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November 2011

Quote of the Day: November 26, 2011

"I just want a party to vote for whose three guiding principles are (a) maximize individual liberty, (b) minimize the Gini coefficient, and (c) protect the commons. Yes, I am aware that these three goals are orthogonal and often conflict with one another: that's why it requires an ongoing process of negotiation rather than an ideologically-driven damn-the-torpedoes race to the goal."

--Charlie Stross: "Cynicism"

Karl Smith Wants to Bankrupt the Gnomes of Zurich

Karl Smith:

Europe: What Is To Be Done: Halt the Crisis: The ECB should announce that it will become Lender of Last Resort for all Eurozone Countries. If I were running the show I would lead this off with a particular show of force. A short term bond issue for which there is heavy short interest I would have the ECB buy into specifically and dramatically to drag bond yields to 1.25%, in an effort to cause the shorts to miss their margin calls and take heavy losses on the issue.

This is not because I have anything against shorts, think they are acting irresponsibly or even initiating some type of implicit attack. Instead, its because I don’t need to waste the rest of the afternoon or god-forbid the better part of a week with markets wondering whether or not I am serious. It will become abundantly clear within the first 10 mins of trading that I am quite serious and prices need to adjust, lest there be more losses of this type.

Replace Individual Sovereign Debt with Eurobonds…. Independent Issues of Sovereign Debt are Banned…. Sliding Scale on New Issues…. Issue Holds For Violation of EC Rules: A violation of European Commission rules can result in a increase in the penalty rate for new issues or a hold on the funding on new issues…. The Single List is Replaced By Eurobonds…. Super-Sovereignty for Eurosystem Banks….

Right now, the EC is attempting to use “market discipline” to impose reforms on peripheral countries. As I pointed out from the beginning this is a dangerous game. It only works if you are actually willing to drive the bond markets over a cliff and if you are actually willing to do this and the markets believe you then you go over the cliff automatically…. [F]or this to fail all you need is incompetence, not intransigence, on the part of your counterparties. This is the problem with doomsday devices or credible commitments to be irrational, generally.

To solve this the EC should just abandon attempts at market discipline – which are unserious or in any case should not be used by serious people – and replace that with administrative discipline…. This is the power it really wants. It wants the power to say that Greek retirees will not get their pension checks unless Greece shapes up. It does not want the power to say Greek bondholders will not get paid. You see where that leads…

You Could Write an Entire Washington Post Article Quoting People Who Are Lying without Telling Your Readers

Hoisted from the Archives: April 2009:

Washington Post Crashed-and-Burned Watch: Matthew Yglesias says that if you follow the operating procedures of the Washington Post "you could do an entire article that consisted of accurately quoting people who are lying, and wind up badly misinforming your readers." In the Len Downie-Fred Hiatt Post, Matt, that's not a bug--that's a feature:

Matthew Yglesias: Post Reporter Says It’s Not His Job to Check the Accuracy of People He’s Quoting: You rarely see the kind of full-throated defense of journalism-as-stenography that The Washington Post’s Paul Kane offers up here:

New York, N.Y.: Paul, do you care to defend yourself against this criticism from Media Matters? “In an April 9 article about Democrats’ legislative priorities, The Washington Post wrote, ‘Democrats are sure to incite Republicans if they adopt a shortcut that would allow them to pass major health-care and education bills with just 51 votes in the Senate, where Democrats are two seats shy of the filibuster-proof margin of 60 seats. The rule, known as ‘reconciliation,’ would fuel GOP charges that (President) Obama has ditched bipartisanship.’ The article, by Paul Kane and Shailagh Murray, then quoted Sen. Olympia Snowe (R-ME) saying, ‘If they exercise that tool, it’s going to be infinitely more difficult to bridge the partisan divide.’ However, Kane and Murray did not mention that congressional Republicans — including Snowe herself — voted to allow the use of the budget reconciliation process to pass major Bush administration initiatives. Indeed, Murray herself noted in an April 1 article that ‘(a)dvocates defend reconciliation as a legitimate tool used more often by Republicans in recent years, most notably to pass President George W. Bush’s tax cuts.’ ”

Paul Kane: I’m sorry, what’s to defend? Someone tell Media Matters to get over themselves and their overblown ego of righteousness. We reported what Olympia Snowe said. That’s what she said. That’s what Republicans are saying. I really don’t know what you want of us. We are not opinion writers whose job is to play some sorta gotcha game with lawmakers.

This is fairly simple. What we want is that if you’re going to quote someone saying something dishonest, you report the fact that they’re lying…. This isn’t a matter of “gotcha games,” it’s crucial. Otherwise, operating by Kane standards you could do an entire article that consisted of accurately quoting people who are lying, and wind up badly misinforming your readers.

The interesting thing is that the Washington Post is still very proud of the fact that nothing in their news pages can be trusted:

Hullabaloo: This exchange on the Washington Post chat on Monday with reporter Paul Kane explains perfectly why these political operatives have no worries about telling the truth:

A. PAUL KANE: Yeah, you're right. I think this point is just absurd and ridiculous. This is a big thing among folks calling it "moral equivalence" (Fallows, Ornstein) and others calling it the "cult of balance" (Krugman). It's just stupid. If you want someone to tell you that Republicans stink, read opinion pages. Read blogs. Also, the underlying sentiment on the left is that this is the real reason why things went wrong in 2010: That the mainstream media is to blame. Sorry, I think that's the sorta head-in-sand outlook that leads to longer term problems for a movement. Greg is a fine writer. He's an opinion writer, in the opinion section of the web site. I encourage you to keep reading him. And I encourage you to keep reading the news coverage, which should always strive to present both sides of the story. If you really don't want to hear anything about the other side of the story, I really do encourage you to stop reading the news section.

And Digby comments:

[Paul Kane] is right about one thing. You should stop reading anything t[he] writes because clearly it is completely worthless. He is simply not interested in the truth and gets angry when anyone calls him on it…. Indeed, his defensiveness is most telling --- clearly, he knows on some level that he's bullshitting his readers…

Why oh why can't we have a better press corps?

Twitterstorm delong: November 25, 2011

  • Damned If I Understand What the US Treasury and Fed Are Doing--or, Rather, Not Doing Right Now 13 minutes ago

  • Joe's Taco Lounge 1 hour ago

  • Paul Krugman Sends Us to Martin Wolf on Death By Accounting Identity #UK #US #FiscalDeficit 3 hours ago

  • Manufacturing quality collateral: Izabella Kaminska 4 hours ago

  • martinmcgrath Martin McGrath How Marx and Engels over-estimated the bourgeoisie 4 hours ago

  • @DougHenwood @delong modern IMF is to ECB, as Keynes is to montagu norman? 5 hours ago

  • Panglossnotes Geoff H Seems even some conservatives are becoming ashamed to call themselves such with likes of buffoons like Cameron around. 5 hours ago

  • DougHenwood Doug Henwood @ @delong Is there a rationality to German behavior that eludes us? I keep thinking there must be, but it remains elusive. 5 hours ago

  • econblogs Jeegar Kakkad Grasping Reality: At the Birth of Central Banking: The Lender of Last Resort: Bank of England Court Member Jeremiah ... 6 hours ago

  • John Muellbauer: "How Germany could save the euro" 6 hours ago

  • @felixsalmon Pet Peeve: Financial reporters who assign/create reasons as to why the markets are up or down. 6 hours ago

  • PaulHenriCadier Paul_Henri_Cadier “@ProfPaulKrugman: Nick Rowe: Magneto Trouble EURO not assymetric tsunami-proof..alas! #UKIP #No2EU #EUSSR #mundell 6 hours ago

  • Danny Kahneman: 'We're blind to our blindness. We have very little idea of how little we know. We're not designed to' 7 hours ago

  • Tim Duy: "From Bad to Worse" 7 hours ago

  • econblogs Jeegar Kakkad Grasping Reality: Turkey Day Has Depressed Duncan Black... 7 hours ago

  • Dani Rodrik on large-scale evidence forgery by the Turkish government r 8 hours ago

  • shermandorn Sherman Dorn @ Evidently, Europeans are big into Buy Nothing Day, at least where sovereign bonds are concerned @delong 8 hours ago

  • Henry Blodget: "European Banks Frantically Trying To Dump $7 Trillion Of Crap Assets -- But No One Will Buy Them" 8 hours ago

  • Liquidation cycles. Brad DeLong tries to understand the reasoning of the p... 9 hours ago

  • _later later 354 likes: Three Flavors of the Economic Crisis: Three Flavors of the Economic Crisis #debate - http://delong… 22 hours ago

  • Shame on the New York Times 24 Nov

  • keanna007 Keanna D Buckett You don't bring a gun to a marshmellow roast.. --Candice Delong 24 Nov

  • Ralph Vaughan Williams: "Five Variants of Dives and Lazarus" 24 Nov

  • plungerman Bender Rodríguez RT @jayrosen_nyu: not Paul Kane's first time at the "we're stenographers: you got a friggin' problem with that?" rodeo. 24 Nov

  • eltoro666 Timur Coban At the Very Least, the Fed and the Treasury Need to Flood the RIsk ... 24 Nov

Liveblogging World War II: November 25, 1941

World War II Day-By-Day:

While British tanks reorganize and repair after the battle at Sidi Rezegh, Rommel gambles that the Allied excursion into Libya can be routed by further disrupting the rear echelons and supply lines (a tactic Rommel used so successfully in France last year). His aim is a repeat of Crüwell’s ride around the British yesterday, although on a broader sweep - to swing his Panzers behind the British tanks from the South, scatter the Allied infantry, link up with the German garrisons at Bardia, Sollum & Halfaya Pass and then advance into Egypt. At 10.30 AM, he leads 15th and 21st Panzer Divisions in a “dash to the wire”.

Would That the Executive of the Modern State Were Such a Committee!

Deutsche Borse AG German Stock Index DAX  DAX IND Index Performance  Bloomberg

Karl Marx and Friedrich Engels:

The Communist Manifesto: Each step in the development of the bourgeoisie was accompanied by a corresponding political advance of that class. An oppressed class under the sway of the feudal nobility, it became an armed and self-governing association in the medieval commune; here independent urban republic (as in Italy and Germany), there taxable "third estate" of the monarchy (as in France); afterwards, in the period of manufacture proper, serving either the semi-feudal or the absolute monarchy as a counterpoise against the nobility, and, in fact, cornerstone of the great monarchies in general--the bourgeoisie has at last, since the establishment of modern industry and of the world market conquered for itself, in the modern representative state, exclusive political sway. The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie…

Marx and Engels were wrong.

The executive of the modern state is not a committee for managing the common affairs of the bourgeoisie.

Would a competent committee allow the reduction of the value of the bourgeoisie's equity investments by 30% for no fundamental reason at all save for a desire to appeal superior to feckless, spendthrift, corrupt, bunga-bunga Italians and Greeks?

No, it would not.

Would that the executive of the modern state was a committee for managing the common affairs of the bourgeoisie!

Karl Smith: We Could Put the Global Economy on the Road to Recovery Today, Costlessly

Karl Smith:

Tyler Cowen on Europe: I pick on Tyler because he is probably one the sharpest voices for what I see as a deep misunderstanding…. Germany doesn’t need to experience any [negative consequences]. Germany only needs to agree to letting the ECB stand as Lender of Last Resort…. [P]art of the reforms which Mario Monti is putting in place are to decrease tax evasion. Yet, taxes are simply the forcible extraction of private resources by the government. Its not as if taxes represent the government producing something or even government officials or government pensioners consuming less. Taxes represent the transfer of resources under the threat of imprisonment. Now, if this could possibly solve your problem then you know that at root the problem has to be about who holds private claims over resources.

You can attack the problem in another way by seeing that Italy is roughly in primary budget balance. This means current borrowing exists only to repay past lenders. Again, this is an issue over the distribution of private claims.

To make the point more clear – this is explicitly not the case for Greece. From a budget standpoint Greece faces a more fundamental issue. It is currently in primary deficit. It would have shift resources from private control to public control in order to balance the budget given the current economic environment. It is true that Greece’s economic environment is primarily the result of a fundamental mismatch in monetary policy between it and the core countries and so could be solved if Germany were to endure more inflation. However, Greece does face an immediate adding up constraint that Italy does not face. A third way to see this is to imagine what would happen if Italy repudiated its debt vs. Greece. Italy would then be able to support itself on tax revenue. Greece would not. Greece would have to go back into the bond markets somehow and get more money.

Why is all of this important?

Its important because it means Italy doesn’t actually need anyone to transfer real resources to it. It simply needs someone to manage resource distribution among bondholders. The ECB can do this at virtually no direct cost. Again that is because nothing actually has to be produced or transferred. Debt just has to be managed.

Perhaps, a fourth way to see this is by noting that you only need new savers to agree to step in where old savers were. This is ultimately a co-ordination issue between groups of savers. Its breaking down because there is a musical chairs issue. No one wants to be the last saver who can’t find someone to whom to transfer his savings. The ECB can assure this doesn’t happen because the ECB controls the total amount of borrowing from European banks. It can constrict the amount of borrowing to make sure that someone steps up to take the transfer of Italian debt.

All of this is to say that Germany doesn’t have to suffer any near term economic bad effects…

Paul Krugman Sends Us to Martin Wolf on Death By Accounting Identity

Paul Krugman:

Death By Accounting Identity: Martin Wolf has a somewhat despairing-sounding column this morning, in effect pleading with the Cameron government to admit that the laws of arithmetic must apply. Good luck with that. Martin writes,

If the private sector is seeking to run down its debts, it is hard for the government to do so, too, because everybody cannot spend less than their income. That is the “paradox of thrift”. No, it is not a novel idea.

Ah, but for the past two years leaders in the Eurozone, Britain, and the US Republican party have subscribed to the following plan: 1. Slash government spending. 2. ??????. 3. Prosperity! For a while ???? was framed in terms of the doctrine of expansionary austerity: slash spending and the confidence fairy would make private-sector spending rise. At this point, however, few still believe in this doctrine. Also, in the euro area it was hard to see how things would work even if the confidence fairy made an appearance; how was that supposed to resolve the large payments imbalances between the core and the periphery?

But even as the intellectual foundations, such as they were, for the austerity plan have been demolished, the plan itself remains unchanged.

Martin Wolf:

Why cutting fiscal deficits is an assault on profits: Reducing the government’s debt was “proving harder than anyone envisaged”, David Cameron, UK prime minister, said in a speech on Monday. He even admitted that “high levels of public and private debt are proving to be a drag on growth, which in turn makes it more difficult to deal with those debts”. Yet, if Mr Cameron had wanted to do so, he could have met many “anyones” who would have warned him of what he has now learnt, at great cost to the country. If the private sector is seeking to run down its debts, it is hard for the government to do so, too, because everybody cannot spend less than their income. That is the “paradox of thrift”. No, it is not a novel idea.

If the government wishes to cut its deficits, other sectors must save less…. If the government is running a huge financial deficit – that is, spending vastly more than its revenue – then other sectors must be spending much less than their income. And so, indeed, they are…. In order to reduce huge government deficits, surpluses must fall elsewhere. But one should want that adjustment to occur via higher spending rather than via a collapse of the economy into a deeper slump….

The surplus of corporations is the gap between their retained earnings and investments. This can be lowered by raising investment…. What are the chances of a surge in corporate investment when households are deleveraging, the country’s export markets are in trouble, and the government is curbing spending> Negligible….

[T]o offset reductions in fiscal deficits, pay-outs must rise or retained profits fall…. Yet that would mean a still-weaker economy, since reduced profits would also lower investment. That would be a disaster, in the short and long term….

I find the government’s programme of fiscal tightening unreasonably inflexible in such an uncertain world. It would make good sense to introduce credibly temporary fiscal boosts, particularly when monetary policy seems rather ineffective, at least on its own….

If the government is dead set on rejecting such pleas, it has to show how the rest of the economy is to adjust to its lower deficits. That has to start with the corporate sector, where the vast bulk of the financial surpluses now reside. If profits are not to be slashed, what is to change and how? That is a serious question. The public deserves a decent answer.

We Could Put the Global Economy on the Road to Recovery Tomorrow...

Either Paul Krugman needs to stop being so depressed or he needs to stop being so right.

I would be happy with either eventuality:

John Stuart Mill, 1829:

There can never, it is said, be a want of buyers for all commodities; because whoever offers a commodity for sale, desires to obtain a commodity in exchange for it, and is therefore a buyer by the mere fact of his being a seller. The sellers and the buyers, for all commodities taken together, must, by the metaphysical necessity of the case, be an exact equipoise…. If, however, we suppose that money is used, these propositions cease to be exactly true…. What they called a general superabundance, was not a superabundance of commodities relatively to commodities, but a superabundance of all commodities relatively to money…. Money… was in request, and all other commodities were in comparative disrepute… all commodities fall in price, or become unsaleable…

And the solution is obvious: when the market wants money--liquid, safe savings vehicles--to hold, it is the business of the central bank to give the market the money it needs under those circumstances--like right now--when private entities cannot.

To quote Jeremiah Harman's evidence before the Committee of Secrecy on the Bank of England Charter in 1832, in the 1825-6 financial crisis the Bank of England flooded the zone with safe, liquid savings vehicles:

lent…by every possible means and in modes we had never adopted before; we took in stock on security, we purchased exchequer bills, we made advances on exchequer bills, we not only discounted outright, but we made advances on the deposit of bills of exchange to an immense amount, in short, by every possible means consistent with the safety of the Bank, and we were not on some cases over-nice. Seeing the dreadful state in which the public were, we rendered every assistance in our power…

A lesson that applies to today. Paul Krugman:

Death By Hawkery: What the world needed in this global deleveraging crisis was deficit spending and higher inflation targets. What it got was fiscal austerity and obsessive concern with inflation risks that weren’t real. Hence the catastrophe now unfolding. Judging from recent comments, many readers missed my earlier analyses on these issues — I’m still getting the “You idiot, debt got us into this mess, how can debt get us out?” type of comment. So let me re-repost my discussion of this whole issue in full, followed by a couple of brief notes on the European situation:

Sam, Janet, and Fiscal Policy

One of the common arguments against fiscal policy in the current situation – one that sounds sensible – is that debt is the problem, so how can debt be the solution? Households borrowed too much; now you want the government to borrow even more?… [T]hat argument… assumes… debt is debt – that it doesn’t matter who owes the money. Yet that can’t be right; if it were, we wouldn’t have a problem in the first place…. [T]he level of debt matters only if the distribution of net worth matters, if highly indebted players face different constraints from players with low debt. And this means that all debt isn’t created equal – which is why borrowing by some actors now can help cure problems created by excess borrowing by other actors in the past.

To see my point, imagine first a world in which there are only two kinds of people: Spendthrift Sams and Judicious Janets…. Sams have borrowed from the Janets to pay for consumption. But now something has happened – say, the collapse of a land bubble – that has forced the Sams to stop borrowing, and indeed to pay down their debt. For the Sams to do this, of course, the Janets must be prepared to dissave, to run down their assets. What would give them an incentive to do this? The answer is a fall in interest rates…. But… what if even a zero rate isn’t low enough; that is, low enough to induce enough dissaving on the part of the Janets?… Then we have a problem…. [W]e’d be looking at a depressed real economy and deflationary pressures. And this will be destructive; not only will output be below potential, but depressed incomes and deflation will make it harder for the Sams to pay down their debt.

What can be done?… [I]nflation… will make it possible to have a negative real interest rate, and it will in itself erode the debt of the Sams. Yes, that will in a way be rewarding their past excesses – but economics is not a morality play…. [Y]es, inflation erodes the assets of the Janets at the same time, and by the same amount, as it erodes the debt of the Sams. But the Sams are balance-sheet constrained, while the Janets aren’t, so this is a net positive for aggregate demand. But what if inflation can’t or won’t be delivered?… Government Gus… can borrow for a while, using the borrowed money to buy useful things like rail tunnels under the Hudson. The true social cost of these things will be very low, because he’ll be putting resources that would otherwise be unemployed to work. And he’ll also make it easier for the Sams to pay down their debt; if he keeps it up long enough, he can bring them to the point where they’re no longer so severely balance-sheet constrained, and further deficit spending is no longer required to achieve full employment.

Yes, private debt will in part have been replaced by public debt – but the point is that debt will have been shifted away from severely balance-sheet-constrained players, so that the economy’s problems will have been reduced even if the overall level of debt hasn’t fallen….

The European mess is pretty well described by the story above, with the Sams mainly in the periphery and the Janets in the core; what we’re getting is forced austerity in the periphery with no offsetting expansion in the core, and now everyone is shocked, shocked that the whole continent seems headed for recession.

In Europe’s case, however, higher inflation is even more crucial than for the United States — because Europe also needs a large adjustment of relative prices that will be very hard if not impossible to achieve with low overall inflation.

So as of this morning, the 5-year German breakeven — an implicit forecast of inflation — is only 0.9%.

This is not going to work.

Nick Rowe: Magneto Trouble

Nick Rowe:

Worthwhile Canadian Initiative: Darwin Awards, and other random thoughts on the Euro: At root, the coming Eurozone crash, like the 2008 crash, are not caused by a failure of governments, or of finance, but by a failure of monetary systems. Yes, people and governments borrowed more than they should have, and other people lent them more than they should have. But people make mistakes, and do stupid things, and loans go bad. A good monetary system should have the ability to keep the economy functioning even if loans go bad. Nowhere is it written in stone that if a lot of borrowers can't pay a lot of lenders that there has to be a recession and we all stop working and producing and buying and selling and just sit and watch while those borrowers and lenders sort themselves out.

We need a monetary system that keeps on functioning despite human mistakes, stupidity, or asteroid strikes.

The tragedy is that we have such a monetary system--or could have one, if the ECB and the Fed would do what they ought to be doing.

The "Failure" of the German Ten-Year Bond Auction

Greg Ip:

German bunds: Fun with bunds: NEWS that a German auction of government bonds ("bunds") flopped rattled markets today. Since bloggers don't spend a lot of time immersed in the mechanics of European bond auctions, I asked Lorenzo Pagani, of Pimco's European government bond team, to explain how Germany's auction process works and what the Bundesbank's role is. He replied:

In Germany the debt auction process is similar to other countries'.  Dealers can bid with size and price. The difference is that in Germany, the Debt Agency (Finanzagentur) will retain part of the new issuance all the time, usually 15-20%, so they do not need full demand to issue. Also, the requirement to be a dealer in Germany means making sure of a minimum allocation across auctions that is relatively low (0.05%), while in other countries this requirement is higher (3% for example in Italy). Germany doesn’t grant greenshoe options to its dealers. Other countries do. A Greenshoe option gives the dealer the right to buy the bonds for a few day after the auction at the same price of the auction.

Overall this means that demand for German auctions will tend to be lower—all else equal—than for other countries’ auctions. Since 2008, Germany has seen uncovered auctions 1 out of 5 times.

Today's retention amount was large, 39% of the 6bln target.The Finanzagentur issued only 3.9bln cash. They gave 3.9bln bunds to the market and kept 2.1bln bonds on their books. In the future they can sell this retention amount into the secondary market, raising cash. You may have read that the Bundesbank bought the unfilled part of the auction; this is not correct. The Bundesbank is not financing Germany; it just operates as an agency for Finanzagentur.

It is worth repeating that Finanzagentur always retains part of the bonds, so this part of the process is normal. Today the retention was larger than usual. This is probably due to low liquidity across market, lower incentive to place certain minimum size bids by dealers, and richness of bunds in general.

"Low liquidity across market" means "right now people in Europe don't want to trade away their cash for anything--not even bunds". "Lower incentive to place certain minimum size bids" I do not understand. "Richness of bunds" means "they are expensive creatures that pay low interest rates".

The ten-year German government bond right now has a yield of 2.268%, which is extraordinarily low. If Germany's financial position were "in doubt" in any way, it would be yielding a lot more than 2.268%.

What has happened over the past week is that markets have started demanding a 30 basis point premium for holding bunds over US 10-Yr Treasuries--a thing that they weren't demanding before. Is this because the market fears that in the chaos of a eurozone breakup it might not be able to turn bunds into cash just when it needed to, and so is now demanding a 30 basis point premium yield to compensate for the possibility of that eventuality? Is this because the market now fears (or hopes) that changes in eurozone fiscal or monetary governance will in the future give the eurozone not a slightly lower but a slightly higher inflation rate than the US, and so is now demanding a 30 basis point premium yield to compensate for the possibility of that eventuality? I don't know--and I don't think anybody else knows either.

UPDATE: in my email:

People are selling Bunds because they need the cash. That's the definition of a liquidity crisis - it's not when people are selling poor-quality assets because they want to, it's when people sell everything, because they have to…. If you have to raise cash in a hurry, you sell high-quality assets, not low-quality ones. Soros has made a ton of money out of understanding this, and he even gives away the advice for free in one of his books.

Resolving the Eurocrisis: Department of "Huh?!"

German Government Bonds 10 Yr Dbr  GDBR10 IND Index Performance  Bloomberg

Tyler Cowen:

Is the end near?: There is so much talk about what the Germans should do, but I don’t see the viable options.  With Germany’s own credit status now in doubt…

Why does he say this?

At a current ten-year nominal interest rate of 2.268%, Germany's own credit status is not in doubt. Countries whose credit status is in doubt do not have their ten-year bonds selling at a yield-to-maturity of 2.268%.

German Government Bonds 10 Yr Dbr  GDBR10 IND Index Performance  Bloomberg 1

What has shifted over the past week is that U.S. ten-year Treasury bonds at a yield of 1.95% are now significantly stronger than German ten-year Treasury bonds at a yield of 2.268%. We can hope that this is because the market sees good news: perhaps it expects the ECB to raise short-term interest rates more and sooner because European growth will be faster than was anticipated (but that is extremely unlikely). This may be bad news: perhaps the market expects the ECB to raise short-term interest rates more and sooner to demonstrate that it is tough. Or perhaps the market fears some future chaos event involving the breakup of the euro will make its German bund holdings illiquid just when it would want to sell them to raise cash. This may simply be a recognition, finally, that there are about to be shifts in eurozone political economy and governance that are likely to give the eurozone a slightly higher inflation rate than the U.S. over the next generation.

We don't know.

But a country whose ten-year bonds carry a market yield of 2.268% is not a country whose credit status is in doubt.

The key, I think, is that in a world in which investors are desperate for safe assets--which is our world--then any sovereign which has the political support to run a persistent primary surplus is credit-worthy either if it is believed to be credit-worthy or if a credit-worthy sovereign is willing to guarantee it. Italy is running a primary surplus right now. Portugal, Spain, and Ireland could run primary surpluses with no change in policy if we had a half-recovery to 2007 business cycle conditions. (Greece could not: Greece needs big policy changes.) Nobody I know is doubting that Germany and France can run primary surpluses if they so choose.

But Tyler does not seem to see any of this:

[Germany with an] eighty percent debt to gdp ratio, massive welfare state, and unfavorable demographics, are they supposed to endorse — going to endorse — ten or fifteen percent price inflation for a few years’ time, all with no guarantee of reforms in the economically weaker countries?…

We don't need ten or fifteen percent price inflation. (Although three or four percent price inflation would make things a lot easier.) And we don't need big reforms in the economically-weaker countries--or, rather, even a half-hearted recovery does more good.

U.S. Navy Headquarters Liveblogs World War II: November 24, 1941

From the CNO:

FROM: Chief of Naval Operations

ACTION: CinCAF, CinCPAC, Com 11, Com 12, Com 13, Com 15

INFO: Spenavo London Cinclant


Chances of favorable outcome of negotiations with Japan very doubtful. This situation coupled with statements of Japanese Government and movements their naval and military forces indicate in our opinion that a surprise aggressive movement in any direction including attack on Philippines or Guam is a possibility. Chief of Staff has seen this dispatch concurs and requests action adees [addressees] to inform senior Army officers their areas. Utmost secrecy necessary in order not to complicate an already tense situation or precipitate Japanese action. Guam will be informed separately.

Copy to WPD, War Dept. and Op-12 but no other distribution.

Letter of Marque and Reprisal

Courtesy of Jim MacDonald:

The Congress of the United States of America

To all to whom these Presents come sent GREETING


That we have granted, and by these presents do grant licence and authority to [name of captain], Mariner, Commander of the [kind of vessel] called the [vessel’s name] of the burthen of [number] tons or thereabouts, belonging to [name of owner] mounting [number] carriage guns and navigated by [number] men to fit out and set forth the said [kind of vessel] in a warlike manner, and by and with the said [kind of vessel] and the officers and crew thereof, by force of arms, to attack, subdue, seize and and take all ships and other vessels, goods, wares and merchandizes, belonging to the Crown of Great Britain, or any of the Subjects thereof (except the ships or vessels together with their cargoes belonging to any Inhabitant or Inhabitants of Bermuda, and such other ships or vessels bringing persons, with the intent to settle within any of the said United States, which ships or vessels you shall suffer to pass unmolested, the Masters thereof permitting a peaceable search, and giving satisfactory information of the lading and their destination) or any other ships or vessels, goods, wares or merchandizes to whomsoever belonging, are or shall be declared to be the Subjects of capture by any Resolutions of CONGRESS, or which are so deemed by the LAW OF NATIONS: And the said ships or vessels, goods, wares and merchandizes so apprehended as aforesaid, and as prize taken, to bring into Port, in order that the proceedings may be had concerning such captures, in due Form of Law, and as to Right and Justice appertaineth. And we request all Kings, Princes, States and Potentates, being in Friendship or Alliance with the said United States, and others to whom it may appertain to give the same [name of captain] all aid, assistance and succor in their Ports, with this said vessel, company and prizes. WE, in the name and on the behalf of the Good People of the said United States, engaging to do the like to all Subjects of such Kings, Princes, States and Potentates, who shall come into any Port of the said United States; and We will and require all our officers whatsoever, to give to the said [name of captain] all necessary aid, succor and assistance in the premises. This Commission shall continue in force during the pleasure of the CONGRESS, and no longer.

IN TESTIMONY whereof, We have caused the Seal of the ADMIRALTY of the United States to be affixed hereunto.

WITNESS His Excellency [name] Esquire, President of the CONGRESS of the United States of America, at [city] this [ordinal number] day of [month] in the Year of our Lord One thousand seven hundred and [number] and in the [ordinal number] year of our Independence.



Quote of the Day: November 24, 2011

"al-Ma’mun decided to be less subtle and simply buy military force—literally, by purchasing Turkic horsemen as a slave army. Like other rulers before him, however, al-Ma’mun and his heirs learned that nomads are basically uncontrollable. By 860 the caliphs were virtually hostages of their own slave army. Without military power or religious support they could no longer generate taxes, and ended up selling off provinces to emirs: military governors who paid a lump sum, then kept whatever taxes they could extract. In 945 an emir seized Baghdad for himself and the caliphate decomposed into a dozen independent emirates.

"By then the Eastern and Western [Eurasian political-economic] cores had each fragmented into ten-plus states, yet despite the similarities between the breakdowns in the two cores, Eastern social development continued to rise faster than Western. The explanation once again seems to be that it was not emperors and intellectuals who made history but millions of lazy, greedy, and frightened people looking for easier, more profitable, and safer ways to do things. Regardless of the mayhem that rulers inflicted on them, ordinary people muddled along, making the best of things…"

--Ian Morris, Why the West Rules--for Now

Ralph Vaughan Williams: "Five Variants of Dives and Lazarus"


Five Variants of Dives and Lazarus: "Five Variants of Dives and Lazarus" is a work for harp and string orchestra by Ralph Vaughan Williams. The composition is based on the folk tune "Dives and Lazarus", which is known by different titles according to region:

  • "The Star of the County Down" (Ireland)
  • "Gilderoy" (Scotland)
  • "The Thresher"
  • "Cold blows the wind"
  • "The Murder of Maria Marten" (Norfolk)

Vaughan Williams composed the work on commission from the 1939 World's Fair in New York City. The first performance was at Carnegie Hall in June 1939, conducted by Sir Adrian Boult. Boult also directed the first UK performance in November 1939 in Bristol.

The folk tune was also arranged by Vaughan Williams as a hymn tune "Kingsfold," appearing as "O Sing a Song of Bethlehem," in The English Hymnal as "I Heard the Voice of Jesus say," (no. 574 in the original 1906 edition), and as "If You Could Hie to Kolob" (no. 284) in the 1985 Latter-day Saint Hymnal.

Twitterstorm delong: November 23, 2011

  • DougHenwood Doug Henwood @delong @rortybomb What do you make of CBO marking down its estimate of ARRA impact? Political pressure? It's not like multipliers are new. 2 hours ago

  • walterrhett Walter Rhett, Writer Helvering v. Davis; SupremeCourt antecedent to AffordableCareAct @ProPublica @SCNewDems @HCNow @Salon @delong 2 hours ago

  • RT @delong: Mark Thoma: "Why America Should Spread the Wealth" #page1 8 hours ago

  • ChrisSchmidt123 ChrisSchmidt123 "@delong: Martin Wolf Says: Fly the Helicopters!" surface to air response guaranteed 9 hours ago

  • VoxRationalis David Clayton @delong The budget deal is 3:1 tax↑ to spending↓, mostly defense cuts, none in SS, Medicaid or Medicare. Ezra Klein: 14 hours ago

  • santiagoafonso Santiago Afonso @ @JustinWolfers @delong is monetary policy worth it given its tradeoffs (increased future fin instability+ineffectiveness in liquidity trap)? 23 hours ago

  • paulstpancras paulstpancras RT @delong: Mike konczal: "Eight Things We Know About Extending Unemployment Insurance" 22 Nov

  • Angela_D_Merkel Angela Merkel My AAA rating > RT@BarackObama: This Thanksgiving, what are you most thankful for? 3 hours ago Retweeted by delong

  • jayrosen_nyu Jay Rosen The political press has no answer to this. It won't develop an answer and doesn't care that it has no answer. So deal. 4 hours ago Retweeted by delong

  • Nouriel Nouriel Roubini EZ in recession & even core sov bond markets seized; US investment & consumption down in Oct; China bus conditions at 32mt low.Perfect Storm 13 hours ago Retweeted by delong

  • moronwatch MoronWatch Yeah, it's funny that the Republican Party's been taken over by extremist morons, but a democracy with one functioning party isn't funny 21 hours ago Retweeted by delong

  • DemocratMachine VivaMachine! Our operational headquarters are in the mountains, making it impossible for the Cain train to take out our operational capacity. #p2 21 hours ago Retweeted by delong

  • daveweigel daveweigel I'm against amnesty for my CMS, which is still napping on the debate wrap I hit "publish" on 10 minutes ago. 23 hours ago Retweeted by delong

  • dandrezner Daniel Drezner But.. but... Obama hates America! RT @PJCrowley @washpost says core #AlQaeda no longer directly threatens the U.S. 23 hours ago Retweeted by delong

  • MJGerson Michael Gerson Ron Paul: “I think the aid is all worthless.” With more than 5 million on AIDS meds in Africa, Paul is either ignorant or a moral monster. 22 Nov Retweeted by delong

  • DemocratMachine VivaMachine! We have no idea who is the new Not-Mitt after Newt's immigration answer. We're gonna bet all of our stolen gold on Ron Paul #CNNDebate 22 Nov Retweeted by delong

  • xpostfactoid1 Andrew Sprung Perry says China will end up on ash heap - rather like Ahmadinejad saying Israel will disappear from map - God's curse on them

Yes, Newt Gingrich Is Truly a Dangerous Clown

Newt Gingrich

The government guarantees that all workers with personal accounts will receive at least as much in retirement as they would under the current Social Security system. If someone with a personal account retires with benefits lower than those offered by the current system, the Treasury will send them a check to make up the difference. Thus, there is a legal government obligation that in a worst case scenario a retiree will be able to enjoy benefits at least as good as they would under th e traditional Social Security system.

Pat Garofalo:

Gingrich's Latest Social Security Scheme: Privatize The Program Then Bail Out Bad Investors: "As we pointed out when Sen. Rob Portman (R-OH) suggested a similar idea, promising to make investors whole again sets up a huge moral hazard problem. If investors know full well that the government is going to provide them with a minimum benefit, no matter what they do, then the incentive is to make risky investments and hope for a big payoff. After all, why not take the risk if the government has guaranteed that you can’t lose money?

Attention: everybody who voted Republican in 1992, 1994, 1996, 1998, 2000, 2002, 2004, 2006, 2008, or 2010: This dangerous clown is your creation. You are responsible for dealing with him.

A Stray Thought on Herbert Hoover: At Least He Was Trying

You know, for most of my life I have been viciously contemptuous of Herbert Hoover as president over 1929-1933. His major policy thrust was to cut spending and raise taxes in order to maintain and then restore confidence in the long-term fiscal stability of the U.S. government, and even a brief look at bond interest rates ought to have convinced him that that was exactly the wrong tack to take.

But even though that was the major thrust, he was doing other things to try to fight the gathering Great Depression--the Young Plan and the international debt moratorium to ease bond-market pressure on overleveraged sovereigns, the HOLC to deal with the mortgage crisis, the RTC to get capital to businesses that found that private finance's appetite for taking on risk had dried up. These were all, in the great scheme of things, merely rearranging the deck chairs on the Titanic.

But at least Hoover was moving the chairs around...

Quote of the Day: November 23, 2011

"In the 2nd century BC, in order to field an army of around 130,000 men, the Romans not only depended heavily on their Italian allies, but also enlisted around 13% of their own adult male citizens. The call-up fell disproportionately on the young. To sustain an army of such a size required the regular enrolment of 60% of all 17-year-olds for seven years."

--Christopher Kelly, The Roman Empire: A Very Short Introduction

At the Very Least, the Fed and the Treasury Need to Flood the RIsk-Tolerance Zone to Decouple America from the Looming Eurocrisis Now

It's no longer "eurotail risk" that we are worried about.

Ryan Avent:

The euro crisis: Faster toward the end: THE bad news out of Europe is coming fast and thick now. Markets were still digesting news of Spain's terrible bond auction yesterday, in which the yield on its 3-month debt more than doubled, from 2.3% to over 5%. That was but an appetizer, however; in an auction of 10-year debt today, Germany failed to place some 40% of the issuance. The lack of appetite for German debt has come as a shock to many, and the language being used to describe matters is increasingly apocalyptic. "It is a complete and utter disaster", Reuters has one strategist saying. On the secondary market, German bond yields have finally joined those of its neighbours on their upward march. The German 10-year yield is up over 7 percentage points today, and back above 2%. It still has a ways to go to catch France and Austria (approaching 4%), Belgium (over 5%), and Spain and Italy (back near 7%).

Trouble at big European banks is growing; the euro-zone banking system is increasingly reliant on the European Central Bank for funding. The prospect of bank failures is a troubling one given the fiscal strain on European sovereigns; no one wants to find itself in Ireland's position, squarely in bond vigilantes' crosshairs having assumed the obligations of sinking banks. Uncontrolled collapses are too awful to contemplate, however, and so the pressure on the ECB will grow. Meanwhile, trouble is growing around the eastern periphery of the euro zone. Poland's zloty is under pressure, and there are signs of bank runs in the Baltics.

Perhaps worst of all, the financial strain in the euro zone is increasingly apparent in the real economy. New data indicate that euro-zone industrial orders plummeted in September, falling 6.4%. Orders dropped 4.4% in Germany, 6.2% in France, and 9.2% in Italy. Predictions that the euro zone will face little more than a shallow recession oin 2012 increasingly seem to be wildly optimistic….

The good news, such as it is, is that the stunning German bond-market failure may shock leaders their into recognising their own great vulnerability and pushing for bold initiatives to slow the crisis…. It will take the power of the printing press to stop the panic. But the ECB seems if anything more reluctant to save the situation than the German government. As Martin Wolf quips today, "the ECB risks being remembered by historians as the magnificently orthodox central bank of a failed currency union".

The world can give thanks that a new Depression is not yet upon it. Enjoy the sentiment now, while it lasts.

The Austerity Play: Euronomics of Speculative Attacks

Karl Smith:

On Bank Runs and Fighting the Folks Who Own a Printing Press « Modeled Behavior: Ultimately bond traders are looking to make money. In the short term you might be looking to support a liquidity position or something, but at the end of the day everyone is looking to increase profitability. If the ECB stands ready to buy bonds at par for example, then how can it possibly be profit maximizing to sell bonds at below par? It doesn’t matter what the fundamentals are or what the long run is or any of that. So long as you are fully confident that tomorrow you can sell your bond to the ECB at par, it is not sensible to sell it below par today.

This means interest rates on Sovereign Debt collapse if the ECB stands ready to trade.

Now, someone could come in and attempt to break the ECB. That is you could say to yourself: I don’t think the ECB really means it. They will fold if they are required to buy more than X bonds.

Then you attempt to short sell them X+1 bonds so that they will break, the price of the bonds will collapse and you can rake in a ton of money. This is a fairly high stakes game and the ECB is very large, so its not clear who will play it.

More importantly, while I definitely see the ECB as the type of institution that would dither while Europe burned and don’t at all see them as the type of institution that would give in to a speculative attack.

I feel pretty confident that they would double down against the speculator and ruin him or her as a matter of principle. Moreover, anyone who is going to loan you the bonds for this attack has got to be worried that the ECB is going to ruin you.

So, I find it unlikely that an attack will be successful.

It used to be that speculative attacks against the currencies of sovereigns were successful in two cases:

  1. When the central bank is trying to keep its currency above its real fundamental value, and is intervening by buying its currency and selling its (limited) supply of harder assets. Then you can break a central bank.

  2. When the central bank is trying to keep its currency above its real fundamental value, and is intervening by selling domestic bonds for cash and so pushing up interest rates to make its currency attractive to hold. Then it is defending the dollar by attacking the economy--creating a recession and boosting unemployment. The central bank's ability to do this is determined by its (limited) politicians' willingness to make their voters poor and unemployed. Then you can break a central bank.

Now we have a third case. Note that it is not a speculative attack on a currency: core eurobond interest rates are very very low. And within the current eurozone, the ECB can print enough euros to peg the europrices of the eurobonds of peripheral eurosovereigns wherever it wants to. Given this power, under what circumstances can a speculative attack succeed?

It's not that the ECB is unwilling to buy bonds for cash because it then creates inflationary pressure. The cash it prints goes straight into the speculative balances of the investors who sold the bonds, not into the transactions balances of the economy as a whole. And when the speculative attack passes, the positions are unwound with a profit to the ECB.

Thus the marginal velocity of money created by eurointervention is highly likely to be very small. It's not as though Italy is running a primary deficit or anything.

I don't understand it. It is, it seems to me, an episode of euri sacri fames: the accursed love for the euro as a--well, not a hard currency, exactly, because a currency that collapses and destroys itself is not "hard". Rather, I would say, it is a love of austerity and unemployment for its own sake.

So those who are betting on the collapse of the euro and the exist of Greece, Spain, Portugal, Ireland, Italy, and now France to a weaker currency are making a very big austerity play. They may be correct to make such a play. But it is not a scenario we have ever seen before...

Why Oh Why Can't We Have a Better Press Corps?: Columbia Journalism Review Edition

Clint Hendler and Jay Rosen (jayrosen_nyu) on Twitter:

clinthendler Clint Hendler: @jayrosen_nyu We actually never charged individual readers for archive access. One bulk broker (EBSCO) bought & sold them to institutions 6 hours ago

jayrosen_nyu Jay Rosen: @clinthendler Right. You made the archives inaccessible to individuals, and then did not offer them a pay option, correct? Smart decision? 6 hours ago

jayrosen_nyu Jay Rosen: @clinthendler So were you satisfied with the revenues from charging institutions for the online archives? Was it worth it, in CJR's view?

clinthendler Clint Hendler: @jayrosen_nyu "Decision" is not exactly the right word. We've never had the resources to get a working 50-year archive system off the ground 6 hours ago

jayrosen_nyu Jay Rosen: @clinthendler I don't get it. You had the resources to keep me from reaching CJR material that had once been accesible online. Why is that? 6 hours ago

clinthendler Clint Hendler: @jayrosen_nyu Two different challenges: 1) Limit access per institutional contract & 2) make a pay system for general readers.1 easy, 2 not. 6 hours ago in reply to ↑

Jay Rosen: @clinthendler Right, got it. So you cut off access for general readers AND you were never able to offer them a pay option, either, correct? 6 hours ago via web

clinthendler Clint Hendler: @jayrosen_nyu fwiw, I'd like to amend "cut off"--vast majority of CJR archives have, far as I know, never been available online. 5 hours ago

clinthendler Clint Hendler: @jayrosen_nyu That is correct. Not an ideal situation. New meter a vast improvement, as it offers more general access. But still not ideal. 6 hours ago

jayrosen_nyu Jay Rosen: @clinthendler @CJR No, my question was how charging for your archives (the old system) worked out and what the revenues were. Good decision? 6 hours ago

jayrosen_nyu Jay Rosen: Now that you've gone to a meter, @CJR, could you tell us how well charging for archives went and what the revenues were? cc @megangarber

Twitterstorm delong: November 22, 2011

  • drgrist David Roberts Newt looks like he is disgusted at having to share a planet with all these other human beings. He is a being of Pure Thought, dammit! 1 minute ago Retweeted by delong

  • davidfrum davidfrum The Chilean system is based on a pension mandate. Why isn't that the death of freedom? 5 minutes ago Retweeted by delong


  • drgrist David Roberts Opinions Differ On Shape of Earth. RT @owillis: Romney Campaign Stands By Faking Obama Quote #p2 #tcot 4 hours ago Retweeted by delong

  • counterparties Counterparties Another canary in the EU coal mine croaks. This time it's Latvia 4 hours ago Retweeted by delong

  • Paul Solman: "Mainstream Economic Media Cry Wolf" 5 hours ago

  • DemocratMachine VivaMachine! Also tonight on #CNNDebate: Solving our spending problems with start-at-zero foreign aid and "Obama: why hasn't he killed Osama again?" 5 hours ago Retweeted by delong

  • JustinWolfers Justin Wolfers .@paulsolman's deeper point: When "the market" speaks, it does so through prices, not narratives sold to unsuspecting journos. 5 hours ago Retweeted by delong

  • BetseyStevenson Betsey Stevenson w/o recovery act we'd be in a recession MT @crampell CBO: Recovery Act "increased by 0.5 mil to 3.3 mil" in Q3… 5 hours ago Retweeted by delong

  • ezraklein Ezra Klein Fed to unemployed: You’re on your own 5 hours ago Retweeted by delong

  • ryanavent Ryan Avent "Going off gold isn't a practical option for the Fed right now. Too much policy uncertainty involved." #1930s #ngdp 5 hours ago Retweeted by delong

  • ryanavent Ryan Avent Anyway, the Fed will soon be spraying the financial system w/ liquidity as Europe melts down. Might as well change targets while it's at it. 5 hours ago Retweeted by delong

  • JessicaValenti Jessica Valenti I wonder if anyone has mastered the art of not giving a shit what people say about them online. Almost ten years later, still trying. 6 hours ago Retweeted by delong

  • JustinWolfers Justin Wolfers Is there any way to read current Fed forecasts and ongoing (in)action as consistent with their statutory #dualmandate ? 7 hours ago Retweeted by delong

  • AdamSerwer AdamSerwer @ cc: @Ron_Fournier RT @ThePlumLineGS And the winner of today's false equivalency sweepstakes is ... Ron Fournier!!! 7 hours ago Retweeted by delong

  • kjhealy Kieran Healy Napalm is a jello product, essentially #MegynKellyEssentials 8 hours ago Retweeted by delong. Waterboarding is a shower attachment, essentially. #MegynKellyEssentials 8 hours ago Retweeted by delong

  • thinkprogress ThinkProgress "Why didn't reporters call Romney a liar?" by @ryanlizza 8 hours ago Retweeted by delong

  • Michael Jones: 'This Is What Is Happening Around Us' 9 hours ago

  • Andrew G Haldane and Vasileios Madouros: "What is the contribution of the financial sector?" 9 hours ago

  • Barry Ritholtz: "Examining the big lie: How the facts of the economic crisis stack up" 9 hours ago

  • davidfrum davidfrum @ @TimJGraham Nope. I'm staying and fighting for a conservative movement that doesnt call black people "uppity." 10 hours ago Retweeted by delong

  • Austin Frakt et al.: "The Effects of Market Structure and Payment Rates on Private Medicare Health Plan Entry" 9 hours ago

  • Nouriel Nouriel Roubini When risk is off & risk aversion is high the dollar & US Treasuries are the tallest midget in the room;or the valedictorian in summer school 10 hours ago Retweeted by delong

  • jbarro Josh Barro Rush said it, so it cant be racist MT @davidfrum Is MRC saying "uppity" ISN'T a racially loaded term applied to FLOTUS? 10 hours ago Retweeted by delong

  • delong J. Bradford DeLong Ife Finch and Liz Schott: "TANF Benefits Fell Further in 2011 and Are Worth Much Less Than in 1996 in Most States" 22 hours ago

  • RBReich Robert Reich WH hoping Gingrich gets nomination because he's out of his mind. But what happens if he actually wins? 22 hours ago Retweeted by delong

  • drgrist David Roberts What is the risk to America that requires we spend more than the rest of the world combined on defense? 21 Nov Retweeted by delong

  • ibogost Ian Bogost Nice to see complex operations like "Paste" still crash Word 2011. 21 Nov Retweeted by delong

  • Nouriel Nouriel Roubini EZ "aggregate risk" sharply up signals EZ break-up risk @voxeu: Welcome to Eurotaly: If Italy falls, so does Europe 21 Nov Retweeted by delong

  • MattCowgill Matt Cowgill .@delong: "How flat-out, knowingly false does something have to be before the press is willing to just call it a lie?" 5 hours ago

  • lvgaldieri Louis V. Galdieri RT @delong: RT @kjhealy: Napalm is a jello product, essentially #MegynKellyEssentials 8 hours ago

  • davidalanbailey David Bailey Whoa! “@delong: Pat Garofalo: "The Richest 0.1 Percent Of Americans Make Half Of All Capital Gains" 20 hours ago

  • aneveu Andre Neveu RT @delong Greg Sargent: "Debunking the conservative argument about the rich and taxes, in three easy charts" 22 hours ago

  • TheStalwart Joseph Weisenthal This is gonna be good... RT @delong: Charles Wyplosz: "An open letter to Dr Jens Weidmann" 21 Nov »

  • AdnerGroupLA Adner Realty Group Hedge funds lose their edge. RT @delong: "Hedge Funds Kiss Their Alpha Goodbye"

  • commiegirl1 Rebecca Schoenkopf @ Yes, but the other 17 percent are all on my fb feed. // @delong MT @EricBoehlert Straw man? @NYMag 83% libs support Obama.

Do Republicans Now Like Simpson-Bowles?

Ezra Klein:

Why Republicans like Simpson-Bowles: The Obama administration doesn’t like the defense cuts or Social Security reforms in Simpson-Bowles, and they’re skeptical that the tax reform process could really generate as much revenue as the document promises. So their thinking was that they could work off of the Simpson-Bowles proposal and come out with something better. That’s pretty much what they tried to do in April. But because that plan had Obama’s name on it, it was dismissed as a liberal nonstarter….

Whether an effort to revive Simpson-Bowles would actually mean that the plan passes or would just mean that the debate gets recentered and Republicans have to take the blame for killing the proposal is anyone’s guess. But neither outcome is a bad one for the Democrats. Or for the country.

It depends what "Simpson-Bowles" is: a good many of the elements would be really bad policy...

Robert Lenzner: "$1.7 Billion Customers' Money Missing From MF Global"

Robert Lenzner:

$1.7 Billion Customers' Money Missing From MF Global: The amounts of customer funds missing from MF Global have multiplied from $633 million to $1.2 billion yesterday– and now $1.7 billion today, according to  Vincent (Trace) Schmeltz III , the attorney for the 80 member Commodity Customers Coalition…. This new figure is the result of the  inability by the Trustee and the CME (the Chicago Mercantile Exchange) to find more than $3.7 billion in customers funds rather than the $5.4 billion  projected just after MF Global filed for bankruptcy  on October 31….

Both Schmeltz and James L. Koutoulas, the 30 year old  CEO of Typhon Capital Management,  told me at breakfast this morning that they have been told that as early as August MF Global  was reported to be using segregated customers accounts to “meet margin calls”  and  bolster their trading positions….

The unsecured creditors of MF Global are headed by JP Morgan Chase, which lent the firm over $1 billion, Goldman Sachs, Harris Trust and other banking concerns. Some of the MFG customers who are missing money are furious that Hughes Hubbard, a law firm that has represented JP Morgan in the past, is the legal representative of the Trustee in bankruptcy.

“This is another example of Wall Street favoring Wall Street over Main Street,” Koutoulas told me this morning.

Even amidst all this confusion about MF Global’s segregated accounts,  distress investors have been paying 85 cents on the dollar for claims against MF Global,  30 cents on the dollar for MF Global’s publicly traded bonds, and 9 cents a share for the firm’s common stock.

Mike Konczal: Extend Unemployment insurance

Mike Konczal writes:

Checking in on the Unemployment by Duration Numbers, Fall 2011 Edition: One key argument you hear is that unemployment is really just about the long-term unemployed.  The market is split into a healthy, normal labor market of people who have only been unemployed a short period of time and a pool of long-term unemployed who are unproductive and disconnected to the point where traditional monetary and fiscal stimulus won’t help them.  This is behind much of the “zero marginal product” arguments….

The difficultly of finding a job has increase for all duration groups, more for the short-term unemployed than for the long-term unemployed, and has stayed that way post-Great Recession. The big raw drops in the probability of finding a job occurred to those who have been unemployed for less than 15 weeks…. It is still a weak market across the board, even for those who are recently unemployed….

Like most economic indicators, the economy was in free-fall throughout 2009, recovered a bit in 2010 and has stayed virtually the same in 2011.  There’s a long way to go, and extending unemployment insurance is part of the way to get us there.


Monday, November 28, 2011, 3:00 p.m. – 5:00 p.m. Chevron Auditorium, International House, 2299 Piedmont Avenue 

The forty-seven members of the Division who requested the special meeting propose one resolution as the business for the meeting.

Gary Holland Secretary Berkeley Division  I. Business


Consideration of the following resolution.

Resolution proposed by: Wendy Brown, Professor, Political Science; Barrie Thorne, Professor, Gender and Women’s Studies/Sociology; Judith Butler, Professor, Rhetoric.

Whereas, Non-violent political protest engages fundamental rights of free assembly and free speech, and

Whereas, November 9th efforts by protestors to set up and remain in a temporary encampment near Sproul Hall constitutes non-violent political protest, and

Whereas, These non-violent actions were met with a brutal and dangerous police response (see, e.g.,, a response authorized in advance as well as retroactively justified by Chancellor Birgeneau, Executive Vice Chancellor Breslauer and Vice Chancellor for Student Affairs LeGrand, and

Whereas, This is the third time in two years that such police violence has been unleashed upon protesters at Berkeley, with resulting bodily injuries to protestors, student and faculty outrage, a series of expensive lawsuits against the university, a tarnished university image, and a severely compromised climate for free expression on campus;

Therefore be it Resolved that the Berkeley Division of the Academic Senate has lost confidence in the ability of Chancellor Birgeneau, EVC Breslauer and VC LeGrande to respond appropriately to non-violent campus protests, to secure student welfare amidst these protests, to minimize the deployment of force and to respect freedom of speech and assembly on the Berkeley campus.

II. Other matters authorized by unanimous consent of the voting members present $eview of Defense Technology 56895 MK-9 Pepper Spray Stream, 1.3%...

guydoingreviews: guydoingreviews' review of Defense Technology 56895 MK-9 Stream, 1.3%...: I was also present at the UC Davis test trials with Lt. Pike. Those student's were hosed down and didn't budge. I'm not sure how long this thing is supposed to take, but those miscreats didn't move. I heard some of them may have gotten sick latter but I expect my OC spray to work instantly. None of this 10 min crap. What happens if they were armed? or worse, registered democrats? I need OC spray that makes them cry instantly, like the bed wetters they are.

D-bag of Liberty

Whenever I need to breezily inflict discipline on unruly citizens, I know I can trust Defense Technology 56895 MK-9 Stream, 1.3% Red Band/1.3% Blue Band Pepper Spray to get the job done! The power of reason is no match for Defense Technology's superior repression power. When I reach for my can of Defense Technology 56895 MK-9 Stream, 1.3% Red Band/1.3% Blue Band Pepper Spray, I know that even the mighty First Amendment doesn't stand a chance against its many scovil units of civil rights suppression.

When I feel threatened by students, no matter how unarmed, peaceful and seated they may be, I know that Defense Technology 56895 MK-9 Stream, 1.3% Red Band/1.3% Blue Band Pepper Spray has got my back as I casually spray away at point blank range.

It really is the Cadillac of citizen repression technology.

Buy a whole case!


First, this baby has everything you would expect from Defense Technology brand pepper spray. It burns like hell. Whether you're spraying directly into eyes or mouths - this will cause excruciating pain.

Second, and I know it's not explicitly listed as one the uses on the can, but it's also an amazing human arm de-linker. So if you have this gigantic public space and a dozen people are sitting there with their arms linked - this will really help in your effort to de-link those arms.

I bought four canisters along with this head-smasher thingy: [...]

Don't think, just buy it and spray.

ChateauMargaux "Marquis"

Defense Technology 56895 MK-9 Stream, 1.3% Red Band/1.3% Blue Band Pepper Spray is the perfect product for would-be dictators, military rulers, and university chancellors. With a simple, nonchalant spraying action, you can be sure to cause great distress among unruly protestors, ensuring that their freedoms of speech, assembly, and protest are eliminated in favor of screaming in agony and writhing on the ground. One bottle of this stuff can silence up to 25 protestors with ease. Works just like Roundup weed killer, except it doesn't cause death, just burns, loss of vision, and possibly cancer many years later, when you won't be blamed for anything anyway. "I've been using this stuff to maintain power in my banana republic for years," according to Generalissimo Linda Katehi! Lt. John Pike of the UC Davis HeimatSekurität Department also raves, "Never before has it been so easy to silence those grubby little students whose tuition pays my salary!"

Remember, this product does entail some risk of blowback, however. Careless use could lead to international notoriety, universal condemnation, lawsuits, loss of your job, and becoming an internet meme.


A deft dose of thuggish law enforcement? Just a little over seventy bucks. Being immortalized as an Internet meme? Priceless.

anna! "annr bananar"

I hear this is essentially just a food product and I love me some peppery goodness so I got a can to spray down my maw. Let me tell you, that stuff is weak. Leave it for unarmed protesters and violent cops.

Greece, the CDS Market, and BNP

Felix Salmon:

The Greece basis trade: What could go wrong?: Why did Gretchen Morgenson write that column on Sunday about Greek credit default swaps? The answer is that the irresistible lure of writing about CDS lured her into the very murky waters of the Greek basis trade — the trade where you own Greek bonds and then hedge them by buying credit protection on Greece…. [T]he outcome of the trade is likely to set an important precedent for the sovereign CDS market more generally, so it’s worth looking in a bit of detail at exactly what’s going on here.

Basis trades belong to a set which is relatively common in financial markets: things which are meant to be very safe but which, in fact, aren’t…. [Y]ou buy a bond, which either pays off in full or doesn’t. If it does, you’re golden. If it doesn’t, then any losses you make on the bond can be recouped by profits on the CDS. So long as you buy the bond at a higher spread than the cost of credit protection, you should be guaranteed a modest profit. But the question is how do you get there from here. Because CDS are derivatives, they’re subject to margin calls, and if you can’t meet CDS margin calls, you might be forced to unwind your trade before maturity. And that can be very expensive…. So while the US government can play the basis trade without worries, everybody else has to treat it with a certain amount of caution. And all of that was true before various EU member governments started deciding, in a killing-the-messsenger kind of way, that there was something profoundly evil about the sovereign CDS market and that they wanted to start trying to ban it….

[I]f the EU wants to throw a wrench of some kind into the spokes of the CDS market, what could it do in Greece? One thing would be to simply encourage Greece to do a “voluntary” bond exchange which doesn’t trigger the CDS…. The thing to remember here is that if the CDS isn’t triggered in the bond exchange, it doesn’t just disappear in a puff of uselessness. It still exists, and it still protects bondholders from a payment default. If you hold the old bonds — if you haven’t tendered into the exchange — then in many ways your basis trade hasn’t changed. Either Greece continues to make the coupon payments on the old bonds, or else it doesn’t, at which point the CDS really should trigger and make you whole.

But there are two ways that the sovereign CDS market really could be damaged in the aftermath of an exchange. The first is if the untendered old bonds got impaired significantly while the CDS remained untriggered…. Greece, using its own domestic law as the instrument, changed the payment terms on the old bonds so that they were paying out only a fraction of what they were paying before the exchange. That would almost certainly be a credit event under the ISDA definitions, and would trigger the CDS. But… Greece and/or the EU might attempt to impair the old bonds and pressure ISDA to declare that the impairment doesn’t count as an event of default. I very much doubt that ISDA would ever make such a determination. But if it did, then that would be a serious blow to the sovereign CDS market….

CDS is a young market, which hasn’t been tested in lots of different circumstances. No one can know for sure how it’s going to play out in future. So far, the CDS market has held up pretty well…. And when CDS were triggered on Fannie and Freddie despite the fact that there was never any payment default, the market coped with that well, too. My guess is that CDS will do what they’re meant to do, in Greece. But BNP is trying to spread a certain amount of fear, uncertainty and doubt over whether that’s necessarily the case…

Department of English, UC Davis, Calls for the Immediate Resignation of Chancellor Katehi

Not your standard department webpage:

Welcome — Department of English, UC Davis: The faculty of the UC Davis English Department supports the Board of the Davis Faculty Association in calling for Chancellor Katehi’s immediate resignation and for “a policy that will end the practice of forcibly removing non-violent student, faculty, staff, and community protesters by police on the UC Davis campus.” Further, given the demonstrable threat posed by the University of California Police Department and other law enforcement agencies to the safety of students, faculty, staff, and community members on our campus and others in the UC system, we propose that such a policy include the disbanding of the UCPD and the institution of an ordinance against the presence of police forces on the UC Davis campus, unless their presence is specifically requested by a member of the campus community. This will initiate a genuinely collective effort to determine how best to ensure the health and safety of the campus community at UC Davis.

Ariel Rubenstein to Young Would-Be Economics Professors


Remember that you are one of the most privileged people on earth. Society has given you a wonderful opportunity. You are supposed to do whatever you want, to think about new ideas, to express your views freely, to do things in the way that you choose and on top you will be rewarded nicely. These privileges should not be taken for granted. We are extremely lucky -- we owe something in return.

Mitt Romney's Lie

Outsourced to Kevin Drum:

Quote of the Day: Mitt Romney's Lie | Mother Jones: From Barack Obama, in Mitt Romney's latest ad:

If we keep talking about the economy, we're going to lose.

What Obama actually said, campaigning against John McCain on October 13, 2008:

His campaign actually said, and I quote, "if we keep talking about the economy, we're going to lose."

Just out of curiosity: How flat-out, knowingly false does something have to be before the press is willing to just call it a lie? We're about to find out!

Department of "Huh?!": She Says That Firewood Was So Expensive That Nobody Would Buy His When He Tried to Sell It?

Methinks Ursula K. LeGuin does not know what the phrase "firewood was so expensive" means. To say "firewood is expensive" is to say that if you have some to sell you can get a very good price for it...

Ursula K. LeGuin:

Ninety-Nine Weeks: A Fairy Tale: Once upon a time there was a poor woodcutter who lived with his wife and their daughter and son in a cottage at the edge of a forest. He loved his trade, and worked hard at it. But most of the land belonged to rich ogres, who kept the forests for their own use. Firewood was so expensive that ordinary people had begun to heat their houses with coal. The woodcutter went from door to door offering timber or firewood, but again and again he was turned away. His wife was lame and could not walk far, though she worked hard and well, keeping the kitchen garden and the house. The daughter and son went to the village school. Young Janet looked after the mayor’s wife’s babies every afternoon when school was out, and young Bob earned a penny here and there doing odd jobs. That bit of money the children could bring home was all the family had now, and every penny had to go for rent to their ogre landlord. They had no new clothes or shoes, and ate only from their garden. Their life had grown hard, and winter was coming on…

And I am not even going to get into U.K. LeGuin's implicit demand for the large-scale destruction of woodland ogre habitat...

Liveblogging World War II: November 22, 1941

Operation Crusader continues:

Saturday, November 22, 1941: At Sidi Rezegh, the British engage the German 21st Panzer Division and are forced to draw their 7th and 22nd Brigades away from Tobruk. In a separate action, the 4th Armoured Brigade engages the 15th Panzer Division and loses heavily. The New Zealand Division, part of British 13th Corps, is moved into position to aid the British. The losses have been high for the British and the Germans now have superior numbers of tanks (over 170) to the British (less than 150).

Robert Skidelsky: "The Wages of Economic Ignorance"

Robert Skidelsky:

The Wages of Economic Ignorance: Three years after the global economy’s near-collapse, the feeble recovery has already petered out in most developed countries…. Pundits decry a “double-dip” recession, but in some countries the first dip never ended: Greek GDP has been dipping for three years. When we ask politicians to explain these deplorable results, they reply in unison: “It’s not our fault.” Recovery, goes the refrain, has been “derailed” by the eurozone crisis. But this is to turn the matter on its head. The eurozone crisis did not derail recovery; it is the result of a lack of recovery. It is the natural, predictable, and (by many) predicted result of the main European countries’ deliberate policy of repressing aggregate demand. That policy was destined to produce a financial crisis, because it was bound to leave governments and banks with depleted assets and larger debts….

Depressions, recessions, contractions – call them what you will – occur because the private-sector spends less than it did previously. This means that its income falls, because spending by one firm or household is income for another. In this situation, government deficits rise naturally…. But if the government starts reducing its own deficit before private-sector spending recovers, the net result will be a further decline in total spending, and hence in total income, causing the government’s deficit to widen, rather than narrow….

That is the crazy logic of current economic policy in much of Europe (and elsewhere). Of course, it will not be carried through to the bitter end….

The best option of all is for the government to spend the money itself. Governments can do this consistently with a medium-term deficit-reduction plan by making a crucial distinction between their budgets’ current and capital accounts….

If nothing works, it will be time to sprinkle the country with what Milton Friedman called “helicopter money” – that is, put purchasing power directly into people’s pockets, by giving every household a spending voucher with an expiration date….

It would be better if such schemes could be agreed upon by all by G-20 countries, as was briefly the case in the coordinated stimulus of April 2009. If not, groups of countries should pursue them on their own…

Quote of the Day: November 22, 2011

"The reason you can do these things is that, essentially, you are a prediction machine, and you effortlessly and correctly predict almost every event that is about to occur in your life. Magicians understand at a deeply intuitive level that you alone create your experience of reality, and, like JOhnny, the exploit the fact that your brain does a staggering amount of outright confabulation in order to construct the mental simulation of reality known a "consciousness". This is not to say that objective reality isn't "out there"…. But all you get to experience is a simulation. The fact that consciousness feels like a solid, robust, fact rich transcription of reality is just one of the illusions your brain creates for itself…. The same neural machinery that interprets actual sensory inputs is also responsible for your dreams, delusions, and failings of memory. The real and the imagined share a physical source in your brain…"

--Stephen L. Macknik et al.: Sleights of Mind