Mo’ Debt, Mo’ Problems (Mo’ Keynesian Cynicism)

Christ, is Matt Yglesias stupid. Stupid or high, or maybe he’s just a cynical bastard—I really can’t make up my mind.

The U.S. Debt: Notice a trend?
[click to enlarge]

He just wrote a piece in Slate proposing that the U.S. government go into even more debt, ballooning the Federal debt to even higher levels than the “mere” 120% of GDP it currently is.

His “reasoning”? To take advantage of the lower interest rates currently prevalent in the bond markets.

Prima facie, Yglesias sounds reasonable. As he rightly points out,

[T]he inflation-adjusted yield on 10-year Treasury bonds was negative 0.56 percent. Savers, in other words, want to pay the American government for the privilege of safeguarding their money. For the longest-dated bonds we sell, the 30-year Treasury bond, rates were 0.51 percent. That’s higher than zero, but far below the long-term average economic growth level. [emphasis in the original]

All good up to this point.

But then in the very next breath—I mean, literally the very next line—he writes something of startling imbecility:
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Why Isn’t Gold Higher?

Hint: Because it’s the Credit Default Swap of the Next Financial Crisis

Why isn’t gold higher? Two of the three reserve currencies of the world—the dollar and the yen—are on a relentless race to the bottom, and only recently have the Europeans figured out that they’d better start kicking the euro down, before they price themselves out of the global markets.

With this general fiat currency devaluation, you would think that gold would be much-much higher than it is now.

But gold isn’t higher—it’s drifting. Consider this chart of gold, over the last decade:

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Mr. Abe’s Trigger

Prime Minister Shinzō Abe

The newly elected Japanese Prime Minister, Shinzō Abe, has caused quite a stir. The leader of the Liberal Democratic Party, which scored a landslide victory in 2012’s election, he’s promised to restart the Japanese economy, whatever it takes.

How will he do this? He “will implement bold monetary policy, flexible fiscal policy and a growth strategy that encourages private investment, and with these three policy pillars, achieve results”—according to his statement following the LDP election victory.

By “bold monetary policy”, what he means—and what he has said—is to end the independence of the Bank of Japan, and have the government dictate monetary policy directly. (You could argue whether any central bank in any of the developed economies is truly “independent”—or indeed, has ever been so. But for the sake of this discussion, let’s assume that they have been.)

The perception is, the Bank of Japan will not only print yens and buy government bonds à la Quantitative Easing of old—it is also generally thought that Mr. Abe and the incoming Japanese government fully intend to target the yen against foreign currencies, like Switzerland has been doing with the euro.

This perception is what has been driving the Nikkei 225 index higher, and driven the yen lower. Prime Minister Abe’s policies have yet to be fully implemented—so far, it’s all been just talk. But the markets are taking Mr. Abe at his word, convinced that he is going to set a policy very similar to what the United States and the Federal Reserve have been doing: Targetting the equities markets, and printing in order to bring the yen down, and thus make Japanese products competitive in foreign markets.

But why was this decision triggered? For going on twenty-three years, Japan’s GDP growth has been sluggish at best, it’s government amassing huge debts, all the while the yen slowly strengthening and the Nikkei index meandering—yet all of a sudden, now the Japanese government is ready to do whatever it takes to turn the Japanese economy around, which begs the question: Why now?

Simple: Japan’s balance of trade has turned decisively negative for the first time since the Oil Shock of 1980—and this has put the fear of God into the Japanese leadership. Look at the following chart:

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Post Mortem On The Trillion Dollar Coin (or, Krugman Jumps The Shark)

So the idiotic idea of the Trillion Dollar Coin—floated so as to get around the debt ceiling—is dead as Dillinger. The official White House announcement stated:

Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit.

Since we won’t know how this decision was made until a few years hence, when Obama officials start publishing their memoirs, the current best speculation of what probably happened comes from Bruce Krasting:

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The Trillion Dollar Coin: The Zimbabwe Dream of the Obama-heads

Why do banks spend money making sure that their branches look good and solid? Why do banks spend even more money making sure their main offices look as solid and stately and settled as ancient temples?

Is this what Yglesias
and the Obama-heads
have in mind?

Why, to give the illusion of solidity. Because in finance, the illusion of solidity begets solidity—just as the appearance of banana republic-dom begets a banana republic.

The trillion dollar coin idea floating around out there is the dumbest idea ever—but it’s also dangerous for two reasons: It is a naked power grab by the executive, and it shatters the illusion of solidity and sense in the monetary system.

Matt Yglesias over at Slate is fervently in favor of the trillion dollar coin idea, and he gives as good a précis as any of the situation.
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The Sorrow and Rage of a Schoolhouse Rocker

When I was a boy of five or six, I would wake up bright and early every Saturday morning, and slink downstairs to watch TV in the family room—just dive into the stream of morning cartoon shows that played at that magic hour, and let my little brain cells dissolve in the stew of sugary ‘toons, even as I restlessly twisted the channel selector from side to side—clickety-clack! cli-cli-clickety-clack!—looking for something good.

But in between all that visual junkfood—all of which I’ve long since forgotten—there were these little animated films that played during the commercial breaks, called “Schoolhouse Rock!”.

The “Schoolhouse Rock” cartoons were two-minute masterpieces, with bold drawings and incredibly catchy songs, each explaining a different academic subject or topic. Famous ones were “Conjunction Junction”, “Three Is A Magic Number”, “The Great American Melting Pot”, “I’m Just a Bill”, “The Preamble”.

Consider how good, how wonderfully entertaining these little educational cartoons must have been: I am now 44 years old, but I can sing—off the top of my head—maybe a dozen of the “Schoolhouse Rock” songs.

For instance, the chorus to one of my favorites—“Interjection!”:Read more »

Fighting The Terrorists By Terrorizing The Innocent

Something I read:

In the United States, the dominant narrative about the use of drones in Pakistan is of a surgically precise and effective tool that makes the US safer by enabling “targeted killing” of terrorists, with minimal downsides or collateral impacts.

This narrative is false.

These are the first words of a devastating report I’ve just read, “Living Under Drones: Death, Injury, and Trauma to Civilians from US Drone Practices in Pakistan”.

This thing is required reading.

This isn’t some half-assed, crazed droolings of some hippy-dippy Lefty twerp who ought to get a bath and a haircut: This was written by Stanford and New York University lawyers—and it shows. It’s clearly and devastatingly written, with the facts, testimony and evidence so scrupulously laid out that it’s almost like the brief for the prosecution of the war crimes trial that we can only pray will one day take place.

Consider this:

Drones hover twenty-four hours a day over communities in northwest Pakistan, striking homes, vehicles, and public spaces without warning. Their presence terrorizes men, women, and children, giving rise to anxiety and psychological trauma among civilian communities. Those living under drones have to face the constant worry that a deadly strike may be fired at any moment, and the knowledge that they are powerless to protect themselves. These fears have affected behavior. The US practice of striking one area multiple times, and evidence that it has killed rescuers, makes both community members and humanitarian workers afraid or unwilling to assist injured victims.

The bold emphasis is mine. I highlighted it because it reminded me of a tactic that terrorists are famous for using: Plant a bomb and kill some people, and when the ambulance, police and rescuers arrive, set off a second bomb so as to kill even more people.

I’m still processing this report, but the questions that immediately come to mind—jumbled, confused, unsystematic, irrational, yet crucial just the same—are myriad:

• How much courage does it take to kill innocent people by remote control?

• What can be gained by murdering women and children who have never done anyone any harm?

• What happens to a cause or country that achieves “victory” by terrorizing innocent human beings?

• How can the people who carry out such evil possibly live with themselves?

• How can anyone with any sense of decency follow the leadership of men and women who would knowingly commit such atrocious and despicable acts?

Notice those questions: They are the questions people ask of terrorists who commit murder for the sake of their cause—

—but they are also now the questions any humane, decent person must ask of the United States.

Because the United States is now the greatest terrorist agent in the world.

How do I know that the U.S. is now a terrorist state? Do I know because it has killed more innocent people in the last twelve months than all other “terrorists” in the world combined?

No. Terrorism isn’t a matter of numbers—it’s a matter of fear: Putting terror—blinding, relentless fear—into the hearts and souls of people who have done nothing wrong. As in the words of this Pakistani boy:

“We cannot figure out when a drone will strike—they may strike in two days, three days, ten days, or a month—but they are always there.”

That is how I know that America has become a terrorist state.

The question for any and every American citizen is: Will you stand up and fight a government which—in your name—is terrorizing innocent people?

Or will you acquiesce to this evil.