…Calmly observing the changing world

Property rights may be under assault in the United States, but we would do well to remember that there are some places in the world where they don’t even exist.  One of those places is China.

You know, the kind of place where the workers of the world unite only to find out that somehow their land was stolen by the government they created:

Farms were being taken and handed over to developers for tens and hundreds of millions of dollars, with none of the proceeds going to the original occupants. Anti-government demonstrations in September were put down with excessive force, but the party agreed to mount an investigation and negotiate with representatives chosen by village residents.

Washington Times

Handed over to developers?  Okay, so maybe that doesn’t sound as communistic as I thought.  Still, that is no way to engender support among the proletariat:

Mobs seized control of government offices and police stations. Party officials fled, and 1,000 riot police, armed with water cannons and tear gas, attempted to take back the town. The insurgents held fast behind makeshift barricades, and the authorities retreated.

(Image from Foreign Policy)

That’s no mean feat for a small town.  Wukan, the village in question, appears to just be a typical Chinese fishing village.  There doesn’t seem to be anything special about it, other than that it felt abused and especially picked on by the ever-expanding bureaucracy.

After several negotiation attempts to bully or subdue the angry villagers, they seem to have – astonishingly – not had tanks roll into their village through their “makeshift barricades”, but rather have scared the authorities into giving in.

Up until Wednesday, officials had employed intimidation tactics common in such disputes. Riot police raided the village two weeks ago and took away leaders and set up road blocks to prevent food from being transported in. Officials blamed the unrest on “foreign forces” and threatened to crack down on protest leaders.

But the villagers refused to be cowed and issued an ultimatum at the start of the week, saying they would march to the government offices of the nearby city of Lufeng on Wednesday if authorities did not meet their demands. That would have been a direct challenge to police who have set up checkpoints on main roads outside the village.

Huffington Post

Whether or not we believe, as Mao did, that political power grows out of the barrel of a gun, it is heartening to see people stand up to defend whatever small freedoms they have left.  Actually, come to think of it, it’s pretty nice hearing anyone issuing ultimatums to the Chinese government.

The whole financial news community is eager, if sometimes cautious, to call a top in gold.  ”The bubble is bursting!”, they long to say.  Nevermind that these are the same people who thought gold was overpriced at $400.

What is that gold going to do for you anyway? Just listen to Charles L. Sizemore complain:

Unlike a stock, bond, rental property, piece of productive farmland or even a piece of artwork that can be lent out for viewing, gold produces no income, nor does it create anything of value. It’s a shiny trinket.

MarketWatch

The level of hate towards gold continues to expand as everyone who doesn’t understand the precious metal becomes more and more convinced that it is in a bubble already.  Surely, they would understand if it truly were a good investment.  But wait – the article concludes that gold isn’t even an investment at all:

But investors should use last week’s gold-price plunge to get a little perspective — and maybe a little humility too. Gold is not a safe haven. It’s not even an investment. It’s a high-risk speculation that’s had a great run. And that run, if it hasn’t already, will come to an end.

The sad truth is, that these same people will signal the true top in gold – but only after they at last give up their skepticism and turn into manic supporters.  They will signal the bubble alright – but they will be on the wrong side yet again.

When you are a small nation in the Alps and the currency of the countries around you is – how shall we say – in jeopardy, you might think you’d take some pride in your homeland.  You might think they’d pat themselves on the back for staying out of the Eurozone, and successfully forging their own 21st century path.

Of course, you’d be wrong.  The reality is that the Swiss are outraged.  Their currency is much too strong, you see.  They can’t export goods if no one else can afford the requisite price in Francs.  So they are on a mission to make it follow the same downward trajectory as the currencies of their trading partners.

The Swiss have decided to peg their currency to the Euro.  They are committed to printing an unlimited number of Swiss Francs and buying Euros with them and will not let 1.2 Swiss Francs buy more than 1 Euro.  The move shocked investors, and isn’t particularly likely to help combat a growing distrust in all government currencies.

The Swiss National Bank has made plenty of noise about its currency in the last few years – but nothing like this.  Just in case you weren’t sure, the venerable Swiss Franc is no longer a safe haven asset.  Don’t say you weren’t warned.

As the world develops a pleasant Libyan narrative that it hopes is true, fissures occasionally appear in the story.  Reality has a way of curbing our enthusiasm like that.  An interesting bit of reality caught my eye today:

According to Baja, Qaddafi loyalists in Sirte have two options: “To speed up the negotiations process and accept the liberation of Sirte, or to face the military solution.”

It’s always a little disturbing to hear people talk like that: accept your liberation or face a military solution.  That kind of double-speak is certainly unexpected from a Libyan rebel.  Maybe it was just an unfortunate translation.

So just who is “Baja”?  It turns out that Fathi Mohammed Baja was educated in the United States, and is the head of the National Transitional Council’s political committee – that explains the double-speak.

In fact, I take all of my skepticism back.  This is a leadership we can understand and deal with.

Back, in April, Treasury Secretary Geithner proclaimed that the debt of the United States would never be downgraded and that there was “no risk” of such an event.  As just about everyone knows by now, S&P downgraded the US on Friday.  Now that it’s occurred, Geithner is claiming that it doesn’t matter anyway.

But it’s not just Geithner making bad predictions (if, indeed, there are good predictions instead of just lucky ones).  We seem to suffer the opposite situation more severely – future boogeymen conjured up to cajole us into making the desired decision.

After all, weren’t we told that we had to raise the debt ceiling precisely so we wouldn’t be downgraded? Weren’t we told that we had to pass the stimulus bill so unemployment wouldn’t go over 9%?

Whatever happens in the markets tomorrow, hopefully we can all agree that the people in charge of our government have no idea what they are doing and certainly can’t predict the future.  It could, however, be worse. The United States was setup by people who knew that idiots would soon be running it, and they tried to make it as idiot-proof as possible.  So far so good.

In a world full of constant and seemingly endless information, we may take comfort in reminding ourselves that we don’t have to follow it all.  Not just because most of it isn’t important, but also because a lot of it isn’t true anyway.

Most recently, the media has droned on about how the US will default on it’s debt if the debt ceiling isn’t raised.  But, let’s be honest here – this doesn’t even pass the back of the envelope test.  With interest rates so low, and a lot of debt hiding in the short end of the yield curve, the actual daily obligations of the federal government are minimal.  Yes, there is a lot of debt, but the interest payments can’t be that much on 0.07% 3 month notes.

Let’s be clear – hitting the debt ceiling is not really government shutdown.  The Treasury Department is still there, revenue is still collected – and paid out.

So let’s check the numbers.  It looks like we need about $450 billion this year to pay the interest.  A quick search reveals that the government is taking in almost $1 trillion in per year just in personal income taxes (one of many sources of government “revenue”). No – the same amount doesn’t come in everyday, but it doesn’t all come in on April 15th, either.

Now, think of all the various other ways that the government taxes us, and you can see that there is no default looming.

It would be better if Congress directed the spending, but Treasury Secretary Geithner can probably figure out something. Could Geithner choose to default? I suppose so, but even he has to realize that’s not a good use of the money that’s coming in.

This is not rocket science.  Cover the interest payments first.  Use Social Security taxes to pay Social Security recipients (yeah, this could mean a 1% or so cut in payments depending on how it works out).  Split the rest on absolute necessities.  Yes, the lumbering behemoth we call Medicare will be short on cash.  This is nothing new – the government has been short changing doctors for years, and the program is already unsustainable as-is.

It’s not hard to imagine that we’re better off hitting the debt ceiling (no matter how artificial).  Of course, any debt that actually expires is sure to get re-borrowed very quickly.  No surprise there.

Stephen Stanley had an interesting thought.  What makes this surprising is that he is an economist, so, no matter interesting it might seem, we can be pretty sure that it doesn’t make as much sense.

He wonders, that since Keynesian theories have so completely failed in the last few years, that maybe some good will come from the recession in that at least everyone can now recognize this fact:

I have contended repeatedly over the last few years that if there is one good thing that may come out of the economic mess we have suffered through over the last several years, it might be a once-and-for-all discrediting of these [Keynesian] mantras.

MarketWatch

On the surface, this seems like it might be plausible.  It seems like “everyone” now has to agree that all of this nonsense about spending our way out of a recession has to finally go away – right?  Surely, every thinking person in America now agrees?  No one seriously thinks Cash for Clunkers II or Bank Bailout VII is ever going to see the light of day, right?

This, alas, is wildly optimistic, if refreshing coming from an economist.  The reason is quite simple, and it’s the same reason why all failed ideas linger on – the supporters can always claim a lack of adherence as the problem whenever their ideology is the true problem.

Sound familiar?  The problems caused by socialism prompt socialists to propose more socialism as the solution.  Or alternately – if you are so unfortunate as to be a socialist – I’m sure you will agree that capitalists always ironically blame ”market failures” on a lack of capitalism.

These tidy, self-reinforcing ideas neatly allow one to brush aside all threats to one’s ideology – averting all kinds of nasty things like introspection and objectivity.  As if to prove the point, Robert Reich begs the President:

All this translates into a continuing crisis on the demand side… How to get jobs back, then? By reigniting demand. Put more money in consumers’ pockets… Lend federal money to (rather than bail out) states and cities that are now firing platoons of teachers, fire fighters, and other workers because state and local coffers are empty.

… Supply-side economics doesn’t work. It’s been tried for thirty years, to no avail. And now, when our continuing economic crisis is so palpably being driven by inadequate demand, it’s more bogus than ever.

The Huffington Post

Eerie, comforting, fodder for a sardonic wit, and rather exasperating all at once.  Steven Stanley is right in that Keynes is Dead… but the chorus chanting “Long Live Keynes” isn’t far off.  After all, how many of were caught by surprise that Keynes wasn’t already dead in 2008?

On the whole, May was a pretty brutal month.  The stock market is aimless, but the real action has been elsewhere: protests, extreme weather, currency worries, sovereign debt.  There was a lighter side to the news this month, but you really had to dig deep:

Exploding Chinese Watermelons

Sure, you’ve heard about lead paint on toys and you are used to cheap junk from China.  But, I bet you haven’t heard of exploding watermelons.  It turns out, some farmers in China have pumped their watermelons so full of chemicals (that is, growth hormones), that they have developed a tendency to explode.  No word on whether they would have been sold as organic.

Soros sells Gold, no longer fears deflation

As far as I have been able to tell, this story is not a joke in any way.  Yes, you may be reading this on April 1st, but this is a real story.  Billionaire extraordinaire George Soros is selling his gold – wait for it – because the fear of deflation has finally passed.

First, I guess we are supposed to believe that a billionaire poured money into gold because his money might buy too many other goods if he didn’t.  Then, we have to believe that upon the fear of deflation passing, said billionaire moves to sell his gold – once he was sure cash would start eroding in value.  I am not intimately familiar with the machinations of Soros, and I think that is likely best for my sanity.

Navy to Internet: Any Ideas About These Pirates?

While the Department of Homeland Security puts technology to ever-creepier uses, the US Navy is trying a different tactic altogether.  They are trying to glean information from interested internet users in problem solving.  Specifically, they want to know what you would do to stop pirates.  So, they’ve created a game where players are going to compete and cooperate to find the best solutions.  The game is delayed as servers are upgraded, however, because the Navy underestimated the number of players.  It turns out that on the internet, a lot of people want to pitch in their two cents – who knew?

The citizens of the UK are struggling.  Their internal political system has been completely unable to cope with two seemingly opposite forces which erode what is left of the ancient empire.

One is the fight to remain free from the ever expanding and intrusive EU bureacracy that eminates from Brussels. Her majesty’s subjects were never even allowed to vote on the issue of joining the union – and they feel more than slighted by such an egregious “oversight.”

At the same time, the United Kingdom is dealing with enormous internal rifts.  As if to urgently highlight the issue, and despite the electoral process being rigged against them, the Scottish National Party has gained control of the Scottish parliament – which you can imagine is a little awkward since they want to hold a referendum to leave to UK.

Ironically, as Europe becomes more integrated it seems to give extra impetus to separatist movements. After all, it isn’t as if Scotland would be completely separated from England since presumably they would both belong to the EU.  Surely there wouldn’t even be a border crossing, right?

But it’s not the only awkward thing going on in UK politics.  The disgruntled citizens of the UK have managed to send 12 members to the European parliament who basically favor the elimination of the European parliament in which they serve – much less Britain’s involvement in such a continental plan.  A the very least it makes for spectacular youtube videos.

Both the issues are catalyzed by the complete failure of Britain’s major parties.  While the electorate toggles between the two major parties every so often – and a 3rd party has recently been elevated and quickly punished – the people of Britain struggle to get their voices heard. Whatever lies ahead for the United Kingdom, the status quo seems like it won’t endure.