Federal Reserve suggests that the number of homes sold was almost 17 percent higher over the last decade than it would have been without the law.

I've argued about this here in the blog with DinOR, where he claimed it was THE cause and I claimed it was A cause of the housing bubble.

Happy BFF everyone!

I was possibly sloppy with Argentina. And I will continue to be sloppy in that i STILL refuse to do my homework on which, of the many, high debt countries were hurt with massive deflation.
Right now, the US issues its debt in dollars. This means we do not face thes problem. In fact, with Ben turning on the presses, our creditors should be very angy.
But my point is this: deflation hurts those that have debt.

Of course, we now have to go through the whole discussion on what is deflation and I would recomend anyon to Mish's site were he tackled that. In the acedemic sense it is the contraction of money supply and credit. In a consumer sense it is price declines. In a payroll sense it is decreasing wages. Taking these three defintions we can see:
1. Price deflation hurts the supplier as they get less money for their goods and in theory the supplier has a fixed debt associated with production.
2. Wage delation hurts people who now have less to pay their fixed expenses like mortgages.
3. Actual deflation of te moetary kinds hurt as less money and credit in circulation means fewar dollar to chase the same level of output which, in te short term, tamps down prices, but in the medium to long term means output is scaled back which means job loss and lower total economic activity.
Jumping ahead I would say that sustainable level of econmic activity, the so called' frictional employment' level is about 5%. Anything more than 5% unemployment means the economy is operating at less than optimal output levels.

So, just 3 days after saying we are good to go, that no more financial institutions will fail, and that we won't need the other $350 billion, Paulson changes his tune.

http://biz.yahoo.com/ap/081219/paulson_rescue_fund.html

At the same time, the Bush administration, after letting lose a story yesterday that they were considering orderly bankruptcy options for the automakers, approve of an $18 billion bailout. Which we all know will balloon to probably $80 billion by the end of next year. Just as AIG keeps getting quite chunks of $50 billion here, $50 billion there.

Our "savior" Obama, appears to think 'change' in the white house equates to the presidents color of skin, as he appears to be appointing the same crew of morally bankrupt fraudsters to all of the nations highest posts. I expect no change whatsoever.

What I find depressing about this mess is not necessarily the mess itself, but rather our country's response to it. It is sickening me. We are consistently making worse decision after worse decision, and the general population still does NOT CARE. They are losing their jobs and houses, and are still apathetic. WTF America? Wake the fuck up.

If Hannah Montana was kidnapped, people across this great land would organize community meetings, picket lines, etc. But steal your future and your kids future? Nothing.

Now is the time to bear down and build character. To do the right thing and regroup. This is the response I was hoping for. But it is clear to me now that this America that I read about is dead. We clearly have the government we deserve. And people that actually give a shit, and can even understand why everything sucks right now, are on a short list indeed.

Eh, what the fuck. Might as well go buy some Chinese made trinkets to celebrate the Son of God's birthday.

Paulson does a calculation and the answer is that he will not get the 2nd 350B unless Detroit is saved using funds from the 1st 350B.

Not to mention the big CA. Good solution guys! Lets just raise taxes and call them fees! That is a good long term solution.

God forbid we cut such important programs as providing illegal aliens health care and free schooling. Instead, lets drive the remaining businesses out of CA for good, and make sure that anyone in the state with half a brain moves somewhere else.

I am dangerously near the frame of mind in which revolutions are born. But sadly, I appear alone. I am fucking sick of writing my representatives. They don't represent me. Something that hits home is in order.

I keep thinking back to a mortgage strike, or a tax strike. These are GOOD ideas as they get the point across peacefully, and immediately.

justme, obviously. Anybody paying attention at all figured that one out. Except, we will never read that in the press. And even if it was in the press, no one would care.

I'm glad I'm paying attention :-)

God forbid we cut such important programs as providing illegal aliens health care and free schooling. Instead, lets drive the remaining businesses out of CA for good, and make sure that anyone in the state with half a brain moves somewhere else.

Uh, whom exactly do you think all those illegal immigrants are illegally working for?

I am trying to figure out which is making me more upset:
1. Taxking me without my agrement like the state of CA is trying to do with its proposed sur-charge.
2. Paying bonuses to failed business people whose malfesiance caused the loss of every working person's retirement. Good Lord, instead of prosecution they are getting SEVEN FIGURE BONUSES!
3. Seeing tax dollars making Wall stret speculators whole. Why are we paying off AIGs CDS exposure?
4. Raising the expense side of the state budget 40% in 3 years in CA then stating it would be cruel to roll back any spending so we simply must have more taxes.
5. Allowing retirment managers to speculate with CA retirement funds that are bound by law to be made whole through taxation.
6. Paying much higher than prevailing wages for fire/police/prison guards. One job opening, 3,000 people apply. Something is wrong there.
7. Legislating charity. In the past, people would privately donate for organizations like mental health care, substance abuse, child health care. Now we just make everyone pay.
8. Really stupid laws about how much and when people receive social security. Remember when families took care of their own?

I am reminded of, I think it is Marin. More than 50% of the town are renters, so everytime they want to raise money for something they vote to 1) approve it and 2) to levy the item as a parcel tax. Somehow CA has the voting might to keep putting agencies and projects into place that someone else has to pay for. This has simply got to stop.

"Uh, whom exactly do you think all those illegal immigrants are illegally working for?"

NOT ME.

And I don't understand your point. What does them working for CA companies have to do with giving them free health care and schooling? They would still work without the handouts.

I think the old addage has been, "We are such a rich country, we should do these things."
I think the new reality is, "We simply cannot afford to keep providing all things to all people becasue we think that is a good idea."

Unless the rich clas is willing to part with the amazing amount of money they have collected over the last 8 years (or longer) than asking those who do not have enough to continue paying for everything and everyone is simply an impossile proposition.

Deflation is good because things tend to get cheaper, but with time wages go down so it is null.

Inflation is bad because things get more expensive, but with time wages go up so it is null.

Deflation helps savers, inflation helps borrowers.

The government is a borrower. They don't like deflation and will try to stop it. Which is what we are seeing.

“We simply cannot afford to keep providing all things to all people becasue we think that is a good idea.”

We are realizing this at an amazingly slow pace. It's like our country is one big underwater homeowner who keeps buying plasma tv's even though they're broke and out of work...

But deflation can spiral. Reduced demand, reduced investment in production capacity, fewer jobs. Lather, rinse, repeat.

That's a popular misconception.

Deflation results in increased investments in more sustainable (or what I like to call 'real') endeavors as money tied up in nonproductive investments frees up.

While jobs will be lost where overcapacity exists, new jobs will be created as resources find their way to more productive uses.

It's more than just wages and prices going down, but reallocation of resources to more productive efforts that makes this corrective phase much more desirable than the continued policy of inflation.

Blaming deflation for your woes is like a dope addict blaming his predicament on his rehab program.

Deflation is just time to pay the piper.

It is a message from Free Market...

Dear Keynesian,

Business cycles cannot be defeated.

Love
XXX

Business cycles are there because it is how the financial elite gets to buy low and sell high.

Of course cycles can be avoided, but not as long as the Federal Reserve is in cahoots with the elite rather than doing what it should.

frank writes:

Deflation results in increased investments in more sustainable (or what I like to call ‘real’) endeavors as money tied up in nonproductive investments frees up.

Arguably so, but it's complicated by the fact that the measurement of "productive" is changed by the swing to deflation, and therefore existing debtors (nearly everyone) will suffer.

Creditors would gain, of course. Maybe we can deflate our way into the reestablishment of the American manufacturing industry ... for the Chinese, Japanese, and European middle class. (mostly kidding, globalization is a multi-way street).

Still, I maintain that a little deflation to slow expansionist policy down a bit wouldn't hurt too much and would probably be healthy, but anything prolonged would do great and long-lasting damage.

justme...

Annuit cœptis - Novus ordo seclorum

Just take out your dollar bill. ;)

But it is all understandable...

Defeating business cycles is as satisfying as reversing "global warming."

Kewp,

Exact;ly, who do we think all these illegal immigrants are working for?

Here is one answer: Doing the yard work and construction for a whole class of aspiring property owners that were too busy inflating the housing bubble to do their own chores.

Fuzzy,

Are you serious, do you think children of illegal immigrants should just be roaming the streets rather than being in school?

I heard on the radio yesterday that about 3-4B out of a 65B schools budget can be attributed to illegal immigrants. For sure this is not the real problem with the California budget. And what would we do without all the farm labor?

Just heard from my buddy over at Merrill Lynch that he received the same bonus as last year. He wants to thank all the rest of you taxpayers for that and wants you to know that he will promptly send most of it to his family in India. He was so gracious that ML laid off US citizens and kept his H1-B ass employed too. He told all his friends back home and they too will be lining up for your tax dollars. Merry Xmas.

Are you serious, do you think children of illegal immigrants should just be roaming the streets rather than being in school?

If they have legal status (e.g. citizenship) of course they should be in school. If they are here illegally, we should deport them as we see them.

And what would we do without all the farm labor?

Guest worker program. Those who are unwilling to register or apply should be deported on sight.

The most important part of my post was the 4/65 fraction.

justme... take your 4B from schools, and another 506B on health for the illegals, and you're getting damn close to the $11B we're short by.

Here's the idea. We can't have everything. EVERYONE CAN NOT HAVE EVERYTHING THEY WANT. It's that simple.

The correct response to the CA budget problem is to cut any costs that can be cut. Raising taxes is NOT a solution. Raising taxes during the onset of a depression IS NOT A FUCKING SOLUTION!

There are a few cores we should be protective of... like education, and police. Everything else in my mind is a target for cutting. Health care is the primary.

It does no good to bankrupt people that have a little bit of money left to support the people who are already bankrupt.

woops, 506B should be 5-6B

I'm pleased that Bush finally managed to do one right thing (automaker rescue), and he did not even break the union in the process.

Of course, were it not for 8 years of Bush we would never have been in this predicament in the first place. California would have been allowed to set emissions standards, Detroit would have been forced into more efficient cars, just for starters.

Fuzzy,

You are thinking about this the wrong way. It is the police that is overpaid, not the teachers. And without schooling for the citizen children of immigrants, you will spend still more on police just to keep crime under control.

I’m pleased that Bush finally managed to do one right thing (automaker rescue), and he did not even break the union in the process.

For that, I finally hate him. He is a liberal!

“productive” is changed by the swing to deflation

Then you probably have a skewed definition of a productive endeavor. A business that does not rely on government subsidies or bailouts or overtly loose credit will most likely remain a viable business model in deflationary times.

Can you give an example of the contrary?

It is the police that is overpaid, not the teachers.

Unless schools can expel students at will it is useless to have good teachers. Since there are bad kids anyway we can only have an adequate police force to counter them.

It is absolutely, positively incorrect to think that good teachers can turn bad kids into good ones. As a society, we sometimes must simply cut the loss short.

Perhaps there are many wastes in the police infrastructure, but my father (as a lifetime policeman) was certainly not overpaid. If you think so, then perhaps you should try getting your finger bitten off or shot at during your normal work day.

I agree that teachers are underpaid.

Note that I do not believe police protection nor education are human rights. However, they provide a safe and productive breeding ground for future prosperity.

How does health care provide that?

I’m pleased that Bush finally managed to do one right thing (automaker rescue), and he did not even break the union in the process.

You can't say this is the right thing until the automakers turn around and become profitable again. This is highly unlikely as the bailout will not inspire people to buy cars nor will it resolve the fact the the companies are run by a bunch of idiots employing overpaid workers.

Look for more good money being thrown after bad next year as the automakers continue to fail.

I should add as well that I think pensions in general are a good thing. However, allowing the pension fund to gamble the money? Give me a fucking break.

Why don't we just take the rest of our coffers to Vegas, and put it all down on one hand of blackjack.

I do not think pensions are a good thing. People should plan for their own retirements. What is the difference between a pension plan and a ponzi scheme anyway?

Is this for real?

http://www.foxbusiness.com/story/markets/fox-business-sues-treasury-failure-respond-freedom-information-act-requests/

yup, it's for real. Bloomberg has also sued the Treasury for the same thing.

"What is the difference between a pension plan and a ponzi scheme anyway?"

can't really argue with that. They are certainly not designed to last through periods of contraction.